FOCUS: Nigeria announces reform of the oil industry; but is it enough?
| Published date | 01 September 2015 |
| Date | 01 September 2015 |
| DOI | http://doi.org/10.1111/oet.12313 |
FOCUS
Nigeria announces reform of the oil industry; but is it enough?
Aer years of inaction that have seen Nigeria’s oil pro-
duction decline and its rening sector come close to
collapse, the government has embarked on a series of
reforms designed to tackle these problems, starting with
the national oil company. e government’s aim is to end
corruption in the oil sector whi ch has le the state short
of revenues and the countr y’s oil reneries short of oi l.
e initiative, instigated by Nigeria’s new President,
Muhammadu Buhari is an important start, but many
problems remain to be tackled, including the violence
and unrest that has plagued the oil sector for years,
cutting production by up to a quarter through attacks
on oil installations and t he organized the of oil from
pipelines. e country also awaits the passage of com-
prehensive legislation designed to establish order across
the whole of the oil industry, which has been on the
agenda of successive governments since 2008, but which
has so far eluded all of them.
Falling output
Nigeria has ample reserves of oil and t he capacity to pro-
duce much more than it does at present (see Table A);
but its oil sector has consistently failed to perform at
the required level despite high levels of investment by
the internationa l oil industr y. Eorts to raise produc-
tionhavemetwithnosuccessandoutputhasremained
more-or-less stagnant for more than a decade.
Many of Nigeria’s production problems are a result
of bureaucr atic delay s to new proje cts and other issues
aecting relations between foreign oil companies and
the government. ere are also problems over the shar-
ing of oil revenues among the various regions of the
country, in particular the main oil-producing areas of
the Niger Delta, which have remained underdeveloped
in relation to many other areas in Nigeria despite being
thesourceofmostofthecountry’swealth.erehave
been widespread protests against both the poverty and
the pollution sue red by the Delta region, some of whi ch
have resulted in violenc e, including attacks on oil instal-
lations and the kidnapping of oil workers.
Another problem in the main oil-producing regions
has been the the of oil from pipeli nes, which has
resulted in damage to pip elines and other infrastruc-
ture. e result of all this has been the shutting-in
of oilelds and a consequent drop in oil production.
Losses attributable to the and violence are estimated
to amount to 150,000 bpd although att imes the volumes
aected have been considerably higher.
Attacks on the country’s oil infrastructure– though
a signicant handicap – are not the only hindrance to
raising production. For more than a decade, Nigeria
Table A
Nigeria: Oil Prole, 2015
Proven Reserves 37.07 bn bbl∗
Reserves Remaining 44.2 years†
(mn bpd)‡
Production
Crude 1.8
NGL±0.5
Total 2.3
Consumption
Total 0.5
Net Exports
Total 1.8
Production Capacity
Capacity 3.2§
Spare Capacity 0.9
∗As of January 1, 2015.
†Based on 2015 production.
‡First eight months.
±Natural gas liquids.
§The Ministry of Petroleum quotes a gure of 3.6mn bpd,
but it is not clear how it has arrived at this total.
Totals rounded.
Source: (Reserves) Oil & Gas Journal
(Other) Author’s estimate.
hashadtheaimofraisingthecountry’soilproduc-
tion to 4 mn bpd and proven reserves to 40 bn bbl. e
date set for both to be achieved was 2010. Output has
not exceeded 2.5mn bpd over the last decade and has
declined since 2010 (see Tab l e B ). P r ov e n r es e r v e s ha v e
also remained below 40 bn bbl. In 2012, the target for
both to be achieved was put back to 2020.
Many of Nigeria’s production problems are tied
up with relations between the main international oil
companies (IOCs) producing oil there and the govern-
ment. IOCs have been unhappy about several aspects
of Nigeria’s upstream contracts in terms of taxation
andthewayinwhichexplorationandproductionare
regulated in general. In 2008, the then government
proposed a comprehensive s ettlement of thes e issues
with its Petroleum Industry Bill (PIB); but political
opposition within Nigeria to the Bill has prevented its
passageintolaw,tothegeneralfrustrationofNigeria’s
main foreign investors.
Another issuethat is supposed to be addressed by the
PIB is the role of the state oi l company,Nigeri an National
Petroleum Corporation (NNPC), which is both a pro-
ducer and rener of oil. By c ommon consent, NNPC is
in need of major restru cturing and reform. e company
has been accus ed of corruption and i ncompetence on a
massive scale, including failing to remit some $12.3bn of
oil revenues due to the government[1]. An independent
© 2015 John Wiley& Sons Ltd
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