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Year Ender: A Review Of Nigeria’s Oil And Gas Industry In 2020

The year 2020 has undoubtedly been one of the most difficult years for the oil and gas industry globally in the last few decades.

It saw the Coronavirus pandemic grip nations across the globe, necessitating countries and states to lock down their borders for some time, thereby preventing movement of persons, goods and services for months unless under special circumstances.

This restriction of movement affected many sectors of the economy, but one of the worst hit was the oil and gas industry which fuels mobility of mankind and businesses across the globe.

With a sharp drop in air and land movement, the demand for Jet A1 (Aviation fuel) , Diesel and Premium Motor Spirit (PMS) also known as petrol declined drastically.

Also, during the period, there was an oil price war between Russia and Saudi Arabia which further led to a crash in the price of crude oil at the international market.

A combination of both factors affected the revenue of countries like Nigeria which is largely dependent on crude oil to sustain its economy; it was not a surprise when the country went into recession.

However, in spite of these challenges, the industry recorded some positive achievements that could be consolidated on in 2021 to, not only boost revenue accruing from the sector, but also help to diversify the economy to reduce the dependency on oil.

Below are major issues and events which occurred in the sector in the outgoing year.

Crash in Crude Oil prices

The crash in crude oil prices caused by COVID-19 pandemic and price war between big oil producers was one of the major challenges faced by the industry in 2020.

Statistics indicate that crude oil prices plunged in the world market, with Bonny Light dropping from a peak of US$72.2 pb on Jan. 7, to below US$20pb in April.

At certain periods of the year, prices also hovered from $40 to $50.

The Minister of State for Petroleum Resources, Chief Timipre Sylva says with the current second wave of the pandemic, the situation may not change in the coming months.

Nigeria’s crude oil production quota was also reduced in the year, as part of the efforts of the Organisation of Petroleum Exporting Countries (OPEC to strengthen the oil market.

These developments, a reflection of effect of the Coronavirus pandemic and containment measures on global trade, forced an amendment of the country’s 2020 Appropriation Act, as the assumptions underlying it were no longer sustainable.

Among other things, the initial budget oil benchmark price of $57 was reduced to $28 in the amendment.

Removal of Petrol Subsidy

In April, Mr Mele Kyari, Group Managing Director, Nigerian National Petroleum Corporation (NNPC) announced that the federal government would no longer be subsidising petrol.

Although the move was opposed by Organised Labour, the government stuck to the decision which it says can save the country one trillion naira annually to be deployed to other critical sectors of the economy.

Mr Tunji Oyebanji, Chairman, Major Oil Marketers Association of Nigeria (MOMAN) and Mr Chinedu Okoronkwo, President, Independent Petroleum Marketers Association of Nigeria (IPMAN) believe the removal of subsidy is in the interest of the country.

They say it will open up the sector for Foreign Direct Investment which will be beneficial to Nigerians in the long term.

The situation has led to an unstable fuel price regime, largely determined by market forces, especially international oil price, and varying every month after the announcement. The pump price of PMS which was N145 per litre in January 2020 is now between N164 to N172 across the country.

Transmission of PIB to the National Assembly

The transmission of the Petroleum Industry Bill (PIB) to the National Assembly in September by the president according to industry stakeholders shows a willingness to reposition the oil and gas industry.

Kyari is optimistic that the bill which has passed second reading will be passed into law in 2021.

The PIB, which has been mooted for almost two decades, will provide a clear fiscal environment for the sector, thereby attracting investors and increasing government revenue.

Declaration of 2020 as the Year of Gas

The declaration of 2020 by the Federal Government as the Year of Gas” was one of the key policies that shaped activities of the oil and gas sector in the year.

With 203 Trillion Cubic Feet (tcf) of proven natural gas reserve, Nigeria, according to Sylva, can best be described as a gas country, hence the need to deepen its domestic utilisation for economic growth and sustainability.

This necessitated the creation of the National Gas Expansion Programme (NGEP) in January, a committee that has been driving the implementation of the objective.

On Aug. 10, the “Go-Live” of the National Gas Transportation Network Code (NGTNC) was inaugurated by Sylva to unlock the potential of gas as a resource and revenue earner for Nigeria.

“It is believed that the implementation of the code will provide for investors in gas, the confidence to invest heavily in the sector and enable Nigeria consolidate on the multiplier effect of gas on the economy,” says the minister’s TechnicalAdviser, Gas, Mr Justice Derefaka.

Also on Dec. 1, President Muhammadu Buhari rolled out the deployment of autogas in the country with the inauguration of five gas-powered Mass Transit Buses handed over to the Nigeria Labour Congress (NLC).

According to the NGEP, autogas (Compressed Natural Gas) service stations are already in operation in the Federal Capital Territory Abuja, Kano and Kaduna States.

They are also in Kogi, Kwara, Ogun, Ondo, Oyo, Lagos, Edo, Delta, Rivers and Bayelsa States, and the government is targeting free conversion of one million vehicles from petrol to gas.

The committee says the scheme is a way of reducing Nigeria’s dependence on oil while at the same time providing a cheaper and cleaner alternative source of energy for Nigerians.

