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High Expectations as Nigeria Plans $13.5bn Energy Investments in One Year

Mrs. Olu Verheijen

By Yange Ikyaa

After recent revelation of plans by the Federal Government to invest the sum of $13.5 billion in Nigeria’s energy sector within the next 12 months, expectations remain high among Nigerians as high cost of finished petroleum products continue to dig a deep hole into the pockets of people in the country.

The cost of petrol, diesel and kerosene remain high in Nigeria. Petrol price keeps moving up from time to time after President Bola Ahmed Tinubu terminated government subsidies on the product immediately after taking over the presidency, May 29, last year. Even gas, which Nigeria regards as its transition fuel against the back drop of shifting the country from fossil-fuel dependence to sustainable renewable energy forms, trades on the high side of the pricing regime.

A civil servant in the Federal Ministry of Education, who spoke with Valuechain in Abuja but pleaded for anonymity, said that expectations are high among Nigerians that increased production from domestic refining could help boost petroleum supplies and drive down cost to make life less expensive and more comfortable in the country.

According to the National Bureau of Statistics, (NBS), the price of Premium Motor Spirit (PMS), otherwise known as petrol, increased year-on-year by 226.75 per cent to N626.21 per litre in September 2023, from N191.65 per litre, recorded in the corresponding period of 2022. However, in 2024, the figures are even higher, with the product trading for as much as N700 per litre in some states, which has been attributed to the inability of oil marketers to import adequate petroleum products to meet domestic demand, many months after the deregulation of the Nigerian downstream petroleum sector.

In its Premium Motor Spirit Price Watch for September 2023, the National Bureau of Statistics stated that Taraba State topped the price chart at N665.70 per litre, overshooting the post-subsidy adjusted price of N600.35 per litre for that region by 9.8 per cent. This was followed by Borno State with N657.37 per litre, while Benue State ranked third with N641.29 per litre, overshooting the post-subsidy price with 8.7 per cent and 6.4 per cent.

However, investigations by Valuechain found out that petrol is commonly selling at between N670 and N680 per litre in Gboko and Makurdi in Benue State, while also trading at up to N700 per litre in smaller towns.

For Automotive Gas Oil, the NBS Price Watch for September 2023 showed that Kano State topped the price chart with N967.78 per litre, showing an increase of 7.9 per cent to N890.80 per litre, while Anambra State followed with N950.95 per litre, with Niger State placing third with N950.55 per litre indicating an increase of 6.3 per cent and 6.3 per cent respectively.

On the lowest side of the pricing spectrum, which still constitutes a costly buy for motorists relative to pre-subsidy periods, Rivers, Delta and Jigawa States emerged with the lowest retail price for petrol at N602.55, N605.88 and N617.42 per litre, respectively, while Bayelsa, Katsina and Rivers States emerged with the lowest retail price for diesel with N840.16, N840.55 and N840.82 per litre, respectively.

In percentage terms, the average retail price of Automotive Gas Oil (Diesel) rose year-on-year by 12.77 per cent to N890.80 per litre in September 2023, from N789.90 per litre in 2022, and this is even higher in 2024.

One of the factors responsible for the rising cost of energy in Nigeria is the fact that marketers have to source for dollars at the black market or other foreign partners, as the banks are no longer willing to give loans. Another is the fact that the country is not refining enough volumes of petroleum liquids and the much awaited Dangote Refinery has also not started operations to bring into the market what Nigerians are expecting would be cheaper fuel to buy.

In the face of these challenges, the Special Adviser on Energy to the President, Mrs. Olu Verheijen, said that the Federal Government aims to create $55.2 billion investment opportunities in the sector by the year 2030.

Verheijen also emphasized that the President Tinubu-led administration is committed to reforms and growth in the country, particularly in the critical oil and gas sector. She revealed that her engagements with stakeholders in the industry had shown that there were massive investment opportunities for the oil and gas sector to thrive in Nigeria.

According to her, the Tinubu administration will always be committed to improving the business and investment climate in the nation, including the energy sector, in line with its “Renewed Hope Agenda”,.

