Nigeria's liquidity woes worsens, economy totally paralysized as $14bn fresh investment deficit hits oil sector
PARIS, NOVEMBER 21, 2016: (DGW) CREDIBLE reports say Nigeria's oil sector has been hit by $14 billion fresh annual investment deficit thus worsening the nation’s already precarious liquidity woes.
Oil producers in Nigeria told this newspaper that until the shortfall is addressed, the 2.2 million barrels production target in the budget will remain “unachievable.”
The Federal Government had been battling to increase daily oil production to 2.2 million barrels daily to meet the budget benchmark. The 2.2 million barrels per day (bpd) production is the output benchmark set in the 2016 budget, but Nigeria from less than one million barrels bpd few months ago when there were severe attacks on oil installations by militants, has just recently struggled to hit around two million barrels per day.
Chief Executive of Shoreline Natural Resources, a joint venture with oil and gas interests in southern Nigeria, Dr. Ladi Bada, estimated that $9 billion a year investment currently being put in the oil industry from public and private sources, is still grossly insufficient to raise production volume.
Nigeria, he said, “needs at least $14 billion a year in new investment over the next five years to raise oil output to 2.2 million barrels a day (bpd) and even higher spending to lift it to 3 million bpd.”
Shell, Chevron, Exxon- Mobil, Total and Eni had, for the umpteenth time, declared that Nigeria’s oil industry has long suffered from under-investment.
“If we continue to invest $9 billion, we won’t grow volumes,” Bada said on the sideline of a forum in Lagos. “At least $14 billion a year in new investment was needed for Nigeria to produce 2.2 million bpd of oil, the production level, which the national budget is based on,” he stressed.
And to boost output to 3 million barrels per day (bpd), Africa’s top oil producer, Bada said, would require investment of between $18 billion and $20 billion every year for the next five years.
Nigeria, Africa’s largest economy, faces its worst crisis in more than 20 years, triggered by low oil prices, which have slashed the government’s revenues, hammered the currency and caused chronic dollar shortages.
The Nigerian government has joint ventures with oil companies, but struggles to fund its share of commitments. Bada said the government was in arrears of $5 billion. Another factor hampering output is the lack of an oil industry law.
The government has said it was working on new oil and gas policies to attract more private investors and boost crude production by 500,000 barrels a day by 2020.
“The lack of an oil law has held back investments in the sector while the government does not have the funds to operate the joint ventures for which it has a majority shareholding,” Bada said.
The Petroleum Industry Bill (PIB), stuck in parliament for a decade, aims to tackle everything from an overhaul of state oil company, Nigeria National Petroleum Corporation (NNPC), to taxes on upstream projects in a sector riddled with corruption.
The Senate aims to almost complete work by year-end on two major areas of long-delayed legislation to tackle problems in managing the nation’s oil wealth.
Last June, Nigeria said it had signed agreements worth $80 billion with Chinese firms to invest in Nigeria’s oil and gas infrastructure, but no details have emerged yet.
Bada said the government was considering allowing joint ventures to be self-funding and then possibly incorporating them from 2020, but there isn’t a clear framework yet.
He said the contracting cycle in Nigeria takes around 24 months, compared to 6-9 months in most other Organisation for Petroleum Exporting Countries (OPEC) countries.
It cost local producers around $20 to produce each barrel of oil, he said, adding that this could be cut to $12 but for higher security costs in the Niger Delta and funding costs.
Nigeria also needs to upgrade its gas infrastructure and build new plants for domestic consumption, especially for electricity, which is in short supply. Bada said the West African nation needed at least $6 billion a year in investment to boost gas output.
Government said last Thursday that it had reached agreement with shell, ExxonMobil, Chevron and other International Oil Companies (IOCs) to pay $5.1 billion debts accumulated from past operating costs with oil.
The amount, less than the $6.8 billion previously discussed, Minister of State for Petroleum Resources, Dr. Emmanuel Kachikwu said, would be settled through crude-oil sales over five years and will be interest free.