How oil and gas sector fared in 2017

Nigeria started 2017 in a recession. Crude oil, however, being the major source of foreign exchange for the survival of the economy, recorded marginal increase amid uncertainties surrounding global economy. In this report, OLATUNDE DODONDAWA examines challenges Nigeria faced in the oil and gas sector during the year. Excerpts

Introduction

Just as it was in the year 2016, Nigerians experienced the latter part of year 2017 with acute fuel scarcity. The reason for the fuel scarcity remains the same: lack of capacity of the Nigerian National Petroleum Corporation (NNPC) to handle products importation, storage and distribution.

Introduction of price modulation mid 2016 was seen as a partial deregulation of the downstream sector. This has later proven to be false because the policy of price modulation is supposed to be reviewed every three months, but it has never been reviewed for once.

Marketers, who have been kicking against NNPC’s monopoly of products importation, waited for the Yuletide season when Nigerians usually move en masse from one part of the country to another to sabotage NNPC’s efforts to ensure abundance of petroleum products during this season.

NNPC’s role in current fuel scarcity

In November, the Independent Petroleum Marketers Association of Nigeria  (IPMAN), Lagos zone, accused the Corporation of playing double standards in products allocation being the sole importer.

They alleged that NNPC sells premium motor spirit (PMS) otherwise called petrol to private depot owners at N139 per litre as against the recommended ex-depot price of N133.28 per litre. This made it impossible for independent marketers to sell at regulated price of N145 per litre.

The Corporation did not deny the allegations, but appealed to the independent marketers not to embark on strike. It pledged to increase allocations to independent marketers from seven trucks per day to 70 trucks per day as at time of filing this report.

The chairman of ipman, Lagos zone, Ayo Alanamu Balogun, confirmed to Nigerian Tribune that NNPC has actually increased allocation to Ejigbo satellite depot from seven trucks per day to current 70 trucks per day. He, however, appealed for more trucks so that “we can go back to our usual 120 trucks per day capacity.”

NLNG vs House of Reps

On May 9, the House of Representatives passed a bill which seeks to make payment of three per cent of annual budget of Nigeria Liquefied Natural Gas (NLNG) into the coffers of the Niger Delta Development Commission  (NDDC). The sponsor of the amendment to the NLNG Act is the Minority Leader, Honourable Leo Ogor. In the proposed provision, the Act was amended by adding Section 7b to the Principal Act, which provides that “Notwithstanding section 7 or any other provision of this Act, the Nigeria Liquefied Natural Gas Limited shall pay 3 per cent of its total annual budget to the Niger Delta Development Commission Fund as required by section 14 sub section 1 and 2b of the NDDC Act establishment Act, 2000.”

However, NLNG contended that the amendment was not in the best interest of the nation, especially as it would project Nigeria as a promise breaker and an unsuitable investment destination. The General Manager, External Relations of the company, Dr Kudo Eresia-Eke, quoting the Managing Director of Nigeria LNG, Tony Attah, said the amendment violated the Assurances and Guarantees granted the investors by the country, and reinforced by successive governments, which paved the way for the huge international investment that enabled the company to become a reality and the success story today.

According to the  company, the main thrust of the Guarantees and Assurances were to assure the foreign investors that their investments would be protected by the non-amendment of the NLNG Act, saying that this “is the reason why the NLNG Act has remained intact and protected by all administrations from inception, in recognition of the sanctity thereof.”

The House of Representatives would expect the Senate to concur to the bill once transmitted to it, while President Muhammadu Buhari will decide the merit or otherwise of the proposed  amendment by either signing it into law or withhold his signature.

Crude price relative growth

Conclusively, oil price enjoyed a relative growth in last 12 months. This was due to oil freeze agreement by the members of Organisation of Petroleum Exporting Countries  (OPEC) and other non-OPEC members led by Russia. While the price has steadied at an average of $60 per barrel lately, Nigeria is one of the few countries exempted by the group to retain its oil production before the agreement. This has also helped the country to leap out of recession in the third quarter of 2017. With the exemption in place, Nigeria has out its crude oil benchmark for the 2018 budget at $45 per barrel at 2.3 million daily output.

Moreover, with the passage of the Petroleum Industry Governance Bill (PIGB) by the Senate, it is expected that in the year 2018, the House of Representatives will harmonise the bill for onward transmission to President Buhari to sign it into law.