2023: Six Shifts, Greasy Leaps & Milestones
By Gideon Osaka
2003 ends with a catalogue of significant events. Particularly worthy of mention is the general election and inauguration of the administration of President Bola Ahmed Tinubu; a significant development that will continue to shape the oil and gas sector, going forward. Despite facing a myriad of challenges, the sector demonstrated resilience and adaptability, navigating through a complex global energy landscape. From policy shifts to operational milestones, the following features by our editor unpack the major developments that defined the country’s oil and gas industry in 2023.
Removal of fuel subsidy
On May 29, Bola Ahmed Tinubu was sworn in as President after clinching the February 25 presidential election. In his inaugural address as President, Tinubu announced that his administration would not continue to pay subsidy on petrol, given the high opportunity cost the past governments suffered to fund the subsidy scheme.
Fuel subsidy removal by the President indicated a promise kept as the policy was clearly Tinubu’s position during and after the electioneering campaigns where he hinted that, no matter how long people protest, it would not stop him from removing fuel subsidy.
Barely a few hours after Tinubu’s announcement, fuel queues resurfaced in Abuja, Lagos and major states. Valuechain reports that, though the policy did not go down well with some Nigerians, labour and trade unions as well as oil industry experts agreed that the removal of subsidy was a necessary step towards long-needed reforms and because of how fuel subsidy crowded out other development spending.
The negative impact of the removal has been tremendous as the price of fuel hovered between N600 to N650 per litre and this triggered an astronomical rise in the cost of goods and services throughout the year.
2023 marked a significant period for the industry with the continued implementation of the Petroleum Industry Act (PIA) 2021. The government made strides in translating the PIA into action, focusing on enhancing transparency, attracting investments, and creating a more competitive environment for stakeholders.
Inauguration of Dangote refinery
Former President, Muhammadu Buhari, on May 22 inaugurated the 650,000 barrels per day Dangote Petroleum Refinery in Ibeju-Lekki, Lagos. The refinery has been described as a significant milestone for Nigeria’s economy and a game changer for the downstream petroleum products market in the entire African region. Operating alongside a fertilizer plant and powered by a 435-megawatt power station, the $19 billion facility is one of the world’s biggest oil refineries and has a capacity of 650,000 barrels per day. At full capacity, at least 40% of the products from the refinery would be available for export, resulting in significant foreign exchange earnings for Nigeria.
On the modular side, three more modular refineries will start operation in the country by 2024 following advance work on them this year. The three modular refineries which are nearing completion are Azikel Refinery with support from AFREXIM Bank, Dupont Refinery in Edo State and the Atlantic Refinery Modular Refinery. This will add to one of the existing modular refineries in the country. The Waltersmith Modular Refinery has already started production. The refinery produced over 170 million litres or about 3,000 trucks of petroleum products this year alone, which would have been imported using scarce forex. Site works for the expansion of the refinery to 10,000 barrels per day (bpd) capacity began in September 2023 to further expand in-country refining.
Domestic refining boosted by Port Harcourt refinery
Nigeria’s efforts to address infrastructure deficiencies gained momentum in 2023. Investments were directed towards rehabilitating refineries, upgrading pipelines and improving downstream infrastructure. The rehabilitation of existing refineries to enhance the country’s refining capacity continued in the year 2023. In this vein, the Port Harcourt Refinery recommenced operation on December 21 after many years of underperformance and turnaround maintenance of the facility. The recommencement of operations at the refinery comes two years after the Federal Government approved funding of $1.5 billion (1.2 billion euros) for the repairs. It is hoped that the resumption of refinery activity in the facility and the commencement of a similar exercise at the Dangote Refinery will improve the supply of fuel in Africa’s largest oil producer and allow the country to make savings on refined fuel and other petroleum products.
With the removal of subsidy on fuel, the move is also expected to impact on the cost of the product.
Exploration in new frontiers and production expansion
Nigeria’s commitment to expanding its hydrocarbon reserves resulted in notable developments in exploration, contributing to the nation’s efforts to raise crude oil production to three million barrels per day (3mbpd) and oil reserves to 50 billion barrels in the next decade from current reserves level at 37.8 billion barrels. The Nigerian National Petroleum Company Limited (NNPC) also announced crude oil discoveries in a couple of frontier basins, exploring hydrocarbons.
On Tuesday, 28th March, former President Buhari officially flagged off the beginning of Oil Exploration in Nasarawa State, North Central Nigeria. Speaking at the flag-off of the Spud-in of Ebenyi-A Oil Well in Obi Local Government Area of the state, the former President noted that the government was determined to boost oil production capacity by moving into new frontiers. The drilling for oil in the Ebenyi-A well located in the Benue Trough “is in line of the ongoing campaign for the exploration of crude oil and gas in the nation’s frontier basins including the Chad Basin, Dahomey, Anambra, Calabar embankment, Sokoto Basin, Bida, Benue basin as well as ultra-deep offshore of the Niger Delta. The consequent positive outcomes of these drilling campaigns, according to the government will enhance overall energy security for the country.
