29 December 2016, Lagos – As the year draws to a close, the nation’s oil and gas industry is worse off despite the rally in global crude prices, ’FEMI ASU writes
While global oil benchmark price has risen by over 100 per cent since it hit 13-year lows of below $28 per barrel in January, Nigeria’s oil sector has taken a turn for the worse.
Global oil benchmark, Brent crude, traded around $56 per barrel on Wednesday.
In the past few years, a number of projects had been suspended by International Oil Companies because of the regulatory uncertainty occasioned by the delay in the passage of the Petroleum Industry Bill.
The oil price slump, which began in mid-2014, also exacerbated the situation as oil companies slashed capital budgets and workforce, a development that was worsened by the growing security challenge and production disruptions in the country.
According to the United States Energy Information Administration, Nigeria’s crude oil production, which peaked at 2.44 million barrels per day in 2005, fell to 1.9 million bpd last year. It began to decline significantly soon after as violence from militant groups surged, forcing many companies to withdraw their workers and shut in production.
The nation’s crude oil production fell to as low as 1.3 million bpd in May, according to the Ministry of Petroleum Resources.
For instance, the Forcados export terminal was attacked in mid-February, and Shell Petroleum Development Company, the operator of the facility, declared force majeure on the export of the crude oil grade.
The force majeure, a legal clause that allows it to stop shipments without breaching contracts, came a week after the Forcados export line was attacked. It has yet to be lifted as of the time of filing this report.
According to the Nigerian National Petroleum Corporation, at Forcados terminal alone, about 300,000 barrels of oil per day have been shut in since February following the force majeure declared by the SPDC.
“A number of crude oil lifting has been deferred until the repair is completed. Other major terminals affected by the renewed spate of vandalism include Bonny, Usan, Qua Ibo, and the recently attacked Nembe Creek trunk line,” the NNPC said in its latest monthly report.
Gas production from Joint Venture assets and the Nigerian Petroleum Development Company dropped by 40.9 billion standard cubic feet in July as attacks were mostly targeted at onshore and shallow water assets.
Data from the NNPC showed that 139.58 billion scf and 17.70 billion scf were produced from the JV assets and the NPDC assets, respectively in July, down from 173.8 billion scf and 24.4 billion scf in January.
In February, when the Forcados export terminal was shut down following an attack on a subsea export pipeline, total gas production from the JV and NPDC assets saw a decline of 15.85 billion scf over the previous month.
A partner and chair of the Energy and Natural Resources Practice Group at Bloomfield Law Practice, Mr. Ayodele Oni, said, “We need to have a more robust energy mix. We have said it several times. States such as Kaduna, Lagos and even Abuja should promote solar power. There is so much renewable energy potential in Nigeria.
“We can also have embedded power plants. These are power plants closer to the load centres and they can also use alternative sources of energy like solar and wind instead of gas.”
The Petroleum Club recently stated that production disruption had led to substantially reduced activity level in the oil and gas industry.
It said, “Fifty to 80 per cent of traditional onshore/shallow water oil production, which yields the highest government revenue per barrel, has been shut down over the past half year.
It said, “This in turn has had a knock-on effect on contractors, service providers, banks and business partners, resulting in severe job losses and an indefinite freeze on further job creation possibilities.”
The group said the current crisis in the Niger Delta must be quickly arrested through a carefully developed combination of engagements, dialogue, disarmament and ultimate restoration of law and order in the region.
The NNPC said the cumulative production capacity deferred due to shut in amounted to 1.15 million bpd, adding, “Onshore and shallow water assets, where government stake is high, remain targets of the militants. Hence, securing onshore and shallow water locations remains a priority to restore production.”
It said the Niger Delta Greenland Justice Mandate recently attacked the NPDC’s 32-inch pipeline crude oil delivery line at Effurun-Otor Ughelli South Council Area of Delta State to thwart the ongoing reconciliation between the FG and Niger Delta community.
“The Federal Government is planning to establish a specialised petroleum force, comprising coastal patrol teams, Niger Delta subsidiary police, and other paramilitary set-ups to ensure zero vandalism in 2017,” the corporation said.
Former group managing directors of the NNPC had at the end of a meeting with the current GMD of the corporation, Dr. Maikanti Baru, and the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said the attacks were putting the nation’s oil industry at risk of total collapse.
“If the current situation remains unchecked, it could lead to the crippling of the corporation and the nation’s oil and gas sector, the mainstay of the Nigerian economy,” they said.
The recent upsurge in militant attacks on oil and gas facilities in the Niger Delta, the source of fuel for about 70 per cent of the nation’s power plants, also affected power generation in the country.
The country generates most of its electricity from gas-fired power plants, while output from hydro-power plants makes up about 30 per cent of total generation.
But the nation’s electricity woes worsened this year on the back of incessant damage to oil and gas pipelines, with industry experts stressing the need for the government to diversify the generation mix.
On February 2, the nation had achieved its peak generation of 5,074.70 megawatts. But the attendant improvement in supply was short-lived as generation dropped below the 4,000MW mark later that month. It plunged to a low of 1,400MW on May 17, according to the Transmission Company of Nigeria.
The NNPC also said over 1,500MW of power supply was lost to the attack on Forcados, which is Nigeria’s major artery, with gas supply from it accounting for 40 per cent to 50 per cent of gas production in the country.