Multifold challenges of Nigeria’s petroleum industry

*Dr. Emmanuel Ibe Kachikwu, Nigeria's minister of state for petroleum resources.

*Dr. Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources.

Kunle Kalejaye

24 September 2016, Sweetcrude, Lagos —
“If you see me days ahead deep in thoughts, please do not think it is an age induce ailment, it is simply the worries and weariness of the industry. If you see me check my head over and above all the time, it is not Parkinson disease, it is a sign of exasperation. If you see me seemly unsmiling and unfriendly believe me nothing like that it is the fact that my face increasingly has no space for a smile. If you see me talk blurt like some people say I do sometimes it is not arrogance,” Minister of State for Petroleum Resources, Dr. Ibe Kachikwu

Unquestionably, the challenges bedevilling Nigeria’s oil and gas industry are having a severe effect not just on the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu but by extension the Federal Government, its foreign exchange earnings and Nigerians at large.

Dr. Kachikwu who made the above remarks at the 2016 conference of the National Association of Energy Correspondent, NAEC held in Lagos said the challenges in the industry are enormous ranging from drop in crude oil price in the international market to low funding of Joint Venture projects, militancy in the Niger Delta region, lack of access to foreign exchange to import refined petroleum products by downstream operators, and lots more.

Managing Director, Cowry Assets Management Company, Mr. Johnson Chukwu told Sweetcrude Reports in an interview said one of the major challenges in the upstream sector is Niger Delta militant crisis which has cut the country’s production from 2.2 million barrels per day to 1.1 million barrels per day.

He added that the drop in crude oil price in the international market is another factor noting that it is serving as a disincentive for investment in exploration and production.

“The other challenge in the upstream sector is the absence of clear fiscal policy particularly the inability of the government to have the Petroleum Industry Bill, PIB passed into law,” Chukwu said.

Commenting on the midstream, which is largely dependent on activities in the upstream, Mr Chukwu said lots of the oil servicing companies are not having enough contract to sustained their operation, a reason given that oil drilling exploration companies are reviewing downwards the contract prices because the current oil price cannot sustain previous ones.

“Again because production has slowed down due to an increased militancy, the demands for the services of the oil servicing companies have reduced. So you will find out that operators in that sector are also struggling,” he said.

Chief Executive Officer, Oilflows Services Nigeria and Vice President, South-South Chamber of Commerce, Mr. Lucky Akhiwu added that there are not enough infrastructures to push investment in the oil and gas industry. This according to him is a big challenge.
In addition to limited infrastructure to drive investment in the industry, Akhiwu said that there are not Joint Ventures, JV in gas noting that it is practically difficult for International Oil Companies, IOCs to make any investment in gas.

Stating the reason why there are JV investments in gas, the Oilflows CEO said it is due largely to the long contracting circle in the country.

“Some contracts can take three years and that is not good for our economy in oil and gas,” he said.

Commenting on the challenges in the downstream sector, Cowry CEO said it is struggling like its upstream and downstream counterpart due to lack of access to foreign exchange by operators.
“Remember it is a sector that mainly deals with importation and distribution of refined petroleum product. Today very few operators are bringing in Premium Motor Spirit, PMS, a lot of them depend on the supply of PMS from Pipelines and Products Marketing Company, PPMC because they are finding it difficult to access foreign exchange despite the assumed preferential treatment that they are meant to enjoy from their allocation.

“Because the current template on which the price of PMS was determined is N280 to a dollar, today the interbank rate is about N310 to a dollar. That is at best making it difficult for them to make the profit at the current interbank rate and it will be impossible for them to meet the demand of the people. Don’t forget that operators in the sector are owned some reimbursement base on the supplies they have made in the past when the exchange rate was N197 to the dollar but they got FX at the rate of N282 to the dollar. The shortfall has created a huge gap in their balance sheet.

“So the challenges that we have is multifold with each market segment facing its own peculiar challenges,” Mr. Johnson Chukwu said.

The stimulus that will be required to reverse the contraction in the oil and gas industry, according to Cowry CEO is not going to come from budgetary disbursement by the Federal Government but expedite action to resolve militancy crisis in Niger Delta, pass the PIB and implement the Gas Master Plan.

CEO of Oilflows Services Nigeria Mr. Lucky Akhiwu said military option is not the best to address militancy issue in the region adding that “I think government need to come to the table quickly to resolve this issue so that the 2017 budget does not tamper and if they want to go by their indices in achieving three million barrels per day.”

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