Despite over 37 billion barrels remaining in proven reserves, oil production in Nigeria is forecast to falter due to under investment, with the country’s oil and gas sector in desperate need of reforms and transparency to reverse this trend, according to an analyst with research and consulting firm GlobalData.
Young Okunna, GlobalData’s Upstream Analyst covering Sub-Saharan Africa, says Nigeria’s oil and gas sector could be rejuvenated by capitalizing on the opportunity to rebuild investor confidence following the smooth transition of presidential power from Goodluck Jonathan to Muhammadu Buhari.
Okunna explained: “Buhari brings a reputation as a heavy-handed president able to potentially neutralize the Boko Haram threat, which is concentrated in the poorer northeast of the country. While the oil sector is concentrated in the south, the Islamist group has in the past named refineries and oil infrastructure as targets.
“Nigeria’s new president is also a fierce opponent of corruption, having recently dissolved national oil company NNPC’s board following an estimated $20 billion scandal of inappropriately managed oil revenues.”
GlobalData forecasts that several new fields coming online over the next five years will add just over 300,000 barrels per day (bd), in addition to several production stabilization programs aimed at maintaining capacity in producing fields. However, the project pipeline is less impressive when compared to Angola, which is expected to add more than 850,000 bd over the same period from new fields only.
The industry’s stagnation in Nigeria is epitomized by more than 335 discoveries that remain undeveloped, of which about 185 are exposed to the oil theft and vandalism rampant in the Niger Delta. This criminal activity has increased since 2010, with production losses now estimated at anywhere between 100,000 and 400,000 bd.
Okunna continued: “Peace in the Niger Delta region is of paramount importance to sustaining production and foreign direct investment. Country-specific challenges, such as fiscal instability, a militant insurgency, political and corporate corruption, and vandalism, will negatively impact the ramp up of investment.
“As companies look to redeploy capital after having pulled back when oil prices collapsed, Buhari’s government must reform the sector and also engage with community leaders to reduce sabotage and communal disturbances, in order to attract investment that will reverse the forecast production decline,” the analyst concludes.