Dr Mohammed Ibrahim, Chairman, NGEP says the autogas scheme and domestic utilisation of Liquefied Petroleum Gas will create about 12.5 million direct and indirect jobs.

In June, the president flagged off the construction of the Ajaokuta -Kaduna-Kano (AKK) pipeline project which will create job opportunities for Nigerians.

Mr Sarki Auwalu, Director, Department of Petroleum Resources (DPR) says connecting the entire country with gas networks such as Escravos Gas Pipeline System (ELPS), Obiafu-Obrikon-Oben(OB3) and Ajaokuta -Kaduna-Kano (AKK) pipelines is part of the strategic agenda to bring gas to the people.

Similarly in June, Final Investment Decision (FID) was taken on the NLNG Train 7 project which is expected to ramp up NLNG’s production capacity by 35 per cent from 22 million Tonnes Per Annum (MTPA) to around 30 MTPA.

Mr Tony Attah Managing Director, NLNG, says, “the project is anticipated to create about 10,000 new jobs during the construction stage, and on completion, help to further diversify the revenue portfolio of the federal government and increase its tax base.’’

Inauguration of Waltersmith Modular Refinery

On Nov. 24, Buhari inaugurated the 5,000BPD Waltersmith Modular Refinery at Ibigwe, in Imo State and also performed the groundbreaking for the company’s 45,000BPD Refinery.

The refinery was constructed with the support of the Nigerian Content Development and Monitoring Board and will supply kerosene to the state and its environs.

Inauguration of Oredo Integrated Gas Handling Facility

On Dec. 22, Buhari inaugurated the Integrated Gas Handling Facility and LPG Processing and Dispensing Plants built and operated by the Nigerian Petroleum Development Company, an Upstream Subsidiary of NNPC in Oredo, Edo State.

The president said : “The Oredo Integrated Gas Handling Facility will be delivering 240,000 metric tons of commercial grade Liquefied Petroleum Gas and Propane. It will also deliver about 205 million standard cubic feet per day of lean gas to the domestic market”.

Marginal oil field bid round

In June, Nigeria opened bid round for 57 marginal oil fields in the country with over 600 companies applying for prequalification.

Mr Paul Osu,Head , Public Affairs, DPR says the objective of bid round is to deepen the participation of indigenous companies in the upstream segment of the industry and provide opportunities for technical and financial partnerships for investors.

Gas Explosions and Fire Incidents

Sadly, the year 2020 had its share of gas explosion and fire outbreaks caused by petroleum products leading to fatalities and destruction of property worth billions of naira.

On Jan. 19, a Nigerian National Petroleum Corporation (NNPC) pipeline at Ile Epo axis of Alimosho Local Government Area of Lagos State exploded, leading to the death of five persons according to the National Emergency Management Agency (NEMA).

Similarly, on March 15, NEMA confirmed the death of 15 persons when an explosion occurred at Abule Ado, in Trade Fair axis of Lagos State.

No fewer than 60 students of Bethlehem Girls College located within the area also sustained injuries while over 50 buildings were destroyed.

Also on Sept. 25, 44 persons sustained various degree of injuries when a gas tanker exploded in Iju area of the state.

A few weeks later, on Oct. 8, five persons lost their lives when a gas plant exploded at Baruwa area of Alimosho, while eight persons were rescued alive with various degrees of injuries.

According to NEMA, 44 buildings were also destroyed in the inferno which started at about 5:40am when a LPG tanker was in the process of discharging at a gas plant located within the densely populated area.

Another inferno also occurred on Nov. 5 at the OVH Energy tank farm at Marine Beach, Ijora area of Lagos State. However no life was lost in the incident.

These are among some others that occurred in other parts of the country.

Reacting to the upsurge in fire incidents and gas explosions, Dr Kennie Obateru, Group General Manager, Group Public Affairs Division, NNPC says operators of gas plants and other petroleum products facilities in the country must ensure strict adherence to safety rules and regulations. 

Also, Auwalu has said that the DPR will begin the enforcement of the Minimum Industry Safety Training for Downstream Operations (MISTDO) at petroleum facilities nationwide from January 2021.

“The growth of Nigeria’s downstream sector has resulted in increase of incidents leading to loss of lives, damage to property and environmental pollution.

“Some of these incidents have come from fallen tankers, petrol station fires, gas explosion and vandalism.

“Our records show that 70 per cent of accidents in the Nigerian oil and gas industry between 2013 and 2019 occurred in the downstream sector,” he said.

2021 Projection for the industry

In their projections for the future, experts believe that the foundation laid in 2020, in spite of the enormous challenges, will help the country actualise its vision for the oil and gas industry.

The experts believe the autogas policy, increase in domestic utilisation of gas, full deregulation of PMS and expected coming on stream of the Dangote Refinery in Lagos and other modular refineries in Bayelsa, Rivers and Edo portend good omen for the country.

They also project that passage of the PIB will provide the legislative framework that will usher in a new era for Nigeria’s oil and gas industry and transform the country into a petroleum product refining hub. (NAN)

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