After months of lockdown due to Covid restrictions and OPEC cuts, along with significant international criticism of misplaced funds, Nigeria appears optimistic about the future of its faltering oil industry at a time when few others are.
The Nigerian government announced this week that it expects the country to produce 1.88 million barrels per day of crude oil in 2022, assuming a benchmark price of $ 57 per barrel. In the 2022-2024 Medium Term Expenditure Framework (MTEF), which has just been approved by the Senate, the government also forecast GDP growth of 4.2% and inflation of 13% in 2022. The Inflation in Nigeria fell to 17.01% in August, in a country that has continued to struggle with double-digit inflation since 2016.
This is a very optimistic plan given that Nigeria, Africa’s largest economy, has been particularly affected by the Covid-19 pandemic, from which it is still recovering. The Nigerian economy contracted 1.92% in 2020, after growing 2.92% in 2019. However, the contraction was lower than the World Bank estimate of a 4% contraction or less. the IMF estimate of 3.2%.
The budget approval follows President Muhammadu Buhari’s signing of the Oil Industry Bill in August. It comes after two long decades of delay in GDP approval, at a time when much of the rest of the world is moving away from fossil fuel strategies to embrace green policies focused on renewable energy. Plans to stop the sale of diesel and petroleum vehicles as well as targets for net zero carbon emissions by 2050 in Europe and North America make the new Petroleum Industry Act (PIA) appear somewhat outdated.
However, supporters of the bill believe the African continent will continue to depend on oil production for fuel for much of the next decade. Related: US Oil Platform President Said In August At The Inauguration Of The PIA Steering Committee And Implementation Group That Nigeria May Have Lost Up To $ 50 Billion In Investments Due To years of delay in adopting the PIA because investors were unsure of Nigeria’s future. oil and gas outlook.
Nigeria’s failure to establish a better regulatory environment for its oil and gas industry so far has drawn strong criticism, which has reportedly increased investor interest in the region. This is particularly relevant at a time when other African states are starting to develop their oil industries and competition is coming from new emerging markets such as Guyana and Suriname.
Critics also point to the $ 14 billion in funds provided to develop the Niger Delta region, the heart of Nigeria’s oil industry, which was poorly spent between 2001 and 2019. The funds were to support projects aimed at ” offer a lasting solution to social problems. -the economic difficulties of the Niger Delta region and to facilitate the rapid and sustainable development of the Niger Delta into an economically prosperous, socially stable, ecologically regenerative and politically peaceful region.
The failure to establish an adequate regulatory environment for foreign oil and gas investors for so long, along with the government’s failure to use funds to develop its oil-rich region of the Niger Delta, has placed the country in the background. on the list for many investors now drawn to the oil regions of the future without such a difficult past in the sector.
Let us not forget that Nigeria is not out of the woods, still grappling with the reduction in OPEC + oil quotas and the lack of investment that accompanied them. Angola, Nigeria and Kazakhstan failed to increase their oil production in line with the easing of OPEC + cuts in August, mainly due to years of underinvestment in the countries’ energy industries. rich in oil.
Additionally, concerns over Covid-19 restrictions continue to plague Nigeria’s oil industry as the Delta region faces yet another lockdown if cases continue to rise. The challenges of 2020 could be revisited if Rivers State is blocked, as oil companies face difficulties in transporting personnel to and from oil fields, as well as restrictions affecting the maintenance of pipelines and facilities, as was the case last year.
But the Nigerian government and those who remain in the Nigerian oil industry are hopeful that continued demand from the African continent and growing demand from Asia for oil and gas could help boost the country’s attractiveness after the enactment of the PIA. . With 37 billion barrels of proven oil reserves, ranking 10th in the world, Nigeria has always had great potential to become the oil superstar but until now lacked the regulatory framework to make this dream a reality until now. now.
So the question is whether the “historic” PIA will really be as revolutionary for the Nigerian oil industry as was once hoped. The Nigerian government is hoping the new law will attract more foreign investment to the oil-rich country, but it is not yet time to say whether the oil majors are ready to bet on the African state so late in the game.
Other companies looking to take advantage of the price hike this year:
Transocean (NYSE: RIG) After missing profits for several consecutive quarters, this offshore rig giant sees opportunities left and right as oil majors are betting big on offshore oil and gas production again. The growing market for offshore operations could not have been better for Transocean, which remains one of the most speculative pieces in its sector.
Currently, the company is looking to expand its presence in the Gulf of Mexico. Earlier this month, it landed a firm $ 252 million contract for its new ultra-deep-water drillship, the Deepwater Atlas. Transocean’s client, BOE Exploration & Production LLC, plans to begin operations on the Shenandoah project in Q3 2022.
Suncor Energy (NYSE: SU; TSE: SU): Suncor made headlines this week as it decided to shut down some of its oil sands production due to a mechanical disruption. Syncrude, majority owned by Suncor, produces some 275,000 bpd of crude oil from bitumen at its upgrader in Alberta, according to the latest data, which was from January to May. Despite the disruption, Suncor remains one of the most attractive oil areas in Canada, which some consider the best oil bets against the tide.
Suncor’s relatively low extraction costs per barrel, coupled with strict ESG standards and sustainable reserves make the company attractive to long-term oil investors.
And Suncor isn’t just focusing on its flagship Syncrude project. Two weeks ago, the company announced its intention to extend the life of the FPSO Terra Nova. In collaboration with Murphy Oil and Cenovus, and with support from local government, Suncor is seeking to extend the life of the Terra Nova FPSO by approximately 10 years.
Royal Dutch Shell (NYSE: RDS.A) Shell was targeted by activist investors and environmentalists in 2021, and the Dutch court ruling that requires Shell to reduce carbon intensity has accelerated the company’s plans to to decarbonise.
This week, Royal Dutch Shell announced that it would sell its Permian business to ConocoPhillips for a total of $ 9.5 billion. Instead of reinvesting the entire amount in new energy projects, Shell decided to distribute $ 7 billion to shareholders. The Anglo-Dutch company is stepping up investments in renewable energies across the planet with the aim of becoming carbon neutral by 2050. Shell’s latest investments. His most recent renewable energy bets include solar PV installations in Brazil and a large biofuel refinery in Rotterdam, the Netherlands.
By: Felicity Bradstock
Bradstock writes from Oil Octobers