Naira rescue hangs on oil sector revamp but NNPC dancing at the edges
The Nigerian government is counting on oil to help shore up the value of the battered naira, and industry operators say it must decisively tackle insecurity, the sabotage of oil assets, and regulatory issues to achieve this objective.
The country’s oil and gas sector, which has generated a significant chunk of government revenue and foreign exchange earnings for many years, is teetering and in desperate need of rescue.
The naira has plunged to record highs against the dollar and other major currencies following recent economic reforms, and the government is struggling to ramp up FX inflow, which is being crimped by low oil production.
Heineken Lokpobiri, minister of state for petroleum resources (oil), told journalists last week that the government’s “target is to see how we can get to 2 million barrels per day and beyond by the end of the year,” saying insecurity was the bane.
A local oil producer told BusinessDay that during the past two months, the Trans Niger Pipeline (TNP) has been down twice and the only recourse for oil producers is to shut in production to avoid the kinds of losses they saw the previous year.
The TNP is a major crude oil transportation pipeline in the Niger Delta region, operated by the Shell Petroleum Development Company and the Nigerian National Petroleum Company Limited (NNPC). It spans approximately 180 kilometers (112 miles).
Earlier this year, over 400 illegal connections were discovered and removed from the pipeline and by May, it reported no losses at all. Since then, operators say the illegal connections are back despite the incorporation of private security operators to support security operatives.
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Last month, President Bola Tinubu renewed the contract of Tantita Security Services to continue protecting the pipelines in Ondo State from vandalism but analysts are asking for more security for the oil infrastructure as this will open the sector for investments.
Security for oil assets, many analysts say, has not been treated with the seriousness it deserves, considering that it is responsible for the nation’s revenue. Militants routinely kidnap oil workers, especially expatriates and sabotage of oil pipelines occurs too frequently to absolve government officials including security personnel of collusion with criminals.
Some oil operators are also calling on the government to begin actively courting independent producers in the wake of the exodus of international oil companies (IOCs) from the Niger Delta’s land and shallow water assets.
Uduimo Itsueli, chairman of Dubri Oil Company Limited, in a recent interview told BusinessDay that the future of Nigeria’s oil industry will be dominated by independents, whether they are Nigerian or foreign independents, because the IOCs are not coming back.
“The independents do not have the clout of the IOCs. So, we need to craft policies that can encourage them. We need to change how we do business. We need to encourage them, and grow our own independents. And attract foreign ones quickly.”
Chinedu Onyegbula, an energy sector expert and director of Bullox Resources Limited, said the Tinubu administration, in their earliest statements, has shown an inclination towards reform of the oil and gas sector that includes such measures that enhance investments, better coordination, and accountability.
He said one of the reasons behind the transition of the NNPC towards becoming a limited liability company was to begin the process of more transparency, independence, and accountability in attracting and sustaining investments and ensuring a more competitive return of investments.
“The NNPC has not fulfilled its obligations in the past because of the difficulties and challenges of a bureaucratic system and government influence that has served as a deterrent; this has to change,” he added.
Some producers are also concerned about the domestic supply obligation placed on oil producers which the regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), has signalled it would enforce. These producers who are challenged by insecurity, poor fiscal and regulatory frameworks and a difficult operating environment consider this an additional burden.
Section 109 of the Petroleum Industry Act (PIA) 2021 introduced the Domestic Crude Supply Obligation (DCSO) to Nigeria’s oil industry in a bid to ensure that domestic refineries are not starved of crude oil supply for their operations.
The NUPRC has already taken some steps in furtherance of this goal by developing and signing the Production Curtailment and Domestic Crude Oil Supply Obligation (PC&DCSO) Regulation 2023, in line with the provisions of Section 109(2) of the PIA 2021.
However local oil producers are concerned that this could become an extra burden that will deter investments if the conditions that constrain oil production are not addressed.
