Overview of the Oil and Gas Industry

Nigeria is the most populous country in Africa and within OPEC with an estimated population (United Nations estimates) of 202,055,735 as of Tuesday, September 17, 2019. It is located in West Africa on the Gulf of Guinea and covers an area of 924 thousand square kilometers. The latest OPEC data shows that it is second to Libya in proven reserves of crude oil and has the largest gas reserves on the continent and the 10th largest proven reserves of crude oil and 9th natural gas reserves in the world. It is also the second-largest producer of crude oil and gas on the continent. The oil and gas sector accounts for a significant portion of the country’s total export; 95.62% in 2017.

Table 1: Oil and Gas reserves

Crude oil reserves (mmbbls) Natural gas reserves (tcf)
Oil reserves Condensate Total Associated gas (AG) Non-associated gas (NAG) Total gas
2013 31,813.51 5,257.32 37,070.83 89.652 92.298 181.95
2014 31,870.00 5,578.24 37,448.24 90.094 97.904 187.998
2015 31,643.91 5,418.15 37,062.06 97.208 94.857 192.065
2016 31,271.77 5,467.41 36,739.18 97.253 101.485 198.738
2017 31,419.71 5,552.20 36,971.91 96.360 102.730 199.090

Reserves reported above are as at 31st  December of the reported year.

Nigeria plans to increase its crude reserves to 40,000 mmbbls by the year 2020. Exploration for oil and gas in Nigeria began in 1908, with the first discovery made in the Niger Delta in 1956. Its first refinery began operations in 1965, with a capacity of 38,000 bbl/day; enough to meet domestic requirements at the time. Nigeria’s daily production was at 1.9m bb/d in 2017, with a target to grow production to 3m bb/d by 2023.

Nigerian crude is classified as ‘sweet’ as it is mostly sulfur-free making it attractive to buyers. Sweet crude is considered safer to extract and transport, easier to refine. Its low sulfur content causes less damage to refineries resulting in lower maintenance costs over time. Crude blends include; Antan Blend, Bonny Light, Bonny Medium, Brass Blend, Escravos Light, Forcados Blend, IMA, Odudu Blend, Pennington Light, Qua-Iboe Light and Ukpokiti.

The Nigerian National Petroleum Corporation (NNPC) was created in 1977 and it is the corporate entity through which the Nigerian government participates in the industry. NNPC and its subsidiaries participate in all sectors of the industry including exploration, production, refining, pipelines, marketing, crude/product exports, and petrochemicals. The NNPC dominates in most of these sectors. The Ministry of Petroleum Resources acts as a regulator through the Department of Petroleum Resources. While the Ministry focuses on policy formulation, the DPR focuses on policy implementation, general compliance with regulations, issuance of leases and permits and compliance with environmental standards.

There are several oil and gas projects concentrated mostly in the Niger Delta, notable among them are the Afam Integrated Oil and Gas Project operated by Shell and the Bonga Deep Water Project, Nigeria’s first deep-water oil discovery. Amenam-Kpono, Bonga and Akpo are all major oil and gas fields located in Niger Delta. The highly anticipated 200,000 barrels per day Egina Project came on steam in December 2018. Details of other major projects that will boost production can be found in the 2017 Nigerian Oil and Gas Industry Report. Projects are funded through joint ventures between oil companies and NNPC, where NNPC is the majority shareholder. A joint venture is funded through joint venture cash calls paid for by all equity partners in the joint venture. This model has been bedeviled by various challenges leading to enormous funding deficits essentially on the part of the Nigerian government. The traditional cash call arrangement was exited in Q4 2016. Several alternative financing models have also been adopted in response to the challenges posed by the joint venture cash call process. Oil and gas projects are also funded through production sharing contracts and service contracts, and in the recent past through PPP models.

