*Output could drop by 250,000 barrels by 2025
As the world awaits President Muhammadu Buhari’s assent to the long-awaited Petroleum Industry Bill (PIB), passed by the National Assembly a month ago, there are indications that inherent controversies in the bill could engender reduced production in the upstream oil sector.
Local community groups in the oil-producing Niger Delta have rejected the Petroleum Industry Bill PIB passed by parliament.
As community trusts are demanding a larger share of oil wealth than provided by the PIB passed by the two chambers of parliament on July 1st, oil majors are already considering the PIB’s fiscal regime to be tilted too far in favour of the government and warn that it could deter investment. Reconciling the international oil companies’ position with the needs of a government that is strapped for revenue and communities in the Delta that have encountered environmental degradation as a result of oil extraction is near impossible, and explains why the federal government has failed to revise fiscal terms for oil since 2008.
Recall also, that on July 5th the head of the Nigerian National Petroleum Corporation, Mele Kyari, urged the National Assembly to cut back the allocation for host communities to 2.5 percent, warning that too large a share would drive large producers out of Nigeria.
However, a pundit in the oil industry, who spoke with NATIONAL ECONOMY on condition of anonymity, said it would be difficult for the federal government to dismiss the demands of local trusts without creating new complications.
Militant groups demanding local control of mineral resources in the Delta have caused major disruption to oil production in the past. In late June the Niger Delta Avengers, the militant group that carried out attacks against oil installations in 2016, threatened to resume attacks if local communities do not get a sufficient slice of oil wealth.
The Senate had approved a clause requiring oil companies to pay 3 percent of their annual operating expenditure into host community development trusts, and the House of Representatives agreed 5 percent. Community leaders are insisting on a 10 percent share.
It would seem likely that the risk of unrest will be viewed as one worth taking. Oil majors are already in the process of divesting from Nigerian assets as part of de-carbonisation plans, and uncertainty over fiscal terms could encourage a flight to other oil-producing countries. Fully aware of this, the two chambers and the executive are likely to settle on a local community oil wealth share that is well below the communities’ demands.
Recently, in a report on Nigeria, the Economist Intelligence Unit of London had forecast that the PIB would pass in 2021. The report said instability in the oil-producing south of Nigeria will impede investment even with the bill being passed, and that oil production (excluding condensate) in 2025 will be about 250,000 barrels/day lower than in 2014.
In spite of the manifold benefits the petroleum industry act is tipped to accrue to Nigeria, NATIONAL ECONOMY reports that it would seem like the bill has largely been a burden on the industry as it has over the years inspired wariness among investors. Nigerians and the world at large had expected a bill that would satisfy the general interests of all parties. But the bill only seems to be ruffling more feathers.
Meanwhile, the bill is yet to get to the presidency for assent.
SOURCE: nationaleconomy.com