Oil, gas prospects in 2017 hinge on governance, institutional, fiscal reforms
Despite the recent indications of a possible signs of recovery of crude price in the international market with Brent oil prices rising by more than two per cent to a high of $58.37 recently, challenging times may still await the oil and gas sector in 2017. It is not farfetched to decipher that the oil and gas industry is one of the most strategic industries in the world and the Nigeria government relies heavily on the revenue derived from it to carry out practically all her expenditures.
Energy industry close watchers in the wake of the perceived volatility in the industry expressed concern over the 2017 prospects of the Nigerian oil and gas saying that while oil prices are rising, they are yet to rise to their pre-2015 highs, and still far below many contractual benchmarks.
They observe that Nigeria continues to experience challenges within the sector and this is likely to discourage additional investment in crude and increased stresses for existing participants, particularly to the new entrants during the divestment process in 2013/2014.
According to them “gas requirements will also mean that government policy is much more focused on gas implementation than on crude, so current operators are unlikely to receive much government support.
Current issues in the oil and gas sector
Analysts in their various summations on the prospects of the oil and gas sector in 2017 observed that price pressure in the crude oil sector has been further exacerbated by the ongoing spate of vandalism on crude pipelines.
Statistics indicate that between January and October 2016, Nigeria lost 130 million barrels of crude worth about N3 trillion or almost half 2016 budget using estimates of $50 per barrel and exchange rate of N470 to the dollar.
Ayodele Oni, an international energy investment lawyer observed that already, the Kaduna refinery has announced it will need alternative supplies of crude due to the spate of pipeline vandalism recorded in 2016.
Oni opines that the midstream and downstream sectors have been hampered by a lack of access to forex, and petroleum marketers are entering 2017 with a $985 million debt overhang owed to foreign suppliers.
According to him, the government has yet to complete the PIB reform process, which will this in 2017, be a decade long legislative matter covering 3 separate presidents.
Analysts argue that Nigeria’s economy currently in recession, needs to ramp up production to 2.2million barrels per day to take advantage of the OPEC supply cap deal agreed in November 30, 2016, which exempted the country from cuts.
They are of the opinion that the current governance structure and regulatory institutions are amorphous, confusing and ineffective at promoting transparent with respect to encouraging further investment in the sector.
Wumi Iledare, Director of Emerald Energy Institute, University of Port Harcourt, Rivers State stressed that the survival of the petroleum sector in Nigeria this 2017 depends on governance, institutional, fiscals reforms as the steam engine that drives the economy.
Iledare opines that industry reform ought to provide simple text information on all contracts and ensure publicising the owners and beneficiaries. Reform must make discretion award of leases and fiscal incentives unattractive and subject to sanctions.
According to him, “there is a great deal of understanding among industry stakeholders that transparency encourages competition and competition enhances industry performance in terms of resource allocation effectiveness and economic efficiency”.
They are quick to point that in the midst of all these challenges, the Nigerian government has not been able to find permanent solutions that will resolve the problems despite several promised reforms.
Implementation of pending in oil and gas the way forward
Odion Omonfoman an energy consultant and the CEO of New Hampshire Capital Limited see a return to growth in crude price as a result of oil prices firming up above $50/Bbl, saying that the expectation is that prices remain above $50/Bbl in 2017.
Omonfoman observed that there would be less militancy in the Niger Delta. According to him, “I expect the Federal government to commence sincere dialogue with the Niger Delta representatives to calm things. Also the funding of the Amnesty Programme and cleanup of Ogoniland will help as well.
As if in cue of this recommendation, the Federal Government early last week resumed payment of N65,000 per month to former Niger Delta militants under an amnesty agreement reached in 2009 to enable Nigeria shore up crude production and benefit from rising crude prices.
It would be recalled that in November 2016, President Muhammadu Buhari met Niger Delta leaders and representatives for the militants to discuss their demands but not much has been achieved as different factions claim the group did not speak for them.
The Buhari-led government came under criticism for failure to articulate a post amnesty plan in December 2015. Two months prior to the end of the amnesty programme, the International Crisis Group published a report warning that increasing complaints over chronic poverty and oil pollution may fuel a renewed rebellion in the Niger Delta.
“Notwithstanding though, there would be pockets of militancy and vandalisation of oil installations but not in the scale of 2016”. Omonfoman said.
Wumi Iledare is of the opinion that absence of reforms in governance, institutional, fiscals has and will continue to have far reaching consequences in the prospect of the oil and gas industry to the extent that it can create public discontentment over the pace of development based on perceived petroleum wealth potential.
He pointed out that where the governance structure is faulty, it would continue to present an opportunity to perpetuate greed and power struggle among elites with elite capture mentality as the basis for seeking political power.
To him the consequences of absence of governance may lead to ineffective national law enforcement, weak regulatory institutions and inept governance.
Good governance promotes institutional accountability and accountability empowers institutions to grant rewards and sanctions without interference by political elites.
“It is thus not out of place to suggest that credible institutions with autonomy to detect, investigate, report, and punish fraudulent practices are inevitable to promote transparency and accountability”. He said.
KELECHI EWUZIE