Report: Nigeria’s Oil Industry to Face Infrastructure, Divestment Issues in 2022

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S&P Global Platts, an independent provider of information, benchmark prices and analytics for the energy and commodities markets, has predicted that 2022 will be a very challenging year for Nigeria’s oil and gas industry.

In a recent report, the firm stated that the country faces a race against time to implement reforms needed to bolster exploration and check declining oil production, but said the wave of divestments from international oil companies could pose a challenge.

According to S&P Platts, the long-delayed Petroleum Industry Act (PIA) may not bring the much-needed succour to the oil sector as Nigeria is likely to contend with a gale of divestments by major oil companies.

The companies, the firm said, are leaving in a bid to reduce operating and security challenges as well as the huge costs of battling with the pandemic.

It stated that although the landmark PIA was signed into law on August 16 and was expected to turn the state oil company to a private company within six months in order to make it easier for the struggling company to raise funds for oil exploration and production, the impact of the bill has so far been barely felt.

“The PIA could be hugely beneficial, but government officials have lacked professionalism in putting it into place.
“The fact is that this PIA is coming a little too late as it has been delayed for too long. Those who were rightly placed to pioneer the implementation are not the people in government now.

“So, I expect to see more divestment by oil majors from selected assets because things are not working as they should be,” the firm quoted the Chief Executive Officer of Lagos-based oil consultancy Degeconek, Abiodun Adesanya, as saying.

It added that many oil majors are starting to divest legacy oil and gas assets in Africa as they target net-zero carbon emissions while hanging on to their most efficient and often largest oil projects.

“Nigeria could be the worst hit as Shell, Chevron, and ExxonMobil are close to selling their onshore assets in the West African country,” S&P Platts stated.

It further quoted the Managing Director of TotalEnergies in Nigeria, Mike Sangster, as stating that Nigeria is under pressure to implement the PIA as soon as possible, adding that, “The window for investments into fossil fuels is narrowing.”

This all comes at a time when Nigerian is struggling to produce at even two-thirds of its total capabilities.

Nigeria has the capacity to pump around 2.2 million bpd of crude and condensate, but in 2021 output has been languishing lower than that due to a slew of operational and technical issues, the report said.

“The Nigerian government is aiming to attract much-needed investment to bolster oil exploration and production and increase reserves and output to 40 billion barrels and 3 million bpd, respectively, by the mid-2020s, but these targets are starting to look unattainable.

“The pandemic and the acceleration of the energy transition away from fossils fuels do not bode well for Nigeria, which is desperate to kick-start its exploration and production programs.

“Projects like Shell’s Bonga Southwest/Aparo, TotalEnergies’ Preowei and Exxon’s Bosi are all at risk of never being developed. These fields have the potential to add a total of around 400,000 b/d to Nigerian oil production,” it stated.

While investment decisions are billed to be taken on these landmark projects this year, to arrest Nigeria’s sagging oil production volumes, an official from the Nigerian Upstream Petroleum Regulatory Commission (NURPC) told S&P Global Platts that “There are dark clouds hovering around sanctioning these projects now due to the emergence of the new COVID-19 variant.”

“Ongoing field and pipeline issues, fiscal stress and insecurity in the Niger Delta are likely to continue to threaten the growth outlook for Nigerian oil output,” S&P Global Platts Analytics stated.

Similarly, it stated that Bonny Light, Escravos and Forcados all faced production issues in 2021, while the output of other key grades, such as Qua Iboe, Brass River, Agbami, Akpo, and Egina, also remained consistently low in 2021.

However, it predicted that Nigerian oil supply will grow to 1.7 million bpd by April 2022, down from levels of 1.9 million bpd in April 2020.

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