In August 2017, the state-owned NNPC announced that it had secured $3.8 billion in foreign direct investment to develop four oil and gas projects, these include;

  1. $1.2 billion multi-year drilling for 36 offshore/onshore oil wells under the NNPC/Chevron Nigeria Limited JV, codenamed project Cheetah
  2. NNPC/First E&P JV and Schlumberger tripartite $800 million alternative funding agreement for the development of the Anyalu and Madu fields in the Niger Delta.
  3. Agreements for the $1 billon NNPC/SPDC JV Project Santolina and the
  4. NNPC/Chevron $780 million Project Falcon on Sonam, hitherto financed through JV Cash Call.

The corporation also announced the completion of six pipeline projects designed to supply gas to industries and power stations across the country; two other projects are in various stages of completion

Completed pipeline projects are;

  1. 96-kilometre Oben-Geregu
  2. 110-kilometre Escravos-Warri-Oben
  3. Emuren-Itoki (50 kilometers)
  4. Itoki-Olorunshogo (31 kilometers)
  5. Imo River-Alaoji (24 kilometers)
  6. Ukanafun-Calabar (128 kilometers)

Ongoing projects include;

  1. East-West Obiafo/Obirikom to Oben, OB3 pipeline (127 kilometers)
  2. Looping of the Escravos-Lagos Gas Pipeline System from Warri to Lagos
  3. Qua Iboe Terminal to Obiafu/Obrikom (QIT-Ob/Ob gas pipeline.
  4. Ajaokuta-Abuja-Kaduna-Kano pipeline (650 kilometers)

Europe was the largest importer of Nigerian crude in 2017. Most of the country’s natural gas is exported in the form of Liquified Natural Gas through the partly government-owned Nigeria LNG Limited. For more information about NNPC activities in the sector, visit NNPC in the news.

Nigeria is also heavily dependent on the importation of PMS; 12,451,485MT (discharge volumes provided by PPPRA) in 2017 despite having a combined crude oil refining capacity of 446,000 bpd. The government refineries have operated below capacity for years. As at year-end 2017, DPR records show there were 12 valid Licenses to Establish (LTE) and 9 valid Approval to Construct (ATC) licenses for refinery projects. The much anticipated 650,000 bb/d Dangote Oil Refinery Company (DORC) is expected to be commissioned in 2020. It is anticipated that this refinery alone will cater for Nigeria’s domestic consumption of petroleum products.

Social expenditure

Social Expenditures are payments or contributions made by extractive companies. These payments can be mandated by law, discretionary or part of a company’s legal and contractual obligations. They are made either in cash or kind to an individual, community, organization or government agency.

In Nigeria, social expenditures are classified as mandatory and non-mandatory disclosures. The mandatory social expenditures are payments mandated by law that do not accrue to the Federation but to respective agencies that receive the payments. For instance, the Niger Delta Development Commission - Section 14 (b) of the NDDC Act, mandates the Commission to collect 3% of the total annual budget of any oil-producing company operating onshore and offshore in the Niger Delta area, including gas-processing companies. The Nigerian Content Development Monitoring Board-Section 104 of the Nigerian Oil & Gas Industry Content Development (NOGICD) Act of 2010 provides that 1% of every contract in the upstream sector of the Nigerian oil and gas industry shall be deducted at source and paid into the Fund.

The non-mandatory social expenditures include, community development programs (CDPs), MOUs signed between companies and host communities where they operate, and other projects embarked upon by companies to get their annual work plans signed-off by the DPR.  These projects or activities are designed to increase a company’s social capital with their host communities.

Quasi-fiscal expenditures

Quasi-fiscal expenditures refer to any public social expenditure made by a State-Owned Enterprise (SOE) or its subsidiaries on behalf of the State. These could include expenditures such as payments for social services, public infrastructure, fuel subsidies and national debt servicing. In previous years, the subsidy was introduced as a temporary measure to stabilize the price of petroleum products and cushion the comparatively high price of imported products while the local refineries underwent rehabilitation, it became a policy of successive governments.

