Key events that shaped oil, gas industry in 2016

The year 2016 has been a tumultuous year for the oil and gas industry especially as it was heralded with crude oil prices plunging to $27 per barrels – its lowest level since 2013, crashing an incredible 75 percent from its June 2014 peak of almost $108.

The steady decline in the oil prices created a widespread headache for financial markets, causing energy companies’ profits to plunge, raising worries about the prospect of bankruptcies in the oil sector and spooking investors about global growth. In total, crude oil has plunged an incredible 75% from its June 2014 peak of almost $108.

Beyond the oil prices, several events and incidents stood out both in Nigeria, The West African sub-region and the world.

Nigeria bites the bullet – removes petroleum subsidy

Nigeria finally bit the bullet, removing the corrupt and hugely inefficient fuel subsidy regime with the introduction of price modulation mechanism, kind of partial deregulation after trillions of naira were spent by successive administrations on the subsidy regime.

While the Nigeria Labour Congress (NLC), which played part for decades in frustrating attempts by previous administrations to remove the subsidy on petrol, insisted maintaining the subsidy regime, the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and Independent Petroleum Marketers Association of Nigeria (IPMAN), all backed the decision.

The Petroleum Products Pricing Regulatory Agency (PPPRA) later unveiled a new pricing template in which fuel stations in the country would sell the product at a maximum of N145 per litre, N58.50 higher than the previous price of N86.50 per litre. It also indicated that there was no subsidy for the importation of petrol, adding that the price would reflect extant market realities.

PPPRA also stated that petrol marketers would henceforth be allowed to independently source foreign exchange to import products into the country, and advised retail stations owned by the Nigerian National Petroleum Corporation (NNPC) to sell at pump prices below N145 per litre.

Ghana passes Petroleum Act

Ghana’s legislature during the year, enacted the Petroleum (Exploration and Production) Act 2016 to replace the Petroleum (Exploration and Production) Act, 1984. The bill was first laid before Parliament in 2012 but years of stakeholder consultations delayed its passage.

Emmanuel Buah, Ghana’s Energy Minister, said the new law would create an attractive environment for potential investors to participate in the sector by providing certainty and transparency in the ground rules for operations.

Energy think tank, Africa Centre for Energy Policy (ACEP), says the passage of the Petroleum (Exploration and Production) Act 2016 by Parliament is welcome news for the oil and gas sector. However, ACEP says absence of punitive actions for conflict of interest by public officials blots the impecable work by Parliament.

“We are however worried that an important provision relating to penalty for conflict of interest of public officers has not been incorporated in the Act despite many calls for it”, said ACEP in a statement.

Though the ACEP says it has also taken positive note of the provisions of the new Act that will foster transparency in the sector. But the think tank says it will continue to campaign for the provision on conflict of interest to eventually reflect in future amendments to the Act.

Nevertheless, there is room for more transparency still for Ghana including full disclosure of bids submitted in a competitive bidding process, ownership information of blocks awarded, including all beneficial ownership”, said Dolapo Oni, Head, Energy Research, ECOBANK PLC.

ExxonMobil’s 1 billion big-bang oil discovery

ExxonMobil announced a significant discovery with a potential recoverable resource of about 1 billion barrels of oil on the Owowo field offshore Nigeria.

“It’s a significant morale booster for the industry especially as Nigeria’s reserve replacement ratio has been going down”, said Rolake Akinkugbe, Head of Energy & Natural Resources for FBN Quest.

The Owowo field spans portions of the contract areas of Oil Prospecting License 223 (OPL 223) and Oil Mining License 139 (OML 139). The well was drilled by ExxonMobil affiliate Esso Exploration and Production Nigeria (Deepwater Ventures) Limited and proved additional resource in deeper reservoirs.

“One billion barrels of oil reserve is about 3 percent of Nigeria’s current reserve and if the potential is realized, that will give Nigeria an extra 100,000 to 200,000 barrels of oil per day”, said Wumi Iledare, Professor of Energy Economics at Centre of Petroleum Institute, University of Port Harcourt.

Now comes the 7 Big Wins

President Buhari launched a new Petroleum Industry Road map for the development of Nigeria’s oil and gas sector, named the ‘7 Big Wins’. The document is the short and medium term priorities to grow the nation’s oil and gas industry from 2015 to 2019.

The big wins include Niger Delta and security, policy and regulation, business environment and investment drive, transparency and efficiency, stakeholder management and international coordination, gas revolution and refineries and production capacity.

OPEC finally made a deal

The world’s largest oil exporters finally agreed a deal to cut output for the first time in eight years to erode a global supply overhang that has persisted for two years and halved the value of a barrel of crude.

The Organization of the Petroleum Exporting Countries (OPEC) confirmed its decision to implement a new production target of 32.5 MMb/d effective January 1, 2017 for six months to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward. The reduction agreed during the OPEC 171st meeting in Vienna, will cut output by some 1.2 MMb/d, from the current 33.64 MMb/d.

The oil cartel also agreed at the conference to establish a High-level Monitoring Committee, consisting of oil ministers, and assisted by the OPEC secretariat, to monitor the implementation of the agreement in addition to institutionalizing a framework for cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis.

Saudi Arabia, OPEC’s largest producer, has agreed to bear the lion’s share of the cuts, but most member countries, including Iraq, which had initially refused to freeze its output, will limit their production.

Iran, Libya and Nigeria were all given special dispensation not to join in with the reduction, as the three are still fighting to boost their exports and regain market share lost to international sanctions, or civil unrest and violence.

Skeptics have warned that OPEC members are notorious cheaters and may not stick to quotas agreed. Ali al-Naimi, former Saudi Arabia Oil Minister, is one of the skeptics. 

“The only tool they have is to constrain production,” al-Naimi said of OPEC at an event in Washington, D.C. “The unfortunate part is we tend to cheat”, al-Naimi said adding that he was not opposed to production cuts in 2014, as long as everyone participated.

FRANK UZUEGBUNAM