During the year under review, Nigeria’s first deep-water exploration and production vessel, Bonga, hit a 1-billion-barrel oil export mark in February. The milestone came three months after major turnaround maintenance (TAM) of the facility was completed ahead of schedule. Bonga, a floating production, storage, and offloading (FPSO) vessel which began operations in 2005 is anchored 120 kilometres offshore in the Gulf of Guinea and has consistently delivered value in national revenue, local capacity development of Nigerian engineers and funding support to the service industry. Bonga can produce approximately 65,000 barrels of oil equivalent a day. In June, TotalEnergies announced it has discovered oil and gas in the Ntokon prospect in the OML 102 permit, 60 km offshore southeast Nigeria. The discovery “opens up promising prospects for a new connection development,” according to Nicolas Terraz, President of Exploration & Production with TotalEnergies.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has assured that the prospects for oil and gas production in the coming year look good for a revival, especially in the deepwater area, following the introduction of domestic reforms this year to improve the country’s business environment and promote exploration. Projects likely to be sanctioned in the near term include TotalEnergies’ offshore Preowei Phase I development (65,000 barrels per day-bbl/d), expected to start up in 2026; Shell’s Bonga North in 2027 (120,000 bbl/d); and ExxonMobil’s Owowo and Bosi oil (2029 and 2030).
In terms of production during the year under review, the nation’s oil output recorded huge rise by over 40 percent in the third quarter of 2023 from the low base of one million barrels per day (mbpd) last year to 1.45 mbpd. Consequently, when condensate (which Nigeria can produce between 300,000 bpd and 400,000 bpd) is considered, the nation’s total output would be more than 1.6 million bpd.
Gas expansion & monetization
As the push towards energy transition intensifies, Nigeria continued to deepen efforts in gas monetization, emphasizing the importance of gas as its transition fuel. Initiatives to increase domestic consumption (such as the promotion of compressed natural gas (CNG) and the development of gas-to-power projects), expand LNG exports, and develop gas-to-power projects gained momentum during the year. Additionally, the country explored opportunities in renewable energy, aligning with global trends towards sustainable practices.
In November, the Federal Government officially commissioned a pilot conversion centre in Abuja for vehicles that will run on compressed natural gas. According to the government, the centre will boost the CNG initiative of the government and mitigate the effect of subsidy removal on petrol by reducing transportation costs. Also, to fast-track the adoption of CNG and expand CNG infrastructure in Nigeria, NIPCO Gas recently announced the commissioning of a CNG Mother facility at Oron, Akwa Ibom state. The facility, which will support CNG supplies to the Daughter/Daughter Booster CNG Stations in the South-South parts of the country, will also benefit the industrial landscape by providing CNG for industrial usage. During the year under review, NIPCO Gas supported energy transition through the conversion workshops located in other regions of the country: Ibafo, Abuja and Benin, wherein PMS vehicles are being converted. Similar CNG vehicles pilot conversion centre was also inaugurated in Lagos State in October, by the Presidential CNG Initiative (P-CNGi). The facility is situated at KM 42, Lekki-Epe. More than 1,000 of such centres are planned nationwide in the next few years, with 55,000 conversions planned under the Palliative Program which has kicked off.
Massive oil theft and operational disruptions
Persistent security challenges in the Niger Delta region posed significant threat to the industry’s operations. Incidents of pipeline vandalism, oil theft and community unrest underscored the need for comprehensive strategies to address security issues and protect both personnel and assets. Efforts to address these security issues remained a constant focus for both the government and industry stakeholders.
In the year under review, the country witnessed rampant theft of crude oil and refined products worth billions of dollars, despite intense crackdown on oil thieves by the Nigerian authorities. To underscore the scale of theft, the Nigerian Upstream Petroleum Regulatory Commission said N365 billion worth of crude oil was stolen between March and April 2023. In June, the state oil company, NNPC reported gaining N674 billion in profits and admitted losing $150 million every two days to oil theft. Theft was also rampant in the downstream sector where pipeline vandals plundered refined petroleum products, frustrating distribution.
Market Volatility, inflationary challenges
The industry grappled with the inherent volatility of the global oil and gas market. Fluctuating prices, geopolitical tensions, and shifting consumer preferences influenced Nigeria’s economic stability, highlighting the imperative for diversification and adaptability in the face of market uncertainties.
Inflation is another critical trend that impacted the oil and gas industry. Despite tightening supplies, oil demand surpassed previous levels, resulting in an investment rebound in the upstream sector. However, rising operational costs due to inflation remained a significant concern. Nigeria’s oil and gas industry, like its global counterparts, grappled with increased operational costs due to inflation. This trend led to narrower profit margins and posed significant challenges for the industry.
Other landmark events of 2023 worthy of mention were the twin groundbreaking ceremonies of the Oloibiri Museum and Research Centre (OMRC) at Otuabagi in Ogbia Local Government Area and the NCDMB Conference Hotel Project (CHP) at Swali, Yenagoa, Bayelsa State, performed on February 22, 2023 by immediate past President Muhammadu Buhari. The Oloibiri Museum and Research project would correct a historical oversight through the befitting monument at the exact ground where commercial quantities of oil were first discovered in Nigeria and production began in 1957. In March, the Nigerian Content Development and Monitoring Board (NCDMB) and the Bank of Industry (BoI) introduced a $50 million fund that will incentivize companies that will operate in the Nigerian Oil and Gas Parks (NOGaPS) and catalyse manufacturing of equipment components. The NOGaPs Fund is expected to provide loans to Nigerian companies that meet the criteria to operate in any of the designated NOGaPS industrial park for the purpose of financing manufacturing activities, purchase of fixed assets, working capitals and logistic. Beneficiaries will get a maximum single obligor of $3million and minimum of single obligor of $250,000 with one year moratorium repayable within five years, at five percent interest per annum.
As Nigeria’s oil and gas industry navigated the complexities of 2023, the year proved to be a transformative period characterized by both challenges and successes. The implementation of the PIA, achievements in exploration and production, advancements in gas monetization, and the ongoing battle against security threats collectively shaped the industry’s narrative. With lessons learned from the challenges faced, the industry is poised to continue its evolution, contributing to economic growth, energy security and environmental stewardship in the years to come.