For the year under review, a quasi-fiscal expenditure termed ‘’Under Recovery’’ was identified, this came on stream in 2016 as a replacement of the subsisting subsidy. Under Recovery is an associated cost incurred by NNPC in the process of importation of PMS for domestic use. This amount is deducted as the first item of expenditure from revenues realized from domestic crude sales. The total cost incurred for Under Recovery in the year under review was N141.632 billion. This amount was offset from domestic crude sales as the first item of cost to the refined product importation process. See the 2017 Commodity Trading Report for more details.

Contribution of the industry to the economy

The Nigerian economy was one of the fastest-growing economies in Africa with a growth rate of 6.2% in 2014. By 2015 growth had contracted to 2.8% and (-1.6%) in 2016. A sharp decline in global commodity prices beginning in 2014 had an enormous impact on the Nigerian economy which is very reliant on revenues from the oil and gas sector. The spot price of Nigeria’s reference crude fell from a peak of US$114.17 per barrel in June 2014 to US$63.19 in December 2014 to as low as US$48.82 per barrel in 2016. However, it rose to US$54.91 in 2017.

GDP at current basic price in 2017 was N113,719,048.23 while the size of the oil and gas industry relative to GDP was 9.3%. Total export in the year was N13,598,277.3 million while crude oil export was N11,026,696.0 million. All data in this section was sourced from CBN Annual Report 2017 and GDP 1981 - 2017 Revision Post Rebasing (Expenditure & Production).

The National Bureau of Statistics (NBS) publishes quarterly GDP Report (data tables) and Foreign Trade in Goods Statistics (data tables) on its website all in open data format. The latest available data is for Q2 2019; Nigerian Gross Domestic Product Report (Q2 2019) and Foreign Trade in Goods Statistics (Q2 2019).

Table 2: Comparative GDP data

2016 2017
Crude Petroleum and Natural Gas Value Added (Naira Million)

5,643,914.68

10,575,199.97

GDP at current basic prices (Naira Million) 101,489,492.20 113,719,048.23
% Contribution to GDP 5.56% 9.30%

 

Table 3: Export data 2017

Value

(Naira Million)

% of Total Export
Oil & Gas Export 11,026,696.00 81.09%
Other Export 2,571,581.30 18.91%
Total Export 13,598,277.30

 

Contribution to total employment

There is no record of official estimates of employment specifically in the oil and gas sector in the country for the period. However, the quarterly labor force population, unemployment rate and number of employed persons data in Nigeria for 2017 are presented in Table 4 below. The labor force population covers all persons aged between 15 to 64 years who are willing and able to work regardless of whether they have a job or not. The unemployment rate is measured as a percentage of the total labor force.

Table 4: Labor force data (Q1 - Q4, 2017)

Q1 Q2 Q3 Q4
Labor Force Population ('000 Persons) 82,592 83,940 85,088 86,538
Unemployment Rate (%) 14.4 16.2 18.8 20.4
Employed ('000 Persons) 70,666 70,355 69,090 68,866

Source: National Bureau for Statistics

Note that data in Table 4 includes employment in formal and informal sectors; and the public sector. For more details see here.

NEITI also sent out template to collect employment data from 55 oil and gas companies and the Nigeria-Sao Tome & Principe Joint Development Authority. 44 returned completed employment data templates while the rest returned nil submissions. Most nil submissions were made because employment was carried out by parent companies that are already covered by the Report. For instance, Star deep Water Petroleum Limited employees captured under Chevron Nigeria Limited submissions and Addax Petroleum Exploration (Nigeria) Limited captured under Addax Petroleum Development (Nigeria) Limited.

From the analysis of received data, a total of 13,345 persons were employed by oil and gas exploration and production companies in 2017. Note that employees of companies that provide services to the industry and employees of public sector agencies in the industry were not included. See the aggregated employment data. There is no informal sector activity in the sector.