Nigerian oil sector under siege
Approximately $10.9 billion in potential revenue lost in three years
International oil companies including Shell and Chevron Corp. are shifting their efforts from land-based operations to offshore fields, where the risk of kidnapping, sabotage and crude theft is lower.Shell has sold land-based fields that pumped about 400,000 barrels a day in the 1990s, valued at $1.2 billion a month at today’s crude prices, and is buying fields offshore.
This combined with the decreasing order from the United States is unsettling as Nigeria dependsd on the oil industry for approximately 95% of export earning and 80% of government revenue.
Nigeria is in a “crisis situation” because its crude oil production plans are undermined by rampant theft, country manager for Shell, Mutiu Sunmonu said publicly.
“The impact of the activities of crude oil thieves and illegal refineries on the environment in the Niger Delta and the Nigerian economy is now a crisis situation,” he was by Nigerian newspaper ThisDay as saying. “At some point this year, over 60,000 barrels of crude were being stolen from the Shell Petroleum Development and Production Co. lines every day.”
The PIB bill is another ongoing concern for the Oil majors. They have already stated that any increase in taxes will have serious effects on further investments in the oilfields.
Nigeria lost billions of dollars in oil and gas revenues over a 2-year period as the nation suffered from crumbling infrastructure, polluted lakes and rivers, joblessness and a growing insurgency now operating nationwide. In addition to oil theft and pipeline vandalism, the NEITI audit blamed a poorly defined pricing methodology, a dilapidated refining sector and excessive fuel subsidy for significantly reducing government revenue from the oil sector. While the country pumped more oil, there was also no measurable improvement in the standard of living of the people.
The amount of potential oil revenues lost to oil theft, from 2009-2011, is estimated at approximately $10.9 billion, according to the Nigeria Extractive Industries Transparency Initiative (NEITI).
Shell CEO, Peter Voser, said oil theft and disruptions to gas supplies in Nigeria are causing widespread environmental damage, and could cost the Nigerian Government $12bn in lost revenues per year. “Higher costs, exploration charges, adverse currency exchange rate effects and challenges in Nigeria have hit our bottom line. These results were undermined by a number of factors – but they were clearly disappointing for Shell,” Voser added.
Shell stated recently that it would sell four more of its oil blocks in Nigeria under its latest divestment programme.
The sale of the four blocks will bring to 12 that Shell has sold in the last three to four years to mostly local operators and their foreign technical partners. Shell said earnings had slipped to $4.6bn (£3bn) from $5.7bn a year ago, pushed down by oil theft and disruptions to its supply in Nigeria. Higher operating expenses and an increase in the number of wells it was forced to write off.
Nigeria is fast becoming a very unattractive investment destination for the international oil companies (IOCs), especially for those that operate onshore oil concessions in the Niger Delta. Other IOC’s have continued to sell their onshore oil blocks and businesses in the Niger Delta, Agip, Total, Chevron and ConocoPhillips have also either divested or are planning to do so in the near future.
The fear is that numerous discoveries in sub-Saharan Africa in the last five years, with the majority coming from East African countries like Tanzania, Uganda and Mozambique will also affect Nigeria’s revenue profile.
The discovery of shale oil (light tight oil) that is rapidly emerging as a significant and relatively low-cost new unconventional resource in the US, with domestic energy boom has led to a sharp cut in demand for Nigeria’s crude oil. The US accounted for 35 percent of oil exports from Nigeria in 2011. But it imported around 40 percent less last year, taking purchases from Nigeria to their lowest in over 20 years, according to EIA data.
Saudi Prince Alwaleed bin Talal recently warned his fellow Saudis that Riyadh wasn’t taking the US “energy revolution” seriously enough. The Prince was responding specifically to comments made by Saudi Arabia’s petroleum and resources minister, Ali al-Naimi, who had argued that the US oil and gas boom would stabilize global markets and that there was nothing to fear. The Prince’s take is that the US shale revolution is an “inevitable threat” to Saudi Arabia.
If this trend continues and with Shell, ‘rich with new investment opportunities’, and ‘investing in new capacity worldwide’ in the next 18 months we can only wonder what the implications are for Nigeria.
If Nigeria fails to diversify her economy, the country might end up with a glut of crude oil nobody wants in the near future.
So far the Nigerian federal government just does not seem to understand the threat posed by massive discoveries of shale gas in the US and other countries. Lower demand for crude oil could lead to a price crash in the next year or so. OPEC, has already forecast a drop in global demand of 300,000 bpd by 2014.
The brain drain of the last 20 years which continues today is now having a serious effect on how the country is being run. Top engineers, business analyst,IT specialists, geologist and other highly educated, qualified professionals are littered all over the globe. The government seems very short sighted in the way it is dealing with all these issues. The country need a long term startegy to deal with how things turn out in the future. Nigeria has to dig deep and start utilizing its interllectual resources to tackle the short term mentality and fiscal recklessness it currently faces.