OREANDA-NEWS. Protocol: I am honoured to be in your midst today to present a keynote address on the future of Nigeria’s petroleum industry. This forum offers tremendous opportunity for the government to bring its perspectives on the future of this vital industry sector and since the Nigeria Summit will bring together leading governmental and business leaders, I welcome the audience to which I will now share these perspectives.

In many respects, Nigeria’s economic future is inextricably tied to what it does with its petroleum industry going forward. For example, the oil industry remains the most important income earner for all governments in the federation even though oil and gas contribution to the Gross Domestic Products (GDP) represents about 14%.

In order to look into the future of the Nigeria’s oil industry, we must first understand the present state of the industry.


The Nigerian oil and gas industry has had many triumphs and also set-backs. In recent times, it has emerged from the scourge of militancy in the Niger-Delta when production was at a low of 1.6 million barrels per day in 2009 to current levels of about 2.4 million barrels per day mainly attributable to the government’s amnesty program. This current production comes from Joint Ventures (JVs) with International Oil Companies which accounts for about 64% of production and Production Sharing Contracts (PSCs) which accounts for about 36% of production.

Nigeria has also witnessed some asset transfer transactions largely from Shell, Total and ENI, which have seen the emergence of new largely indigenous led independent companies. This demonstrates a maturing oil and gas sector in which bigger players are re-aligning their asset portfolios to the benefit of newer non-major players.

Similarly, the Nigerian gas produced for sale has increased to a historic high level of 4.3 billion cubic feet per day in 2011 out of which 1.1 billion cubic feet per day is sold domestically.

The midstream and downstream have witnessed significant challenges which is why government has focused its reforms on liberalizing these sectors. Nigeria has three refineries with nameplate capacity of 445,000 barrels per day, 5,120 km of product and crude pipelines, 21 storage depots and one import terminal at Atlas Cove, all of which have suffered from vandalism and poor maintenance over the years because of the lack of a commercially viable framework for cost recovery.

The huge cost of a non-commercial midstream and downstream oil sector has been borne by government through various forms of subsidies. It is clear that for a viable oil and gas sector, these programs of government support are no longer sustainable and that reforms in these and indeed the entire oil and gas sector of the Nigerian economy needs a revamp.

Defining the Future Today

Having stated the foregoing, it will not be out of place to enumerate the broad outline of the reform and revamping agenda of government with respect to the oil and gas industry. An important starting point will be the country’s Energy Policy itself which has the following objectives:
To ensure the development of the nation’s energy resources, with a diversified energy resources option, for the achievement of national energy security and an efficient delivery system with an optional energy resource mix
To guarantee increased contribution of energy productive activities to national income
To guarantee adequate, reliable and sustainable supply of energy at appropriate costs and in an environmentally friendly manner, to the various sectors of the economy, for national development
To guarantee an efficient and cost effective consumption pattern of energy resources
To accelerate the process of acquisition and diffusion of technology and managerial expertise in the energy sector and indigenous participation in energy sector industries, for stability and self-reliance
To promote increased investments and development of the energy sector industries with substantial private sector participation
To ensure a Comprehensive, integrated and well informed energy sector plan and programmes for effective development
To foster international co-operation in energy trade and projects development in both the African region and the world at large
To successfully use the nation’s abundant energy resource to promote international cooperation

The reform agenda for the oil and gas industry is centred on the Petroleum Industry Bill (PIB) though not exclusively so. Others include National Content Act, the Amnesty Programme and Gas initiatives.

The PIB currently undergoing legislative processes at the National Assembly establishes the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry. It also stipulates guidelines for operations in the upstream and downstream sectors.

The objectives of the PIB are therefore as follows:

•       To enhance exploration and exploitation of petroleum resources
•       To significantly increase domestic gas supplies  especially for power and industry
•       To create competitive  business environment for the exploitation of oil and gas
•       To establish fiscal framework that is flexible, stable and competitively attractive
•       To create commercially viable national oil company
•       To create strong and effective regulatory institutions
•       To promote Nigerian content and
•       To promote and protect health safety and environment

The proposed reforms in the PIB can broadly be divided into two; non-fiscal and fiscal reforms.  Non-fiscal reforms relate to institutional and policy re-orientation.

Institutional & Policy Reforms

At the heart of the PIB is the separation between policy, regulation and monitoring and commercial operations. Based on this model idea, the PIB seeks to build institutions around these core principles. Under this, the Ministry of Petroleum Resources has responsibility for the evolution of policy in the oil and gas sector. Under the Ministry are the Regulatory Institutions charged with regulation and monitoring and thirdly, the National Oil Company with responsibility for commercial operations.

The building blocks of these institutional and policy reforms are as follows:

•       The Unbundling of NNPC as presently constituted through the Creation of a National Oil Company that promotes indigenous operational capacity development
•       The Creation an Asset Management Limited Liability Company to manage the JV assets on behalf of the federation
•       The excision of Nigerian Gas Company (NGC) from NNPC as a separate partially privatised entity to cater for domestic gas marketing and gas infrastructure development.  The intention here is to accelerate national gas infrastructure development for effective gas supply to power and industrial sectors of the economy.  This will be realised through private equity participation of up to 49%.

The proposed PIB will change the role of NNPC. Currently all NNPC’s revenues arising from the management of federal government assets flow directly to the Federation Account and its funding for the JVs is then provided by the government. This role will now be taken over by the Asset Management Company which will be capitalized with a two year loan in place of the annual cash calls and would later be expected to be self-financing through the retention of its earnings. All royalty and taxes would however be paid to the government as and when due.

The new National Oil Company will broadly consist of the PSC assets which shall be used to capitalize the National Oil Company, the National Petroleum Development Company (NPDC), the current three domestic refineries (WRPC, KRPC and PHRC) and the Pipelines and Products Marketing Company (PPMC).

The new National Oil Company will also be partially privatised. It is expected that up to 30% equity shall be divested to provide private participation as done in other NOCs such as Petrobras, Petronas etc. Government expects the partial privatization to provide a culture change to a fully accountable and commercial company.

Along with the unbundling of NNPC, two new regulatory institutions; upstream petroleum and downstream petroleum inspectorates are to be created to promote effective regulation and monitoring in line with operational best practices. These regulatory entities are expected to perform both commercial and technical regulation in the upstream and downstream petroleum sectors respectively.

Nigeria’s quest to grow its reserves will be engendered in the proposed new PIB through a robust acreage management system to be superintended by the Upstream Petroleum Inspectorate. Similarly, the PIB proposes the establishment of a Technical Bureau in the Ministry of Petroleum Resources charged with the responsibility for frontier exploration services.

Over the years, Nigeria has underexploited its bitumen resources. The Frontier Exploration Services will provide necessary coordination and preliminary work for the Upstream Petroleum Inspectorate, which will through its acreage management system offer opportunities for investors. In order to underpin this, the PIB incorporates a fiscal regime for these frontier areas and specifically incorporates bitumen under the upstream fiscal framework.

Additionally, a Petroleum Host Community Fund is proposed in the PIB. The Fund is a mechanism to formally recognize host communities as important stakeholders by assigning oil and gas infrastructure security to the Host Communities and minimizing environmental degradation due to vandalism and crude oil theft. As a freedom to operate tool, it incorporates penalties to host communities in the event of vandalism in their localities. The proposed legislation includes modalities for using regulations to increase flexibility in managing host community issues.