A Review of the Nigerian Energy Industry

Nigeria lost 2 oil rigs between July and August 2018

*The Organization of the Petroleum Exporting Countries, OPEC, headquarters in Vienna, Austria. REUTERS/Heinz-Peter Bader.

OpeOluwani Akintayo

16 September 2018, Sweetcrude, Lagos — Nigeria lost two oil rigs between the month of July and August 2018, data sourced from OPEC’s Monthly Oil Market Report, MOMR has said.

Worthy of note; statistics showed that the country’.s oil rigs had managed to grow to 35 just this year, compared to 30 recorded in 2015.

However, between July/August, the number fell back to 33.

In 2016, Nigeria recorded 25 rigs, 2017, 28, and then by third quarter last year, it dropped to 27 rigs.

By the fourth quarter of last year, it rose by 1 rig to 28, rising again to 32 by the second quarter of this year, and then 35 by July before sliding to 33 in August.

Crash in oil prices to below $30 per barrel which started in late 2014, had led to low investments in the oil sector, including investment in the drilling of new oil wells/rigs.

Oil companies had to cut down costs. However, rising oil prices earlier in the year, and the tightening of oil glut had boosted investors’ confidence in the market, leading to the gradual return of investments.

The loss of two oil rigs means lower revenue for an oil-dependent economy such as Nigeria.

The country’s Gross Domestic Products, GDP growth stood at 1.5% y-o-y in 2Q18, down from 2.0% y-o-y in 1Q18, according to the National Bureau of Statistics, NBS: gross value added in the agricultural sector slowed from 3.0% y-o-y in 1Q18 to 1.2% in 2Q18.

The industrial sector also witnessed slowing momentum, with value-addition growing by only 0.4% y-o-y in 2Q18, from 6.9% y-o-y growth in the previous quarter.

This was largely driven by the contraction in value added in mining and quarrying, which went from 14.9% y-o-y growth in 1Q18 to a 3.8% contraction in 2Q18. The services sector, however, showed a rebound from a 0.5% y-o-y contraction in 1Q18 to 2.1% growth in 2Q18.

In April, the International Monetary Fund, IMF in its World Economic Outlook, WEO, report, warned Nigeria and other oil-dependent countries of another possible crash of oil prices in the near future.

The Fund projected a 1.9 percent economic growth for Nigeria in 2019, adding that the country’s economy will grow from 0.8 percent in 2017 to 2.1 percent by the end of 2018.

IMF’s forecast of another crash in oil prices may as well be true especially with rising output from U.S shale oil producers.

OPEC’s MOMR for September said there was an unexpected 6.8 million barrels increase in US crude stocks during the second week of August and a recovery in Libyan crude production to just over 1 mb/d, up from 700 tb/d in July.

The rise in crude inventories was driven by a combination of higher imports and a 100 tb/d increase in US crude production to 10.9 mb/d, supported by further shale drilling.

Crude oil futures prices increased in the second week of August. On 11 September, ICE Brent stood at $79.06/b and NYMEX WTI at $69.25/b.

Barclays also forecasted drop in the price of international benchmark Brent in the second half of 2018.

However, The International Energy Agency, IEA in its newly released Oil Market Report, OMR, said “tightening of the oil market is on the way”

The tightening is expected to push oil prices to $80 per barrel this year, meaning more money for Nigeria despite the loss of two rigs.

Since the previous edition of the report, the price of Brent crude oil fell close to $70/bbl however, IEA says oil price “is now flirting with $80/bbl”, thanks to two factors: continuation of Venezuela’s production decline, and approaching of November 4th when the US sanctions against Iran’s oil exports will be implemented.

Although not openly recognised by OPEC and the IEA, obviously, loss of two oil rigs by Nigeria is also a major factor in the current tightening of a glut in the oil market.

Recent reports have also said there is low demand for Nigerian crude oil at the international market: the country is slowly recovering from various shut-ins due to force majeure at some major export pipelines. Its oil production attained just a little over 1700mbpd in August, according to statistics from OPEC.

In 2019, OPEC slightly lowered world oil demand growth by 20 tb/d from the previous month’s report, primarily as a result of economic revisions to Latin America and the Middle East. World oil demand growth is now anticipated at 1.41 mb/d and total global consumption at around 100.23 mb/d, which could impact negatively on the incomes of economies such as Nigeria.

Rig counts for the whole of OPEC members rose by 9 to 563 between July and August as against 554 recorded both in June and July.

Overall, world rig count increased by 27 to 2,360 from 2, 333 in July.

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