“My office has since started work on key areas of reform to spur the growth of the energy sector, and which would also positively impact on the livelihood of the average Nigerian and small businesses,” she said, adding that “recently, the President approved the Import Duty Waiver aimed at increasing the utilization and supply of gas in the domestic market.”

Verheijen further noted that the waiver covers the importation of all equipment related to Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG). She added that it also covers machinery, equipment and spare parts into the Nigerian market for the utilization of the country’s gas.

It has been projected by Cordros Securities Limited that the economy will remain on a growth trajectory, supported by improvement in the oil sector, amid government’s ongoing efforts to curb pipeline vandalism and oil theft. In its 2024 full-year outlook, Cordros also projected gradual recovery from the impact of policy reforms implemented in the prior year, as well as continued resilience in the services sector.

According to Jide Pratt, who is the Country Manager of TradeGrid, “one of the low-hanging fruits that can improve the oil and gas sector is increased drilling activities.”

This has become even more urgent as country’s rig count, which is a key indicator for measuring performance in the upstream petroleum sector, dropped month-on-month by 13.3 per cent to 13 in October 2023 from 15 in the preceding month.

The Organization of Petroleum Exporting Countries, in its Monthly Oil Market Report for November 2023, blamed this on limited investment and activities during the period, although Nigeria’s decision to channel more investments into its energy sector could be the right step for the country after all, as Standard Chartered predicts that oil demand growth in the current year will clock in at a robust 1.54 mb/d and even1.41 mb/d in 2025. It further says that decelerating non-OPEC supply growth and strong demand will support prices at higher levels.

Executive Chairman of AA Holdings, Austin Avuru, said that Nigeria’s oil industry is in need of 45 new rigs to reach what he called “normal production levels of 2.1 million barrels per day (mbpd)” by 2025. The reputable energy expert, who was speaking at the recent National Association of Petroleum Explorationists (NAPE) conference,’ further explained that to arrest the decline and add 800,000 barrels per day over two years will require 426 wells, including 106 exploration and appraisal wells, in addition to 320 development wells.

His words: “For this, 45 rigs must be on duty, so the country needs an investment of $7.6 billion in well costs alone.”

Low performance in the area of rig count has been a challenge faced by Nigeria in recent years, as OPEC data shows that the country’s oil rig count fell from 16 to eight between 2019 and 2022. It further showed that while the average rigs count was 16 in 2019, it fell to 11 to 2020, and then further to seven in 2021.

In the first quarter of 2022, the count was eight, but slumped further to 11 in the second quarter of the year, and again fell down to nine in the third quarter of the year.

While the number of Nigeria’s active rigs has progressively decreased, this was made worse after the country began shutting down many of its offshore platforms as oil prices took a downward slope and the producers’ group embarked on production curbs to stabilize the market in 2020 due to the Covid-19 pandemic. Another factor responsible for the shutting down of many oil and gas production platforms is asset vandalism and oil theft.

The Nigeria Extractive Industries Transparency Initiative (NEITI) reported that Nigeria lost as much as 619.7 million barrels of crude oil valued at N16.25 trillion to oil theft, between 2009 and 2020. The losses were from theft and sabotage, based on information and data provided by an average of eight companies covered by NEITI over a period of time.

A breakdown of the losses, it said, shows that in 2009 when NEITI commenced reporting of crude oil theft, Nigeria lost 69.49 million barrels of crude oil valued at $4.31 billion. Then, its figures for 2010, 2011 and 2012 revealed that 28.31 million, 38.61 million and 51.58 million barrels of crude oil valued at $2.29 billion, $4.39 billion and $5.82 billion were lost respectively.

From 2013 to 2020 NEITI data showed that crude oil losses due to theft did not reduce but rather increased, as 78.30 million barrels valued at $8.55 billion were lost in 2013 alone.

All these challenges have added to punitive energy costs for end users, and it is hoped that the Federal Government’s current plans to invest up to $13.5 billion into the sector will also address some of these lingering challenges.

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