Diezani Alison-Madueke’s Petroleum Industry Bill Offers Hope for Nigeria’s Oil and Gas Industry
LAGOS, Nigeria, May 1, 2013 /PRNewswire/ –
The Petroleum Industry Bill aims to resolve some of the many issues that have affected
Africa’s largest oil producer and pave the way for future growth and investment. Growth in
Africa’s oil and gas industry has been accelerating in recent years. The continent’s total
production now accounts for around seven percent of world output. With the Gulf of
Guinea’s imminent deepwater activity, East Africa’s emergence as a crude oil producer and
the natural gas discoveries off the coasts of Tanzania and Mozambique, businesses,
investors and governments are gearing up for a hydrocarbon boom that will involve not just
large multinationals but smaller, indigenous firms as well. Even regions traditionally
regarded as inaccessible are knocking on the door – recent discoveries in Somalia for
example have resulted in an inward flow of much-needed investment.
Encouraging though these developments are for Africa’s smaller economies, these
nascent industries are dwarfed by the oil and gas sector of Nigeria. After more than 50
years of production, Nigeria – the tenth largest oil producer in the world – still has
proven reserves of 37bn barrels, three times that of its nearest rival Angola. Its natural
gas reserves are estimated to be in the region of 190tn cubic feet. The country produces
up to 2.5m barrels per day of the sweet, light crude that fetches the highest prices on
the world market.
But despite this untapped potential, Nigeria’s active international oil companies
(IOCs) have waited five years for a licensing round. Investment in new infrastructure and
growth in output have stagnated while the Federal Government and state administrations
debate what promises to be one of the boldest pieces of legislation in the sector’s
history: the Petroleum Industry Bill (PIB)
[http://www.nnpcgroup.com/PublicRelations/PetroleumIndustryBill.aspx ], drafted by the
Petroleum Minister Diezani Alison-Madueke
The PIB has several commendable aims. It seeks to introduce a new tax and royalty
regime to increase the government’s take and redistribute more of the spoils to ordinary
Nigerians. It aims to rationalise what is a notoriously cumbersome legal framework and to
clarify the fiscal terms on which a foreign player can acquire concessions from and
partner with the Nigerian National Petroleum Corporation (NNPC), [http://www.nnpcgroup.com
] the state-owned corporation that controls large stakes in the country’s major
operations. It contains provisions for putting an expanded share of production into the
hands of domestic firms. And it aims to improve the credibility of the NNPC, making it a
commercially viable, profit-driven entity with greater independence from the government.
The history of Nigeria’s oil industry dates back to the colonial era. Even before the
official consolidation in 1914 of the territory’s various states and ethnic groups, the
Nigerian Bitumen Company and British Colonial Petroleum were exploring the Okitipupa
region adjoining the Niger Delta. In 1938 the colonial administration granted the
state-sponsored Shell (then Shell D’Arcy) complete monopoly over the exploration of all
minerals and petroleum throughout the colony. Shell’s hegemony lasted until the late 1950s
when Mobil, Texaco and Gulf began to establish themselves. In 1956 Shell made the first
successful drill at Oloibiri in the Eastern Niger Delta. Nigeria’s first oil shipment
followed two years later.
Exploration and production by foreign firms continued to expand after independence in
1960, and by the end of the decade total production had reached two million barrels per
day. 1970 saw the first of the oil price hikes of the seventies, and in 1971 Nigeria
joined the Organisation of Petroleum Exporting Countries (OPEC). In 1977 the NNPC was
established to oversee the development of the growing sector. After a slump in production
figures during the eighties, the Joint Venture Operating Agreement (JOA) came into force
in 1991, making clear provisions for the respective stakes of investing companies and the
government. By 2004 several large majors including Royal Dutch Shell,
[http://www.shell.com ] Chevron, [http://www.chevron.com ] Exxon-Mobil
[http://www.exxonmobil.com/Corporate ], ENI, [http://www.eni.com/en_IT/home.html ]
ConocoPhillips [http://www.conocophillips.com/EN/Pages/index.aspx ] and Total
[http://www.uk.total.com ] were firmly established, and daily production hit a record
level of 2.5m barrels.
Oil now accounts for 40 percent of Nigeria’s GDP and yet the industry has faced
persistent criticism for not distributing the gains more widely. A sense that ordinary
people in the oil-producing regions have been left behind has led to periods of unrest,
and for decades successive governments have come under attack for squandering the wealth
at their disposal.
Compounding the issue, a chronic overreliance on upstream industry has hindered the
development of domestic refining capacity, with the result that Nigeria is forced to
import much of its fuel. Consumers have grown accustomed to being protected from this
fundamental imbalance by generous state subsidies. President Goodluck Jonathan’s recent
attempt to lift them was met with fierce opposition and had to be partially reversed.
The PIB offers hope of a solution to many of these problems, and while it has gone
through several iterations there are still many in the industry who remain upbeat about
its potential as the catalyst for a new era of investment. Fresh capital is surely needed.
Uncertainty about the tax regime and regulatory environment is blocking billions of
dollars’ worth of new exploration projects; the number of new wells being drilled each
year has been steadily dwindling since 2005. The US, Nigeria’s second largest trading
partner after India, is switching to its own supply of cheap shale oil.
More encouraging signs are appearing closer to home. Indigenous production accounts
for a mere five percent of Nigeria’s total output, but dynamic firms such as the
Lagos-based Seplat [http://www.seplatpetroleum.com ] and the pan-African Oando
[http://www.oandoplc.com ] are acquiring a growing number of concessions and are buying
assets from the large IOCs. Technology is steadily improving, promising greater access to
large offshore reserves.
Domestic operations are also on the rise in the downstream sector, where healthy
competition is transforming the business landscape. Earlier this month, Dangote
[http://www.dangote.com ] announced plans to invest $8bn in a new refinery with a capacity
of 400,000 barrels per day. If other refining projects go ahead as planned, experts
predict that Nigeria’s refining capacity could top 800,000 barrels per day by 2017,
meaning an end to the fiscal conundrum of expensive imports and an economy based on
But for now, the vast potential of Nigeria’s fossil fuel reserves remains unrealised.
The next licensing round, initially scheduled by Alison-Madueke for the first quarter of
this year, has been postponed while her legislation is debated. Until it is passed,
investors will simply watch and wait.
Source: African Business Review
SOURCE African Business Review