Oil sector reforms: Will Nigeria take a cue from Mexico?

The global oil industry is changing rapidly, with a fresh wave of new conventional and unconventional resources coming on stream in many parts of the world including Africa.

A number of oil-producing countries are taking very concrete and urgent steps to capitalise on the changing investment landscape by encouraging investment inflows.

Last week, Mexico’s Congress approved a bill to end the 75-year monopoly of Petroleos Mexicanos or Pemex, the state-owned oil company. The reform promises to open opportunities for global energy companies from Exxon Mobil to Chevron to Shell as it makes 29 billion barrels of oil in deep water available. 

 With the reform, Mexico hopes to increase output to 3 million barrels by 2018 and 3.5 million by 2025, by attracting private companies with the expertise and technology to exploit the country’s vast shale and deep-water reserves, especially gas to generate electricity at lower prices.

Industry analysts say the reform could see foreign companies invest as much as $30 billion a year in Mexico’s oil sector, thanks to new rules that will allow production sharing. It is also expected to energise the country’s economy.

 In Nigeria, where the oil and gas industry is loudly begging for reform, a proposed legislation named Petroleum Industry Bill (PIB) has been going back and forth. Now trudging in the National Assembly, the fate of the bill, which seeks to overhaul the beleaguered oil industry, largely hangs in the balance.

 The PIB, six years after the Nigerian government came up to repeal all the existing oil and gas laws in Nigeria (with exception of the NOSDRA Act) and to serve as a one-stop-call for Nigerian oil and gas laws, is still struggling to become law.

The regulatory uncertainty occasioned by the delay in the passage of the vital legislation is putting the plug on massive investment in oil and gas exploration and production, even as security risks including oil theft and pipeline vandalism are increasingly driving oil majors away from the country’s onshore space.

 In the United States (US), where the shale revolution has significantly boosted oil and gas production, crude oil production is expected to average 8.46 million barrels per day in 2014 and 9.28 million bpd in 2015, according to Energy Information Administration. 

 To be sure, energy is critical to economic development. The US energy revolution has transformed the manufacturing sector, providing low cost energy and affordable feedstock for companies across the country, and creating new jobs for the people.

 Curiously enough, Nigeria, Africa’s top oil producer now imports as much in refined products as it used to export in crude oil to the US because refining is as good as non-existent in Nigeria. The country’s refineries are in different states of disrepair, performing far below their installed capacities.

 In a world where countries from Africa to the Americas are making their oil industry less inefficient and more competitive, Nigeria – no thanks to the minister of petroleum and the national assembly – has decided to be the dumb, deaf and blind exception.

Like the PIB, the Mexican energy reform bill, which was spearheaded by President Enrique Peña Nieto during his first year in office, was vociferously opposed by Mexico’s left. The Nigerian legislators must expedite action towards passing the PIB as they cannot create a perfect law however long they try. 

We suggest that passing the PIB in parts, starting from the areas that are not contentious to the controversial aspects, will help unlock the industry, while dealing with the outstanding contentious issues. It is clearly crunch time for Nigeria to reform its oil industry.