But feelers from the Organisation of Petroleum Exporting
Countries, OPEC, have indicated that a fresh challenge to the nation’s new
strength in the crude oil sector has started emerging.
Findings across performance benchmarks showing signs of
rebound in the sector includes rising rig count, recoveries in several oil
terminals, opening up of new oil wells as well as stable export prices.
Average rig count, an index of measuring activities in the
upstream sector, rose year-on-year, YoY by 62 per cent to 15 between June and
October 2023, compared to nine recorded in the corresponding period of 2022.
A month-on-month breakdown of the data compiled by OPEC for
five months period covering June – October 2023 put Nigeria’s rig count at 16,
14, 18, 15 and 13 in June, July, August, September and October 2023,
respectively.
This shows a significant improvement compared to the 11, 11,
10, 7 and 8, recorded in June, July, August, September and October 2022,
respectively.
The organization did not specify the driving factors, but
checks by Vanguard pointed to the continued positive response of stakeholders,
especially investors to Nigeria in the post-Petroleum Industry Act, PIA regime.
The PIA, a comprehensive legislation was signed into law by
former President Muhammadu Buhari to bring about restructuring and
repositioning of the oil and gas industry for new investments while enhancing
transparency and accountability.
Oil production rises to 1.4m bpd
The nation’s oil output has recorded a huge rise by over 40
percent from the low base of below one million barrels per day (mbpd) last year
to 1.45 mbpd in October 2023.
This means that 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.
Based on the data from Nigerian Upstream Petroleum
Regulatory Commission (NUPRC), major oil terminals performed strongly in the
third quarter of 2023, Q3:2023.
Specifically, Forcados terminal recorded a massive 6,028.5%
YoY rise just as Bonny terminal recorded 1,875.7% rise, while Brass recorded
245.5% rise and Escravos rose by 24.0%).
All other terminals reported uptick in production for the
first time in recent years.
Impact of Nembe crude
Checks by Vanguard indicated that the nation’s total oil
output has been impacted by the recommencement of production and export of
Nembe crude by the NNPC/ Aiteo Joint venture.
The Nembe Crude Oil Blend, produced by Aiteo, the operator
of the NNPC/Aiteo Oil Mining Lease, OML 29 Joint Venture, JV, was disclosed at
the just-concluded Argus European Crude Conference in London.
The OML 29, acquired from Shell in 2014 was previously
blended with the popular Bonny Light grade and exported via the Bonny Oil &
Gas Terminal.
Already, two cargoes of 950,000 barrels each of the Nembe
Crude Oil grade have since been exported to France and the Netherlands, thus
signaling the beginning of activities at the Nembe Crude Oil Export Terminal,
NCOET, which was licensed in line with the extant laws and Crude Oil Terminal
establishment regulations.
Europe gasps for Nigeria’s oil
Executive Director, Crude & Condensate, Maryamu Idris,
NNPC Trading Limited, said in a panel presentation at the just-concluded Argus
European Crude Conference in London that the Nigerian crude flow to Europe has
increased in a bid to fill supply gaps left by the ban on Russian crude.
She pointed out that six months before the Ukraine war,
678,000 bpd of Nigerian crude grades went to Europe, compared to 710,000 bpd
six months later and 730,000 bpd so far this year.
According to her, “This trend makes it evident that Nigerian
grades are increasingly becoming a significant component in the post-war
palette of European refiners. Several Nigerian distillate-rich grades have
become a steady preference for many European refiners, given the absence of
Russian Urals and diesel. Forcados Blend, Escravos Light, Bonga, and Egina
appear to be the most popular, and our latest addition — Nembe Crude – fits
well into this basket. This was a strong factor behind our choice of London and
the Argus European Crude Conference as the most ideal launch hub for the
grade.”
According to her, NNPC Limited has secured vital
partnerships with notable financial institutions to promote upstream
investments to restore and sustainably grow production capacity in the coming
years.
Analysts’ insights
Giving their perspectives on the impact of the development
in the oil sector, analysts at Afrinvest West Africa, a Lagos based investment
house, stated: ”Following expectations of a continued increase in oil
production, we anticipate the oil sector would play a larger role in
contributing to the overall real GDP for the full year of 2023.
”Also, ramping up oil productions to levels around 1.8mbpds
would position Nigeria to capitalize on potential exchange rate revaluation
gains from crude oil sales”.
Also commenting, economists at CardinalStone Capital,
another Lagos based finance and investment firm, stated: ”Looking ahead, we
expect the oil sector to exit a recession in Q4’23, as we anticipate a
sustained improvement in oil production, settling at 1.50mbpd”.
”Higher oil output translated to improved
quarter-on-quarter, QoQ, GDP performance of 2.6%.”
Non-oil sector reverses trend
But while the oil sector is recording massive rebound,
growth in non-sector has reversed.
