By Gideon Osaka
There are indicators that, 2024 will be pivotal for Nigeria, a key player in the global oil and gas arena, as the nation’s energy sector strives to adapt to rapid shifts in energy demand, geopolitical and environmental dynamics. Despite the obvious challenges carried from the previous year, the sector remains poised for a significant upswing in 2024, driven by a number of positive developments like the commencement of production from the Dangote Refinery, removal of subsidy on petrol and consolidation of some of the gains from the Petroleum Industry Act (PIA) 2021. Expectations are very high for the oil and gas sector this year based on deregulation and liberalization efforts which are creating a more attractive environment for investment. Valuechain explores the outlook of Nigeria’s oil and gas sector, considering key factors that will influence its performance in 2024.
Global oil market dynamics
The global oil market will remain a primary influencer of Nigeria’s oil sector outlook. Analysts project a gradual recovery in oil prices throughout 2024, just as uncertainties will continue to persist, with geopolitical tensions and supply dynamics continuing to shape market trends. If the Russia-Ukraine war intensifies, it could lead to increased global energy and commodity supply risks.
Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum production cost. The outcome of elections in several countries globally, especially USA, UK, and Taiwan may shape the dynamics of trade and capital flows around the world in 2024.
Production issues to linger but opportunities abound
Nigeria’s oil production levels have historically fluctuated due to factors such as pipeline vandalism, security concerns and operational challenges.
Currently, Nigeria is targeting the production of up to 1.8 million barrels of crude oil per day (bpd) aligning with the production quota proposed for the country by the Organization of the Petroleum Exporting Countries (OPEC). The quota shows a 120,000 bpd increase from initial OPEC targets of 1.38 million bpd for Nigeria in 2024 however falls short of the country’s planned 1.78 million bpd for the year. OPEC’s proposed quota, aimed at ensuring a stable and balanced oil market, follows an independent assessment conducted by research firms IHS, Wood Mackenzie, and Rystad Energy to determine Nigeria’s – as well as other OPEC member states – achievable production levels, while taking into account projected global market dynamics. While the country witnessed a decline in output in 2022 and 2023, an increase in supply was seen in September and October 2023, primarily due to strengthened output in the country’s offshore basins.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in its 2024-2026 action plan, oil production was expected to rise from 1.8 million bpd this year and progress to 2.6 million bpd in 2026.
The NUPRC as part of its plan to ramp up output, is also working to cut the cost of oil production to about $20 a barrel, down from between $25 and $40, by providing incentives to oil producers. The Commission is working on setting up a framework for crude oil and gas transportation and/or handling costs based on a standardised tariff (and) implement an open access regime for upstream oil and gas pipelines and ancillary facilities.
Boom for domestic refining
A new chapter in Nigeria’s domestic refining beckons as refined products from the Dangote Refinery and the refurbished Port Harcourt Refinery is set to hit the domestic market this year.
For the Dangote Refinery, the expectations includes attaining near partial refining and commercial operations in 2024 in furtherance of the already set expectation of 50-70% operationality in 2025. This development will gradually strengthen Nigeria’s objective of attaining improved local refining capacity and reducing undue petroleum import bills.
Experts say that with the commencement of domestic crude oil refining, the downstream sector is poised for a dominant performance in the year offering promising prospects for investors seeking lucrative opportunities.
The commencement of domestic crude oil refining in Nigeria marks a significant milestone for the nation’s energy sector. This shift towards self-sufficiency in refined petroleum products is expected to attract substantial investment and boost economic growth.
As the Dangote refinery begins production, the NNPC Ltd technically completed the rehabilitation of Port Harcourt Refinery, with some tests, targeted at ascertaining the readiness of the plant to run commercial operations still ongoing. With this, the Port Harcourt refinery is also expected to start production.
Government policies & regulatory reforms remain key
The federal government’s policies and regulatory decisions will play a crucial role in shaping the sector’s trajectory in 2024. Ongoing efforts to reform the oil and gas industry, streamline regulatory processes and encourage private sector participation through the PIA and other regulations, are anticipated to create a more conducive environment for investment.
To tackle the sector’s myriads of recurring challenges like investment apathy, high exploration and production cost, contractual bottlenecks, oil theft and many others, the NUPRC plans to come up with a clear regulatory agenda for the industry which it said was imperative to build investor confidence and improve global competitiveness. With the Regulatory Action Plan (RAP), the Upstream Regulator is ready and prepared to take the bulls by the horns and successfully navigate the challenges.
