On October 22, the Minister of Finance and Coordinating Minister for the Economy, Wale Edun, told investors in Washington DC that Nigeria needs to increase crude oil production to address foreign exchange (FX) supply issues. Ta.
“The key thing in the foreign exchange market is supply. All we need is to increase oil production, and that will address the problem of foreign exchange supply and foreign exchange pressure with every large inflow,” Edun said. He spoke at the World Bank while being asked tough questions about the Nigerian economy. An IMF meeting will be held in Washington, DC on Tuesday.
Crude oil could provide a much-needed boost to the country’s currency, the Naira, which has languished and lost nearly a third of its value since President Bola Tinubu’s government ended artificial value retention. There is sex.
According to FMDQ data sources, the Naira strengthened against the US dollar on Thursday, October 24, 2024, closing at 1,601 Naira/$1, an increase of 3% from the previous day’s record of 1,651 Naira/$1.
The Tinubu administration has ambitions to increase production to 2 million barrels per day, but bottlenecks include sloppy approvals for divestment by International Oil Companies (IOCs), fewer oil rigs, idle oil assets and lack of investment. has proven to be a problem.
Related article: Nigeria needs significant oil production to ease currency pressure, Edun says
Sloppy approval for IOC sale
Traditional oil and gas companies, from ExxonMobil to Shell, that have flocked to Nigeria for oil are gradually leaving the country, citing insecurity and the lure of other markets with better financial conditions. .
Disinvestment by oil majors offers once-local operators a chance to prove their mettle, remove past production peaks from declining oil fields, and improve relations with host communities to earn higher royalties. It was provided to the government. Nigeria is now desperate to extract value from the sold fields.
Business Day’s findings showed Nigeria’s decision this week to block Shell’s $2.4 billion sale of onshore assets sends a negative signal to investors.
The Nigeria Upstream Petroleum Regulatory Commission (NUPRC) has not given reasons for its decision and Shell has not yet commented. Its relationship with the company goes back more than half a century and it is one of the largest investors in Nigerian oil, the backbone of the economy and the largest earner of foreign exchange.
A similar deal by Exxon Mobil to sell onshore assets to Seplat Energy was approved this week, after more than two-and-a-half years.
The net effect of this development is a deterioration in Nigeria’s oil production.
On October 14, the Organization of the Petroleum Exporting Countries (OPEC) announced that Nigeria’s average daily crude oil production will decline to 1.32 million barrels per day (bpd) in September 2024.
But representatives of local oil companies said Nigeria’s production could increase by 200,000 barrels per day within two years if the government speeds up approval of the deal.
“We strongly urge our member companies, Ceplat, Renaissance Consortium and Oando, to have a proven track record of taking over and managing these onshore and shallow water assets,” Abdulrazaq Isa of the Independent Oil Producers Group said at an industry event. I will insist.” .
Also read: Nigeria’s oil production falls by 40,000 barrels per day as OPEC struggles – Reuters report
Decrease in oil rigs
OPEC’s latest data on Nigeria’s oil rig count from January to October 2024 shows fluctuating levels of exploration, development and production activity in the country’s oil and gas sector.
The count started with 17 rigs in the first quarter (Q1) and second quarter (Q2) of 2024 and decreased to 14 in the third quarter (Q3) of 2024.
“Nigeria, which had previously been a bright spot on the radar screens of major oil and gas investors, has dimmed significantly as investor attention increasingly focuses on new emerging developments in Namibia, Ivory Coast, Angola and the Republic of Congo. ” said executive NJ Ayuk. The President of the African Energy Chamber said:
He added: “Investor flight is a serious problem for Nigeria as more than two-thirds of its revenue comes from oil.”
idle oil assets
Although oil receipts fund the country’s budget, many oil and gas projects remain dormant, threatening the goal set more than a decade ago to increase reserves to 40 billion barrels.
These big-ticket projects include: Zaba Zaba 150,000 barrels per day (bpd). Shells Bonga Southwest, 225,000 barrels/day; Bonga North project, 100,000 barrels per day. Chevron Nsiko project, 100,000 barrels per day. ExxonMobil Boshi. 140,000 barrels/day. Satellite field development stage, 80,000 barrels/day, Ude 110,000 barrels/day.
Oil experts surveyed by Business Day say Nigeria’s path to economic prosperity may lie in optimizing idle assets, whose development requires disciplined planning, economic reforms and consistency that boosts investor confidence. He said that a government policy based on this will be needed.
“Officials from regulators and other agencies still demand bribes to process permits, and delays and bureaucratic hurdles remain,” said an industry executive on condition of anonymity.
lack of investment
The immediate challenge for Nigeria became clearer when an oil company executive said the country would need $25 billion in annual investment to reach its 2 million barrels per day production target.
In the 2010s, the future of Nigeria’s nascent indigenous upstream oil and gas industry looked dazzlingly bright, with significant foreign direct investment from international companies eager to tap the country’s vast oil and gas reserves. (FDI) was observed.
In 2014, Nigeria attracted the largest amount of FDI among African countries, with inflows exceeding $22.1 billion. This influx of capital fueled large-scale projects such as deep-sea exploration and the development of new oil fields.
Oil FDI in Q2 2024 was $5 million.
“Prioritizing political gain over transparency and due process in asset sales has led to corruption, mismanagement and ultimately the sector’s underperformance,” said Austin Avre, executive chairman of AA Holdings. The statement was made at an event at Harvard Business School (Nigeria Association). Located in the commercial capital of Nigeria.
He said the people who should be managing the process to ensure a smooth transition from oil majors to local operators turned it into an “approval power play.”
“In the absence of guidelines or defined processes, political connections rather than ability became the criteria for eligibility,” Avre explained.
Oladehinde Oladipo
Dipo Oladehinde is a seasoned energy analyst with experience across Nigeria’s energy sector and relevant know-how on Nigeria’s macroeconomics. He provides a combination of market intelligence, financial analysis, industry insights, micro- and macro-level analysis of a wide range of regional and international issues, as well as information for policy-making and personal direction. It also provides a technical foundation.
