Nigerian Gov't Loses $350bn In Oil Industry Investments

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Failure by  Nigeria’s leadership to undertake needed critical reforms in the oil sector, which has seen production stagnate at  two million barrels per day (b/d) since the 2008 oil price peak, has caused the nation about $350 billion in deferred or cancelled proposed investments into the sector.
 
The Petroleum Industry Bill (PIB), which aims to increase Nigeria’s share of profit from oil pumped off its shores, has been stalled in parliament since 2008. Nigeria’s two oil ministers spanning the 2008 – 2015 period: Rilwanu Lukman and Diezani Alison Madueke, failed to pass the PIB, and move ahead with reforms of the gas sector despite repeated assurances.
 
Estimates of losses to the country for the seven year period include reserves decline, annual JV cash call gaps, capital expenditure proposal versus actual tax revenue loss due to low activity, planned but undone final investment decisions (FIDs), and cost of capital on project delays.
 
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“Taken together, the losses would amount to about $50 billion a year, and that does not include the wastage due to downstream subsidy arbitrage,” an oil industry source said on condition of anonymity because he was not allowed to speak publicly.
 
The failure to reform Nigeria’s oil and gas sector and attract investments to it is in sharp contrast to other oil countries with more difficult operating environments.
 
For instance, Iraq has grown its oil production by 67 percent, from 2008 to date, despite security threats resulting from the American invasion and ongoing insurgency by ISIs militants. Its crude oil production averaged almost 3.4 million barrels per day (bbl/d) in 2014 up from 2.3 million bpd in 2008, according to data from the EIA.
 
“Iraq was the second-leading contributor to global oil supply growth in 2014, behind the United States, and accounted for almost 60 percent of production growth among the Organisation of Petroleum Exporting Countries (OPEC),” U.S Energy Information Administration (EIA) analyst Asmeret Asghedom, said in a February 9th country report.
 
Interestingly, Angola could rival Nigeria as Africa’s largest oil producer by 2016 as it moves ahead on major deep offshore projects.
 
Eni plans to start production on Block 15-06’s in Angola’s West Hub fields, estimated to hold reserves of 200 million barrels, and boost flows to 80,000 barrels a day. It is one of eight offshore projects Angola is counting on to help raise production to two million barrels a day from about 1.66 million presently.
 
The problem of diminishing exports and a rising fiscal burden on the Nigerian economy, including oil theft is compounding the situation in Nigeria. Experts estimated that the loss to oil theft is in the range of 100-200kb/d.
 
Shell’s former CEO, Peter Voser, mentioned in 2013 that the company had “seen a marked escalation in security problems and theft in Nigeria in 2013,” which could lead to a loss of “$12bn for the Nigerian government on an annualised basis.”
 
Nigeria has shared the top spot globally with Russia in burning associated gas, with various estimates pointing to over 15bcm of gas flaring per year, as its gas master plan launched in 2010 failed to raise production significantly, even as industrial demand soared.
 
Nigerian oil production would fall below 1 million barrels a day by 2035, if current trends persist, according to data from Wood Mackenzie.
 
Data from the Department of Petroleum Resources (DPR) show that the reserves replacement ratio is currently at 70 percent due to lack of investment in exploration.
 
Nigeria’s oil sector grew by only 1.18 percent in the fourth quarter of 2014, compared with the 6.44 percent growth recorded by the non-oil sector, according to data from the bureau of statistics.
 
Since Nigeria failed to attract meaningful investment to the sector when oil prices averaged $100 per barrel, it may find it hard to attract investments now, even if progress is made on reforms as the recent fall in oil prices to $50 and global supply glut pressure oil companies to curtail investment to protect profits.
 
“The past couple of years have been a wasted opportunity,” said another oil industry source. “Simple things like the renewal of licences and getting NNPC and the oil majors to work together on huge gas finds were left undone,” he added.
 
Source: BusinessDay
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