09 October 2016, Lagos — Like a double whammy, Nigeria, which is faced with a troubled economy already in recession, now has to contend with the challenges of fast-depleting crude oil reserves.
Last week, the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Dr. Maikanti Baru, disclosed that Nigeria could be facing more economic challenges with the steady decline of her crude oil reserves.
Baru, who said in Abuja that Nigeria would need to produce up to 15 billion cubic feet per day (bcf) of gas to ensure that her national goal of turning her economy into a fully industrialised one by 2020 is realised, also stated that, so far, there has been no addition to the country’s oil reserves.
He said for Nigeria’s goals in the sector to happen, and also become sustainable, the country would have to increase its oil and gas reserves as its current reserves will only take it for 35 more years.
Stating that the reserves are fast depleting, Baru explained when the Nigerian Association of Petroleum Explorationists (NAPE) hosted him to a dinner in Abuja that the NNPC would be ready to partner stakeholders in the country’s oil and gas industry to grow the nation’s oil reserves and increase its productivity.
He equally tasked NAPE and other stakeholders in the sector to focus on increasing the reserves to match Nigeria’s aspirations to increase its oil production to 4 million barrels per day (mbpd) by 2020.
“Our national gas demand forecast to year 2020 (domestic plus export) indicates a rapid growth to 15bscfd meaning current reserves level can only sustain that production for 35 years if we do not increase the 2bscfd gas reserves base, which requires 3tcf to replace production yearly,” said Baru.
He added that the 2016 national average oil production of 1.9mbpd was low partly due to oil infrastructure vandalism, and stressed the need for stakeholders to share data and use common available resources to reduce cost of operations in the area of rig-sharing, vessel sharing and synergy in projects development.
According to him, this has become even expedient in this current period of low oil prices and security challenges in the country’s oil fields across the Niger Delta region.
He said less than three per cent of all wells drilled in the Niger Delta Basin both onshore and swamp are deeper than 15,000 feet, adding that a greater number of these wells have not gone beyond 10,000 feet as a high pressure regimes seems to be a limiting factor.
The NNPC boss said NNPC would look to frontier exploration where it claimed to have made progress in its exploration efforts in the Chad Basin, Benue trough and the other frontier basins to shore up the reserve base of the country.
“Some of our earlier drilled non-commercial holes could be turned around if we deploy requisite technologies. We need to change our perspective of risk as technology is advancing,” added Baru.
What this really means
But speaking with THISDAY, oil industry experts explained the development means Nigeria’s oil production capacity was gradually waning and could continue on this path because of the lack of reforms in the sector.
One of the experts, who spoke on condition of anonymity stated that the longer the government takes to undertake needed reform in the country’s oil sector, the more the country’s reserves will decline because investments in new discoveries will be limited.
Another expert, Dr. Tim Okon, who is a chief executive officer at the Abuja-based International Institute for Petroleum, Energy Law and Policy (IIPELP), said the development was consistent with the fact that Nigeria was not replacing the reserves it produced from her existing oil fields.
“If you are producing 2 million barrels per day (mbpd) of oil, multiply that by the number of days you produce in a year, may be 330 days and that gives about 700 million barrels every year. Now if you don’t replace those reserves, your reserves will come down every year by that number,” said Okon.
He further stated: “If you have 35 billion barrels in reserves, every year, it reduces by that amount and if you are not discovering or developing new reserves, it will deplete and so the GMD was basically referring to the lack of new discoveries which would now replace the reserves that you have produced.
“This is consistent with the fact that if you want to continue to produce at the rate you are producing, then you really need to replace the reserves that you have produced and I just used that illustration of 2mbpd which you will then need to replace those reserves you have produced.”
Okon noted that: “In order to replace that, you have to make new discoveries and what he is saying is that in the current tax constrained environment, the money you have, you will tend to want to use them to produce and not to go and find new discoveries you cannot develop because you don’t have the money to develop.”
Reforms critically needed
When asked what options Nigeria has to overcome this, the experts said reforming the oil sector to allow for healthier business practices will be the best alternative for Nigeria. They explained the reforms proposed in the Petroleum Industry Bill (PIB) would be good, adding that the government had to take a passive stance in the business end of the industry.
“Underpinning this rationale I just described to you is the need to have reforms and much of this is the government’s ability to fund when oil price has collapsed and because of competing needs. There is not enough money to actually fund those activities,” said Okon.
He added: “The private sector can raise that finance, there are issues around raising capital by the state and that represents a significant challenge that need to be resolved, if not, we will not be able to replace those reserves.”
Okon stated that, “There is also the concept of the Reserves Production Ratio which right now is about 42 years, but it could go down if we don’t replace the reserves. When production is continuing but reserves are not being replaced, it will deplete and the RP ratio will come down and our production capacity will come down.”
He noted that Nigeria had not made any significant new discoveries lately, pointing out that, “It simply means we have depleted the reserves by the amount produced.”
“I think the urgent reform is really with the role the state plays as an investor in the industry because it needs to be able to find capital to fund its own share of production. One of the key aspects of the reform programme is really to allow for private sector or others to participate in the industry and the state can focus on the collection of royalties and taxes rather than be an investor when you cannot meet up your obligations to the industry.
“Alternatively, create institutions that can actually go out and borrow money and do business. So, reform the structure of the organistions you are setting up so that they can compete with the IOCs and raise capital and do business like them,” said Okon.