Some of the critical changes that will be witnessed is the enforcement of 100 per cent use of the National Production Monitoring System (NPMS)dd, the Annual Work Programme Portal, the Dynamic Acreage Management System (DAMS), the HOSTCOMPLY, and the Oil and Gas Industry Service Permit (OGISP) automation tools.
The government through the NUPRC this year, wants to enforce the Domestic Crude Supply Obligation to ensure that the domestic refineries have adequate feedstock. The PIA 2021, in Section 109 introduced the Domestic Crude Supply Obligation. The DCSO is a policy that mandates oil-producing companies to allocate a specific percentage of their crude oil production for domestic refining.
“It is believed that the implementation of the DCSO shall bolster socioeconomic growth for Nigeria including energy security and reduced import dependency of refined products.
“The overarching thrust of this policy is to promote adequate supply of crude oil for domestic refining and consumption while fostering responsible resource management, energy security, economic stability, and sustainable development”, the Commission added.
Other measures to accelerate the execution of oil and gas development and production by ultimately eliminating all forms of disruptive agitations, is the established Host Community Trust Fund, which the Commission said it shall ensure activities in their respective beneficiary communities aimed at ensuring peaceful operations. Also, full functionality of the recently launched HOSTCOMPLY platform to ensure simplified administration of the HCDTs kicks off this year.
Major gas projects execution to continue
Infrastructure projects, such as pipeline expansions and the construction of new downstream gas facilities will be pivotal for the sector’s growth in line with the federal government’s drive to expand the use of gas. Nigeria has adopted gas as a transition fuel and in 2024, the focus will likely be on completing major ongoing gas projects like the Ajaokuta-Kaduna- Kano (AKK) gas pipeline and the NLNG Train 7 project, and initiating new downstream gas ventures to enhance the overall efficiency and capacity of the oil and gas infrastructure.
NNPC likely to go public
One of the most anticipated development this year is the potential listing of the NNPC on the Nigerian Exchange. The listing which may happen as early as the first quarter of 2024, is spurred by NNPC’s strong performance in recent time which would be a major boost for the market.
The NNPC Ltd recently announced it has concluded plans to sell its shares to the public, a development that will stimulate growth in the economy. According to the Group Chief Executive Officer of the company, Mele Kyari, “What the Petroleum Industry Act 2021 (PIA) provided for, is that within three years, this company’s ordinary shares can be sold to other Nigerians or interested international partners that combine shared values. There’s a process for this- that means you must take it to an Initial Public Offering (IPO) level.”
Expect oil licensing round
The year 2024 looks bright for an oil licensing round as part of the implementation of the nation’s PIA.
According to the NUPRC, the licensing round is targeted at attracting new investors and increasing investment that will ultimately raise Nigeria’s oil reserves toward 40 billion barrels, from the present 37 billion barrels.
The planned licensing round is in line with Section 73 of the nation’s Petroleum Industry Act, PIA, a comprehensive legislation aimed at achieving increased investment, restructuring as well as transparency and accountability in the industry.
Oil theft problems to persist
Even though there is no backing down against crude oil theft as efforts continue to be intensified to eradicate the menace, oil theft issues will continue to dominate the sector as the perpetrators who are assisted by top government officials seek more crooked ways to further their criminality.
The NNPC in collaboration with other security agencies has stepped up the war against theft underscoring how deep the problem has become. Last November the government inaugurated a special committee to combat oil theft, part of actions to address “wanton crude oil theft” to “enable the production of hydrocarbons at reasonable costs and profitability”. There had been complaints by operators of their inability to evacuate crude through pipelines and are now forced to explore alternative options at high costs. Equinor ASA announced November it was selling its stake in the Niger Delta’s Agbami oil field as it exits the country. More operators could be forced out if the problem persists beyond control.
As Nigeria’s oil and gas sector navigates the challenges and opportunities of 2024, a holistic approach that addresses economic, technological, regulatory, and environmental factors will be essential. Proactive measures, strategic investments and forward-thinking policies will be instrumental in shaping the sector’s future. The industry’s ability to adapt to global dynamics, invest in sustainable practices and diversify its sources of revenue will shape its resilience and competitiveness in the years ahead. Stakeholders, both domestic and international, will closely monitor developments, recognizing its pivotal role in the country’s economic prosperity.