The oil and gas sector has long been the major revenue earner for Nigeria, accounting for over 80 per cent of total government revenue. Fred Ojiegbe analyses what the year 2022 holds for the sector
The Federal Government has admitted that although the oil and gas sector remains mainstay of the country in terms of revenue, it is devising means of drifting from the sector to other sectors. As such, in the 2022 budget, it has hinged the country’s budget on the National Development Plan (NDP) which has been launched in earnest.
The NDP has a total investment of N343 trillion, with over 80 per cent of investment coming from the private sector. These investments, according to the Federal Government, will be in different sectors of the economy aside from the oil and gas sector.
Consequently, at a public presentation of the 2022 budget, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, stated that the non-oil revenue growth showed Nigeria’s resilience in recovery from recession and from the pandemic, which brought challenges to global economies. She also stated that the FG implemented monetary efforts to the private sector to stimulate growth, and is committed to further growth in the economy.
“Nigeria was quickly able to exit recession and is on her path of sustainable growth and we are intensifying efforts to grow and diversify our revenue sources to move up revenue from the current 8%.
“Our non-oil revenues have grown to N1.15 trillion, representing 15.7% above set target. Also, the recent approval of the medium-term national development plan is an important milestone of Buhari’s commitment to delivering sustainable growth and we require strong support and monitoring during implementation,” she said.
In the 2022 budget, the National Assembly approved oil price assumption to be $57 per barrel and retained the oil production target of 1.88 million bpd, including condensate production of between 300,000-400,000 bpd, for the purpose of its revenue calculation in 2022. This is higher than the output target of 1.86 million pbd that the government had set for the 2021 fiscal year.
Oil exports account for around 80% of Nigeria’s foreign exchange revenue. Nigeria has, however, battled with a sharp drop in revenue amid drop in production. Nigeria has the capacity to pump around 2.2 million bpd of crude and condensate, but in recent months, its output has been languishing below 1.55 million bpd. The country’s crude oil production averaged 1.42 million bpd in November 2021, according to an OPEC survey.
Meanwhile, in a report tagged “Nigerian Oil and Gas Sector Outlook 2022,” CardinalStone Research says it expects the oil and gas sector to leap forward in 2022, aided by progress across the upstream, midstream, and downstream sub-sectors. In the upstream, oil production is likely to be positively impacted by increased drilling activities and sturdy oil prices. It also predicted that oil prices may hit $100 per barrel, considering the current global outlook.
Part of the report reads: “Refinery projects are also slated to reach key milestones in the midstream, headlined by the expected launch of Dangote Refinery in mid-2022. Elsewhere, the likely deadline extension of PMS price regulation could keep margins mostly flat for downstream marketers. Thus, players in unregulated petroleum product markets are likely to remain clear winners.”
The report also quotes IEA as saying “US supply could be boosted by the 50 million barrels of crude oil released from the Strategic Petroleum Reserve (SPR) to drive prices lower. This move will effectively add 416,007 bpd monthly between January and April 2022. The supply addition will also be higher than the 400,000 bpd monthly output easing planned by OPEC+ for the same period.
“The downside to current oil prices may also be limited in the near term, primarily because a large part of the current demand pressures could extend into 2022. The view on sustained demand is strengthened by news that the Omicron variant is not as deadly as first feared and the increasing switch to diesel due to global LNG shortages. There are also talks that OPEC+ may backtrack from its current easing schedule in the wake of the US’s plan to release oil from its crude reserves. Overall, we expect growth in global supply to outpace the rise in oil consumption, leading to a moderation in Brent prices to an annual average of $70 per barrel in 2022. Our base case is mostly aligned with EIA’s $71per barrel forecast,” it further explained.
In the area of domestic production, CardinalStone Research said that “Nigeria’s crude oil production will gradually recover from the setbacks experienced in the first nine months of 2021, reaching 2022 average production, including condensates, of 1.72 mbpd (+4.9%).
“Domestic oil output has notably been hit by several production challenges ranging from power failure on several terminals, pipeline downtime due to vandalism and prolonged repairs, as well as industrial actions over non-payment of salaries.”
In Shell’s last annual report, its management highlighted domestic security issues affecting the safety of its people and operations, including sabotage, theft, and its weakening ability to enforce existing contractual rights. Production has also been affected by the lagging effect of the 2020 oil price crash that saw a few marginal players, such as Lekoil, suspend drilling activities when they became economically unviable.
Nonetheless, it is generally expected that the sector will rebound in 2022. This view is premised on the expected impact of elevated oil prices, which is incentivizing drilling activities across board, as evinced by the gradual increase in rig count since the end of June 2021.
In another development, the Group Managing Director/Chief Executive Officer of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, has stated that the Petroleum Industry Act (PIA) has provided the organization with the opportunity to shed some of its toxic liabilities. The new legislation is also expected to make the state-owned oil company become the largest and most capitalized company in Africa.
Kyari, while highlighting the significance of the PIA to the NNPC and the Nigerian economy, said that the new legislation will provide enormous opportunities to the company to earn more revenue for the country, and had raised shareholders’ expectations on the company, as well as given NNPC a wide room to make progress According to him, “the PIA has put all money-making options on the table; it is up to us to take advantage of it.”
The NNPC boss also charged staff of the organisation to ensure that the company becomes a commercially viable entity and a multi-billion-dollar entity that would continuously deliver value to its shareholders.
President Muhammadu Buhari, on August 16, 2021, signed the PIA into law after it was passed by the two chambers of the National Assembly in July and almost 20 years after it was first introduced, representing a significant milestone for Nigeria’s oil and gas sector. The President had also in September 2021, ordered the incorporation of the Nigerian National Petroleum Company Limited, with an initial capital of N200 billion, in a bid to prepare the Federal Government for the Petroleum Industry Act.