Infrastructural imbalance in E& P sector heighten calls for a different approach

Nigeria’s oil and gas sector today have never had it this rough going by the avalanche of hiccups that trail it in the past couple of months. A cursory look at the gross decadence in infrastructure without doubt points to the fact that it contributes in no small ways to the crises that Nigeria is currently going through.

The critical issue of sabotage by militants in the Niger Delta region has in no small way affected the economy of the country as the once Africa’s largest producer sees its daily crude output slide by 36 percent to 1.4 million barrels per day (bd).

There are indications that all the refineries are producing at an epileptic average of less than 15 percent of its installed capacity. Energy experts are concerned that with 4 non-functioning refineries built in 70s and early 80s compared with Saudi Arabia with a population of 26m that has 16 functional refineries with another two ready for commissioning later this year, this present a worrying time for Nigeria. 

Industry watchers opine that with the infrastructural imbalance in refining capability, Nigeria can never get it right. 

Analysts says that Nigeria requires in the neighbourhood of 40-45 Million liters of refined petroleum products daily but the country are scarcely supplying up to half of the requirement currently. The gap in supply has been due to the policy somersault of the present administration which has been fuelled by the attempt by the government to supply all the needed petroleum products of the country without private marketer’s participation they observes.

Issues around infrastructure

Energy experts observe that shortfall in infrastructure will always present a big challenge in Nigeria achieving her target for gas production. It is equally important to add that apart from the challenge of lack of infrastructure in gas sector, energy experts observe that the issue of gas flaring will continue to impede the nation’s prospect in benefiting optimally from export of gas and pose health and environmental challenge until government, part owner of all the joint ventures, commits huge investments in infrastructure to checkmate this menace.

Analysts believe that achieving the desire result in local gas demand depends on implementation of a Gas Purchase agreement per contract as the domestic Gas market evolves. But absence of an enabling business environment in the gas sector is also not helping matters and can contribute to forestalling the projection.

Industry analysts observe that the downstream petroleum sector currently suffers from overregulation which has profound negative consequences for growth and job creation in the sector. They argue that there is the worry about the gross underutilisation of the marketers’ depot in which huge sums had been invested by depot owners and the marketers

“High exchange rate risk exposure by depot owners and marketers as matured letters of credit [LCs] of over $1 billion are yet to be honoured, creating a major credibility problem for the fuel importers.  Many of their offshore suppliers have not been paid. Some have lost their credit lines”. They said.

Refined petroleum product are imported and funded by forex. The unavailability or inadequate volume of foreign exchange and its price has gone a long way to cripple a lot of companies in the downstream. This has in a very painful way affected the volume of import that our members have been able to execute in the last eight months. 

“Another issue that presents a major challenge in the downstream today is policy somersault and inconsistency. We have arrived at a situation whereby investors are not sure of the sustenance of their investment”, analysts said.

They further insist that the situation in the country at the moment would not allow for proper planning nor would it stimulate investment, be it internal or external. This would directly point to the fact that we should expect any meaningful growth in this sector for now. This is not good for investors and the country at large.

Industry Analysts take 

Ken Abazie, Chairman of the Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry reveals that statistics has shown that proceeds from the crude oil sales contributes in the neighbourhood of about 88 percent of the total revenue accruable to the Federal government of Nigeria. This trend has remained so in the last 50 years without any significant infrastructural development in the downstream.

According to him, the impact of government’s over interference throughout the value chain brought in lot distortions in the business space as in the past whereby government wants to be the one to bring in refined products, build retail outlets across the country as well as acquiring several distribution trucks is a wrong business approach.

Industry experts on their part while assessing the current challenges in the oil and gas sector of the economy maintains that the concept in the previous administration  whereby the government are the regulators, importers, distributors, marketers have never worked and will not work.

They are further maintain that with the partial deregulation that is operational now a level playing ground will be set for genuine investment in the industry to be attracted. This is only the minimum expected to engender growth.

“Government must systematically dis-engage from undue participation and rather strengthen its regulatory function of the business. Government should also encourage investment in the sector through a transparent import financing outlay in conjunction with Nigerian Central Bank”, he said.

He further stated that this is the best opportunity that Nigerian Government would have used to completely deregulate the petroleum landscape.

“We believe that there could never be again this kind of opportunity in nearest future. The international oil price is plummeting, the dollar exchange is at its highest ever in the history of the country and the government is pretending as if it can carry on as usual”.

Dada Thomas, managing director, Frontier Oil observed that in the last one year, the present administration has attempted to initiate reforms in the oil and gas sector. Some of the reforms have been frankly confusing simply because the government is not fully communicating its intentions to the public properly.

Analysts are of the view that Government as a matter of urgency must declare emergency on the refining of petroleum products in Nigeria. It is a big shame that after over 55 years of the commencement of drilling of crude oil in Nigeria, we do not have a functional refinery. Government should go out of its way to get investors to invest in refinery in the country. Nigeria should be able to refine all its 45 million litres daily requirement and even export.

Nigerian should strategically expand its petrochemical and fertiliser manufacturing capacity which is directly related to the petroleum sector. This is an area of great growth potential. On her part, Rolake Akinkugbe, an energy expert observes that given the broader economic focused to diversify the economy away from oil and gas, there will be a greater focus on attracting the type of investment that seeks to build longer-term in infrastructure and also rehabilitate existing oil and gas assets.

Akinkugbe further observes that there has been a greater focus on getting private sector input and expertise in managing the sector, as seen in the recent tenders NNPC for instance has put to out publicly for investors willing to rehabilitate existing infrastructure.

KELECHI EWUZIE