By Bisola Adeyemo
Nigeria’s oil industry looks set for a difficult 2021 as a delay in implementing key legislative reforms compound problems for a sector still reeling under the weight of OPEC+ output cuts and the impact of the coronavirus.
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A continued global shift in focus away from fossil fuels to cleaner energy sources and the resolve of OPEC and its allies to keep production in check in order to stabilize prices will likely extend the downward trend in Nigeria’s oil output, senior Nigerian oil officials and analysts said.
“The decline in oil production and exports witnessed this year will be more complicated in 2021 with greater attention to be paid to climate change next year,” said Abiodun Adesanya, the CEO of Lagos-based oil consultancy Degeconek.
Nigeria’s crude and condensate production slumped to around 1.79 million b/d last year from 2.04 million b/d in 2019, according to S&P Global Platts estimates.
This was the lowest output since 2016 when Niger Delta militants repeatedly attacked key oil infrastructure pushing the country’s production to as low as 1.4 million-1.5 million b/d at points that year.
President Muhammadu Buhari recently admitted that the country has been suffering heavily following a sharp drop in output and depressed global oil prices.
“We are being squeezed to produce at 1.5 million b/d against a capacity to produce 2.3 million b/d… now the oil industry is in turmoil,” Buhari said.
Under the latest OPEC+ deal, Nigeria has committed to keeping its crude output at 1.52 million b/d for January, 313,000 b/d below its baseline under the deal of 1.829 million b/d.
Platts Analytics expects Nigerian crude production to grow from 1.4 million b/d in December to over 1.7 million b/d in April and then holding at around 1.9 million b/d in the second half of the year.
But Nigeria’s production growth is threatened by fiscal stress, which may pressure amnesty payments to former militants, Platts Analytics added in a recent note.
A presidential amnesty program for militants to maintain peace in the Niger Delta, the country’s main oil-producing region, remains in place but there are concerns that militancy might be picking up again.
Faced with the grim prospect of declining demand for oil and consequently lower revenue, Nigeria will aim to trim oil production costs to $10/b in 2021, from the current range of $15-$35/b, head of state energy firm Nigerian National Petroleum Corp. Mele Kyari said.
“In the face of the clear realities on the ground, reducing costs of production and eliminating wastages will be the main focus if our oil industry must remain in business and be competitive,” Kyari said, adding: “By the end of 2021, we want to achieve $10/b oil production. No project will be allowed to take-off except we know it can pay for itself.”
Oil and gas remain the mainstay of the Nigerian economy. However, analysts say Nigeria has not been able to draw on its huge gas resources to bail it out from the economic woes, after the passage of the landmark energy reform legislation the Petroleum Industry Bill (PIB) stalled.
“The non-passage of the PIB is the biggest problem, creating uncertainty and eroding confidence in our industry. It is not an industry problem, but a national problem,” Oluseye Fadahuinsi, executive director Pillar Oil, said.
Hopes were raised that the PIB would be passed by parliament in 2020 but it is now expected to be passed into law by Q1 2021, according to Nigeria’s oil minister Timipre Sylva.
This key legislation, which is meant to completely overhaul the Nigerian oil industry and provide new fiscal incentives to producers, has been in the works for more than a decade.