Giving insight into this development, analysts at
CardinalStone stated: ”The weaker growth in the non-oil sector may have stemmed
from the dual actions of the CBN. First, the CBN pulled back from the direct
development finance interventions orchestrated by the former CBN leadership.
”Given that a significant portion of CBN’s development
finance is concentrated in the Agriculture sector, the stoppage, coupled with
pre-existing issues like insecurity, might have constrained the sector’s
outturn, whose growth (+1.30% YoY) recorded the lowest Q3 performance on
record.
”The second action of the CBN was the sustained hawkish
rendition, which resulted in material increases in the domestic interest rate.
”This elevated borrowing rate might have dampened sentiment
in the Manufacturing sector, which recorded a marginal increase of 0.48% YoY
(vs. 2.20% YoY in Q2’23).
”In addition, the lingering currency pressures further
stoked the weak outturn in the manufacturing sector, as we note that 60.00% of
companies on the NGX 30 have significant FX needs.
The OPEC challenge
Meanwhile, the OPEC and non-OPEC Ministerial Meeting, ONOMM,
has forecasted Nigeria’s oil output at 1.5 million bpd in 2024, indicating that
a production cut back would put Nigeria’s quota around that level, down from
1.8mbpd.
This is coming at time Nigeria has based her economic
recovery and fiscal plan 2024 – 2026 on a high output level of between 1.7mbpd
and the current 1.8mbpd existing OPEC quota.
At its 36th ONOMM held via videoconference monitored by
Vanguard, Thursday, ONOMM, stated: “In accordance with the decision of the 35th
OPEC and non-OPEC Ministerial Meeting, the completion of the assessment by the
three independent sources (IHS, Wood Mackenzie and Rystad Energy) for
production level that can be achieved in 2024 by Angola, Congo and Nigeria as
follows: Angola at 1,110 t/bd, Congo at 277 t/bd and Nigeria at 1,500 t/bd.”
Experts comment, make case for more investment
With the recent shifts in Nigeria’s economy bringing the oil
sector back to dominance, industry experts and economists are recommending best
positioning for the country to maximize the value to create inclusive growth.
The Founder and Executive Chairman of AA Holdings, Mr.
Austin Avuru, has called for massive investment to meet set targets in the
future.
He regretted that investment into Nigeria’s oil and gas
industry dropped by 77.3 per cent to $5 billion in 2021, from $22 billion in
2014, due mainly to increased divestment by the International Oil Companies,
IoCs.
He said: “The IoCs are leaving and will continue to divest.
The IoCs are not hiring and investing as much as they used to invest in the oil
and gas industry. It is only a few Independents that are still investing.
“The nation’s oil and gas reserves have been standing at
more than 30 billion barrels and 203 trillion cubic feet respectively for too
long. We need to increase investment to hit the 40 billion barrels reserves and
600 trillion standard cubic feet of gas in the coming years. That would require
the deployment of many rigs.
“We need to increase funding. Significant infrastructure is
required. We need to invest in infrastructure not only in the upstream sector
but also in the midstream and downstream sectors.”
Reacting on the implications of the recovery of oil sector,
Prof Uche Uwaleke, President, Association of Capital Market Academics of
Nigeria, ACMAN, said: “Largely on account of improvement in oil production from
1.22mbpd in Q2 2023 to 1.45mbpd in Q3. At current favourable oil price level, a
further increase in oil production to meet OPEC quota of 1.74mbpd will
significantly move the needle into the positive territory thereby boosting
overall GDP in the process
”Oil sector improved chiefly on account of increase in crude
oil production during the quarter (from 1.22mbpd to 1.45mbpd.
”Industry and agriculture sectors appeared hugely impacted
by economic headwinds during the quarter.
”The sudden removal of fuel subsidy in May 2023 could be
blamed for the performance of the Transportation sector still in the negative
territory (-35.85%)
”The Agriculture sector (comprising 4 activities, though
dominated by crop production) recorded a declining performance over Q2. (1.30% still far from its pre COVID’19
levels).
“In my view, this identified growth pattern, weighted in
favour of the services sector, is not healthy for a developing economy such as
ours. Little wonder, economic growth does not appear inclusive reflecting in
rising unemployment and poverty levels (new NBS methodology attempts to mask
this)
”It’s time we reset this faulty economic structure,
leveraging technology, in favour of the productive sectors: Industry and
Agriculture.
”Indeed, structural change is strongly recommended (by
UNCTAD) as one of the ingredients of building productive capacities.”
In his own reaction, Tajudeen Olayinka, CEO, Wyoming Capital
and Partners, said: “Even though it is still a far cry from what is considered
to be a transformative number for the economy, it should still be considered a
good development. Any effort to improve dollar liquidity in the economy is much
appreciated at this time.
”The sad experience of oil theft and banditry we suffered
under former President Muhammadu Buhari must not be allowed to continue. It was
as if we had no government.”