by Neil Munshi
The moment Nigeria’s oil sector has been waiting for two decades finally arrived this month when President Muhammadu Buhari sent the Petroleum Industry Bill to the national assembly.
The bill is intended to modernise the sector by commercialising the national oil company and ironing out revenue sharing agreements in joint ventures with oil majors in Africa’s largest crude producer.
An absence of a concrete regulatory framework has left the country’s most important industry mired in uncertainty since democracy returned in 1999. Oil is the lifeblood of Africa’s biggest economy. It provides roughly half of government revenues
The landmark reform — which the legislature, where Mr Buhari’s party has a majority, is expected to pass into law — comes just a few months after the government launched a bidding round for marginal, undeveloped oilfields that attracted interest from more than 600 companies. It was Nigeria’s first in more than 15 years.
Oil is the lifeblood of Africa’s biggest economy. It provides roughly half of government revenues and nearly all of its foreign exchange receipts as well as a big part of its presence on the global stage.
But it has also been overexploited by corrupt companies and politicians, and underutilised as a resource for Nigeria’s 200m people in the 64 years since Royal Dutch Shell first tapped a well in the swamps of the Niger Delta.
If Nigeria can unlock its gas potential, it may be able to solve some of its greatest crises Recent reforms may have been brought on, according to some observers, out of fear at a second recession in less than five years.
Recent moves by the government toward commercialising the national oil company, removing costly power and fuel subsidies and bringing more certainty to the sector could allow it to attract investment and the country’s nascent gas sector to flourish.
The story of oil and gas in Nigeria is a story of missed opportunities, if we look at the resource base of the country, our ability to convert that resource base into production and subsequently money for the economy,” says Lekan Akinyanmi, chief executive of Lekoil, an indigenous company. Recommended Nigeria Nigeria oil chief promises more transparency at state producer “
A great example is we’re finally doing this marginal field round — we’ve been waiting for it for almost 15 years. Can you imagine how much of a difference it would have made to the country if we’d done them every two years, or even five?” he asks.
“Same thing with gas — we’ve always known Nigeria is primarily a gas basin and we have a bit of oil.” But only recently has gas become a priority.
The 650,000 barrel-per-day oil refinery being built by Africa’s richest man, Nigerian billionaire Aliko Dangote, outside Lagos is also expected to transform the industry and the country.
Nigeria’s state oil refineries run at less than 10 per cent capacity, so it exports its crude raw, and spends billions of dollars annually importing most of its refined petroleum, like gasoline and diesel.
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“You have to add value here, so first of all, your GDP improves. Your export revenue increases tremendously because instead of exporting raw material, we’re going to export the finished product,” says Devakumar Edwin, group managing director at Dangote, who is in charge of the refinery.
And the biggest challenge of all with the exploding population in sub-Saharan Africa, you need to provide employment, otherwise you’re going to have huge social instability.”
The project’s completion date has been delayed repeatedly, but Mr Edwin said it would be finished at the end of next year.
The site also includes a massive fertiliser and petrochemicals plant, which Mr Edwin touted as a way for Nigeria to tap into its vast reserves of natural gas — estimated at 5.3tn cubic metres, which is about 37 per cent of known African gas reserves — which has largely been burnt into the air through flaring.
Recommended Special ReportNigeria at 60 Investors wary on Nigeria’s banking sector “There is a huge pent-up demand for gas,” Mr Edwin says. “We have always been complaining about exporting crude oil, importing different products.
But we have always been proud of exporting NLNG [Nigerian liquefied natural gas] which is essentially the same thing.” Policymakers are increasingly recognising that gas must be the future of Nigeria’s resource economy.
The country’s large reserves are almost completely untapped. If Nigeria can unlock its gas potential, it may be able to solve some of its greatest wider crises: the lack of reliable power that drives up manufacturing costs and leaves most Nigerians either without any power at all or relying on costly diesel generators.
“You can’t go one day without the government talking about gas projects now,” says Roger Brown, chief executive of Seplat, one of the country’s biggest indigenous oil and gas companies.
Seplat is investing heavily in gas, and fuels 30 per cent of Nigeria’s electricity production.
Further work needs to be done, particularly on Nigeria’s ageing grid, before gas can play a truly transformative role, says Mr Brown, but he adds that there are positive signs.
“The government sees gas as a really strong future fuel for Nigeria — it’s less carbon intensive than oil is, and you have got an electricity grid that is small for the population,” he says.
Nigeria is fuelled by off-grid diesel and by developing gas the government is really going to be retiring that diesel generation in-country and replacing it with gas.”
This article is part of Nigeria at 60, an FT special report published in the Financial Times on Thursday 29 October and online at ft.com/nigeria-60