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Economy | Oil & Gas

The Nigerian Oil Sector in Retrospect

Jan 04, 2023   •   by CSL Research   •   Source: CSL   •   eye-icon 280 views


Numerous challenges faced the Nigerian oil sector in 2022. The country’s oil revenues fell drastically due to a decline in production occasioned by crude oil theft and pipeline vandalism. Nigeria failed to take advantage of the high crude oil prices induced majorly by the Russia-Ukraine war. The Russian invasion of Ukraine was the most significant event that affected the global oil market in 2022. In February, when Russia invaded Ukraine, crude oil prices hit US$130 a barrel, the highest since July 2008. The country produced one of the lowest oil production quotas among its Organisation of Petroleum Exporting Countries (OPEC) peers with the likes of Angola, Algeria, and Libya moving ahead of the country. According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s oil production averaged 1.34 million barrels per day (mbpd) in the first 10 months of 2022 compared with the 2022 Budget benchmark of 1.88mbpd, this is about 161.58 million barrels in lost crude oil production. 

 

A major hurdle that faced the oil sector was crude oil theft, which was a trending topic in 2022. In April, the Group Managing Director of the NNPC Limited, Mele Kyari, disclosed that Nigeria lost US4bn to oil theft at the rate of 200,000 barrels per day in 2021. According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country lost over US$1bn directly to oil theft between January and March of 2022 alone. In September, the NNPC said the country loses 470,000 barrels of crude oil monthly amounting to US$700m to oil theft. The NNPC also announced it had uncovered an illegal oil connection from Forcados terminal that had been in operation for nine years. Mr Kyari, who disclosed this at the Senate’s joint committees on Gas and Petroleum (Upstream and Downstream) said that 395 illegal refineries had been deactivated, 274 reservoirs destroyed, 1,561 metal tanks destroyed and 49 trucks seized. To curtail the menace of crude oil theft in Nigeria, the NNPC awarded a multi-billion-naira pipeline surveillance procurement to a former leader of the Movement for the Emancipation of Niger Delta, Tompolo. 

 

The debate on fuel subsidies lasted all through the year, The government noted that the subsidies were a huge financial burden for the country and there was a need for a complete removal of fuel subsidies. The government initially budgeted N3trn for subsidies in 2022, but further adjustments were made to raise the figure to N4trn after oil prices rose in the international market. Fuel scarcity was also a constant theme through the year. Millions of Nigerians were thrown into chaos amid a scarcity of fuel across the country. The first of the scarcity rounds was, according to the government, due to importation of adulterated petrol but the scarcity has persisted. Despite the challenges that the Nigerian oil sector currently faces, we envisage brighter days ahead. The proactive measures of the government on crude oil theft coupled with the anticipated expansion of crude oil production on the Kolmani field (capacity of 120,000 barrels per day) and the expected commencement of Dangote Refinery, are all positive for the Nigerian oil sector.

 

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