17 February 2014, Lagos – KPMG Professional Services has warned that the discovery and exploration of Shale oil and gas across the globe will put Nigeria’s economy at serious risk, unless the country is able to churn out policies that will bring about increased investment in the oil and gas sector and ensure stable power supply.
Speaking at a forum in Lagos, weekend, Mr. Michiel Soeting, Global Head, Energy and Natural Resources Practices, KPMG, also disclosed that Nigeria’s ability to finance its budget will be greatly threatened, unless it puts in place measures that will grow its crude production capacity, diversify the economy, as well as build additional crude oil refineries, saying that these will significantly reduce the effect of Shale oil discovery on the country’s revenue.
According to him, Shale oil discovery has created a lot of opportunities for international oil companies, IOCs, and has brought about stiff competition among crude oil producing countries, noting also that oil producing countries will soon be in fierce competition with themselves to attract investments and market their crude.
He said Nigeria’s chances of attracting IOCs and investments in the petroleum sector will be limited, as the IOCs will increase their scrutiny of projects around capital expenditure levels, adding that Shale oil discovery and exploration will bring about a reduction in the capital expenditure levels of companies while giving them a wider variety of choices.
He further stated that the discovery will bring about an increase in crude supply in the international market, leading to a decrease in the price of both gas and crude oil.
He noted that since shale oil is almost the same specification with Nigeria’s Bonny Light, it will bring about stiff competition and reduce the demand for Nigeria’s crude.
Also speaking, Mr. Dimeji Salaudeen, Partner, Risk Consulting/Head, Africa Oil and Gas Sector, said with the advent of Shale, Nigeria will cease to be the major supplier of crude to the six largest economy of the world, adding that Nigeria’s ability to finance its expenditure as well as accumulate its foreign reserves will be greatly hampered.
He commended the Federal Government for its short term cushioning measure of finding new markets for the country’s crude, but he questioned the sustainability of this measure, saying that it has been recently proven that the new buyers also have huge quantity of shale oil and gas at their disposal and will soon begin exploration and production.
In his own view, Mr. Victor Onyenkpa, Partner and Head, Tax, Regulatory and People Services, KPMG, said with Shale discovery, Nigeria will have to look elsewhere to sell its crude, as many of its current customers will become energy producers.
He said if Nigeria’s policies are seen to be unfavorable, the IOCs will divest and move elsewhere, adding that with the Federal Government’s policy of handing the divested assets to indigenous oil companies and granting the companies a pioneer status and five year tax exemption, the country will be forfeiting a huge amount of revenue that is supposed to come from those taxes.
Onyenkpa maintained that for Nigeria to survive the threat and sustain its revenue, the country will have to shore up its crude oil and gas production capacity, so as to make up for the expected fall in the prices of the commodities in the international market.
He noted that Nigeria can only guarantee an increase in its production capacity if it is able to attract investors into the petroleum sector, adding that this can only be possible if the country’s fiscal terms are attractive to the potential investors.
He further stated that shale discovery has brought about the urgent need to diversify the economy, adding, however, that diversification of the economy will be very successful if the epileptic power situation is addressed.
He said, “Stable power supply is critical to the quest to diversify the Nigerian economy. If the country fixes power, business, especially micro, medium and small scale enterprises will do well and be in a position to contribute meaningfully to Nigeria’s economic growth and development.”
However, he noted that to guarantee stable power supply, Nigeria will have to ensure the availability of gas, especially for the use of power companies, by increasing the production of the commodity as well putting in place the necessary infrastructure for delivery of the product to the power plants.
Continuing, he said, “Building refineries will increase the sale of Nigeria’s crude oil products, both within and outside the country. We will be able to supply our African neighbours. If we do not move in fast and capture the African market, other countries will do it, and this will be disastrous for Nigeria.
“private investments will be required to get the country’s refineries to the level we want. That is why Aliko Dangote’s decision to invest in such huge refinery is a welcome development. If he succeeds, a lot more private investors will come on stream.”
– Michael Eboh, Vanguard