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Oil sector: The good, the bad of 2018

With crude oil price at $69 per barrel in January 2018 against the budget price of $51 per barrel, Nigeria’s economy witnessed a turn-around of sorts in its crude oil output as production was sustained at 2.2 million barrels per day for most part of the year due to relative peace in the Niger Delta region of the country as well as repairs done on vandalised pipelines in the Niger Delta, and the resumption of crude oil lifting activities at Forcados Terminal.

Although the Organisation of Petroleum Exporting Countries (OPEC) excluded Nigeria from its quota cut throughout the year, Nigeria was unable to take advantage of it due to delay in the passage of the PIGB into law as the nation witnessed abysmally low investment in the sector, especially in the upstream sector during the year.

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In 2018, average oil production, up to end of the third quarter, was 1.95 mbpd as against the estimated 2.3 mbpd for the entire year. However, average market price of Bonny Light crude oil was higher (an average of $74 per barrel as at October) than the benchmark price of $51.

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In the National Assembly for many years, the PIGB had passed through both the House of Representatives and the Senate. In its torturous journey, contributions were taken from industry operators, oil-bearing communities, and all levels of government.

Originally called Petroleum Industry Bill (PIB) when it was presented, it was whittled down to accommodate all the variables against its passage before it received the nod of the House of Representatives as PIGB in January this year. The House and Senate versions were harmonised on March 28 before it was presented for the president’s assent.

 

Upstream

Activities in the crude oil exploration and production sub-sector have been championed by the NNPC as international oil companies, except Shell Petroleum Development Company (SPDC) and a few local firms, made a fresh input into the sector in the last 12 month.

Just few days ago, Shell announced that the Final Investment Decision (FID) on Assa North Gas Development Project in Imo State had been taken. About 300 million standard cubic feet of gas per day from the project  will be treated at SPDC JV’s Gas Processing Facility and distributed through the Obiafu-Obrikom-Oben pipeline network to help meet the Federal Government’s aspiration for increased power generation and industrialisation.

Early in the year, NNPC/ First Exploration and Production Joint Venture finalised a $724 million Schlumberger oil finance deal for the Anyalu and Madu fields under Oil Mining Licence (OML) 83 and OML 85, offshore Nigeria.

Under the agreement, global oil services giant Schlumberger would provide $724.14m out of the required project cost of $1.082bn while the balance of $358.79m is to be funded with cash flows generated by the project.

The Anyala and Madu fields are projected to have 193 million barrels of crude oil and 0.637 trillion cubic feet of proven gas reserves with production plateau of 50,000 barrels of oil per day and 120 million standard cubic feet of gas per day.

The deal is expected to yield $5.60bn in taxes and royalties and $1.32bn in net cash flows after Schlumberger’s cost recovery and compensation in line with the terms of the agreement.

Also, the much anticipated Egina Floating, Production, Storage and Offloading (FPSO) sailed from the SHI-MCI Yard, LADOL Island, Lagos to Egina Field in OML 130, which is located about 150km offshore the Niger Delta. The Egina FPSO is the largest FPSO ever installed in Nigeria. Egina is expected to come onstream before the end of the year with 200,000 barrels per day capacity

Meanwhile the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has said that speculations that oil has been found in commercial quantity in the Bida Basin should be discountenanced, stressing that the search for oil in the basin is still ongoing.

 

Midstream

The gas sub-sector was a beehive of activities during the year. The most important of the developments during the year was the signing of Front-End Engineering Design (FEED) contract of Train 7 by its shareholders – NNPC, Shell, Total and Eni. The event also witnessed the commemoration of the successful repayment of $5.45bn shareholders loan for Trains 1-6 by the NLNG shareholders.

The NLNG T7 expansion project aims to increase NLNG production capacity from 22 MPTA to over 30 MTPA by the de-bottlenecking of T1-6 and the addition of Train -T7 and associated infrastructure at an estimated cost of US$4.3 billion. The target Final Investment Decision (FID) date is fourth quarter 2018.

The company sourced a total principal amount of $4.043 billion from its shareholders in their respective shareholding proportions to partly fund the construction of Trains 1-6.

Describing the NLNG as a jewel in the crown of Nigeria as well as a very strategic investment for the nation,  Dr. Maikanti Baru stated that the NLNG would continue to act as a catalyst for nation-building for years to come.

In the same vain, a major stride in the attainment of national energy sufficiency was achieved in Lagos with the signing of the seven Critical Gas Development Projects (7CGDP) to deliver about 3.4 billion standard cubic feet of gas per day (bscfd) to bridge the foreseen medium term supply gap by 2020 on an accelerated basis.

 

Downstream

Throughout year 2018, NNPC was the sole importer of Premium Motor Spirit (PMS) as the Federal Government refused to yield to marketers’ demand for subsidy payment.

As at the first week of December, oil marketers under the aegis of Depot and Petroleum Products Marketers Association (DAPPMA) and Major Oil Marketers Association of Nigeria (MOMAN) had threatened to shut down facilities due to government’s failure to settle outstanding N800 billion subsidy payment.

As part of measures to sustain the robust supply of petroleum products across the country and especially going into the Yuletide period and beyond, NNPC signed a six-month Direct Sale-Direct Purchase (DSDP) agreement with British Petroleum’s (BP) trading arm, BP Oil International Ltd, for the supply of (PMS) petrol.

This latest agreement will represent 20% of NNPC’s total PMS supply under the DSDP arrangement, which basically allows the corporation to exchange crude oil with international oil traders for imported petroleum products over a period of time.

The Federal Government through NNPC had put up efforts to carry out turnaround maintenance of the nation’s four refineries through a Project Financing Model with private sectors investing in the restoration of the refineries through their Original Refinery Builders (ORBs) to ensure that they operate at optimal capacity. It is anticipated that the deal will be sealed early in the year.

The Department of Petroleum Resources (DPR), the industry regulator, granted various stages of approval to five refinery projects during the year. They include, two Approval to Construct (ATC), one License to Establish (LTE), one Detailed Engineering Design Approval (DEDA) and one Approval to Relocate. Over 45 modular refinery licenses have been issued.

During the year, government also re-launched the construction of a Greenfield refinery and crude oil pipeline from Niger Republic to Nigeria. The countries signed a Memorandum of Understanding (MoU) in Abuja on 23rd July, 2018 alongside the inauguration of a Technical Committee and a Steering Committee to supervise the conceptualisation and implementation of the project.

There was pipeline vandalisation in Lagos towards the end of the year  in which property worth over N500 million was destroyed

 

Some expectations in 2019

The Federal Government has predicted growth in its 2019 budget crude oil earnings on Total Egina’s 200,000 barrels per day oil output expected to come on-stream in 2019. Also, government will be disposing parts of its equities in the oil companies to fund the 2019 budget.

The Dangote 650,000 barrels per day refinery is expected to come on-stream in 2019, to reduce Nigeria’s dependence on fuel importation, all things being equal.

 

 

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