Investment in Oil and Gas Falls
The landscape of Nigeria’s oil and gas industry has witnessed a significant transformation over the past seven years. Investment in this vital sector has plummeted by a staggering 77.3%, dwindling from a substantial $22 billion in 2014 to a mere $5 billion in 2021. This seismic shift can be primarily attributed to increased divestment by International Oil Companies (IOCs). The decline in investment is further exacerbated by the reluctance of companies, aside from a select few independent entities, to venture into the industry.
In this article, we will delve deep into the dynamics of this transformation, the implications it holds for Nigeria’s economy, and the ongoing changes in the global oil market. We will also explore the potential solutions and opportunities that lie ahead in ensuring the continued prosperity of Nigeria’s oil and gas sector.
The Current State of the Industry
The Chairman and Chief Executive of AA Holdings Limited, Dr. Austin Avuru, recently presented industry data that underscores the challenges faced by the Nigerian oil and gas industry. Despite the glamour associated with the energy transition, the nation still heavily relies on oil and gas for its revenue.
The declining investment in the industry is a matter of grave concern, as it impedes growth, innovation, and economic development. In the midst of the global shift towards cleaner and more sustainable energy sources, Nigeria’s oil and gas sector must find ways to adapt and thrive.
Bonny Light Crude Oil Prices
One of the critical aspects of Nigeria’s oil and gas sector is the price of its major export, Bonny Light crude oil. In September 2023, the price of Bonny Light increased by 4% year-on-year, reaching $95 per barrel, up from $91.16 per barrel in the corresponding period of 2022.
However, the picture is not all rosy when we examine month-on-month fluctuations. In early October 2023, the price of Bonny Light crude oil dipped by 8.4%, falling to $87.06 per barrel from $95 per barrel in September 2023. The exact reasons for this market trend were not provided by the Organization of Petroleum Exporting Countries (OPEC), which released this information in its Monthly Oil Market Reports (MOMRs). Yet, it is evident that increased market volatility, driven by supply and demand dynamics, as well as speculation, plays a significant role.
Divestment Hinders Investment
The increasing divestment by IOCs is a cause for concern and is one of the key reasons behind the substantial decline in investment. Dr. Austin Avuru, in a keynote address at the pre-conference workshop of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos, emphasized that IOCs are departing from the sector and reducing their investments.
“The IOCs are not hiring and investing as much as they used to invest in the oil and gas industry,” he stated. “It is only a few independents that are still investing.”
To put the situation into perspective, Nigeria’s oil and gas reserves have remained stagnant for an extended period, with over 30 billion barrels of oil and 203 trillion cubic feet of gas. To unlock the nation’s energy potential and boost its economy, significant investment is required.
Dr. Avuru stressed the urgency of the matter, stating, “We need to increase investment to reach the goal of 40 billion barrels of reserves and 600 trillion standard cubic feet of gas in the coming years. This would necessitate the deployment of many rigs, considering that we currently have only 45 rigs in operation.”
Furthermore, he added, “We need to invest between $120 billion and $125 billion yearly over the next five years to catch up. Significant infrastructure development is required not only in the upstream sector but also in the midstream and downstream sectors.”
The Need for Decarbonization
In addition to divestment, another significant factor affecting the oil and gas industry is the global drive towards decarbonization. Roger Brown, the Chief Executive Officer of Seplat Energy, highlighted this shift in investment priorities.
“Energy companies worldwide are intensifying their efforts to transition towards cleaner and more sustainable energy sources,” Brown emphasized. “The urgent need to decarbonize energy will reduce the demand for fossil fuels as countries strive to achieve net-zero emissions and meet essential climate targets.”
Nigeria is a signatory to the Paris Agreement and passed the Climate Change Bill in November 2021. Consequently, the nation is under increasing pressure to align with global climate goals. While the pace of change towards cleaner energy is somewhat gradual, the shift is undeniable.
Despite the pursuit of energy transition, it is essential to acknowledge that Nigeria and other African nations still require energy to drive development across various sectors. Brown stressed, “We need to focus on enabling the entire value chain, from well exploration to payment systems. This involves creating resilient and efficient power grids and establishing an attractive regulatory and pricing regime to encourage investment and innovation throughout the value chain.”
Furthermore, Brown highlighted the role of natural gas as a transitional fuel. It can serve as a bridge between fossil fuels and cleaner energy sources, providing a crucial energy source during the transition period.
In conclusion, the challenges facing Nigeria’s oil and gas industry are multifaceted, but they also present opportunities for growth and transformation. As the world moves towards cleaner energy sources, the nation must adapt and find innovative ways to remain a significant player in the global energy market.
The Path Forward
To overcome these challenges and revitalize the oil and gas sector, several key actions are necessary:
1. Encourage Investment
The government and industry stakeholders must work together to create an environment that encourages both local and international investment. Policies, regulations, and incentives should be designed to attract funding and promote innovation.
2. Diversify the Energy Mix
While oil and gas will continue to play a pivotal role in Nigeria’s energy landscape, diversification is crucial. Developing renewable energy sources and expanding the use of natural gas will help meet the demands of a changing world.
3. Infrastructure Development
Investing in infrastructure is essential to support the entire energy value chain. This includes expanding and modernizing the oil and gas infrastructure while building a robust network for renewable energy sources.
4. Environmental Responsibility
Nigeria must align with global environmental standards, embracing cleaner technologies and practices. This not only supports decarbonization efforts but also enhances the nation’s reputation on the global stage.
The challenges and opportunities facing Nigeria’s oil and gas sector are intertwined with the evolving global energy landscape. While divestment and the push for cleaner energy sources pose challenges, they also present opportunities for growth and innovation.
Nigeria must adapt, invest, and diversify to ensure its continued prominence in the global energy market. The journey ahead is complex, but with the right strategies and collaborative efforts, the nation can navigate these challenges and secure a sustainable and prosperous energy future.