Declining oil production output: Diversifying sectoral structures to explore benefits of gas value chain

Dynamics in global oil prices recently have brought up realities of the need to maximise the benefits with an elaborate point of view in response to the vicissitudes of the market. Recent realities have seen crude oil prices hovering above $100 per barrel.

For Nigeria, however, certain realities have shaped the development. May 29,  the price of Nigeria’s Bonny Light, rose as high as $141.4 per barrel, in the global market, apparently the highest in recent times. The reality had showed $79.4 per barrel increase over Nigeria’s $62 per barrel budget 2022 benchmark, which was also based on 1.8 barrels per day, including condensate. While oil prices have scaled up recently beyond expected, there have been constraints posed to oil production in the Country.

Last week, Wednesday, August 03, 2022, the Organisation of Petroleum Exporting Countries and its allies (OPEC+) again increased Nigeria’s crude oil output quota to 1.830 million barrels per day, mb/d, taking effect in September 2022. The August, 2022 quota is 1.826 mb/d. The decision, taken at the 31st OPEC and non-OPEC Ministerial Meeting, held via video conference, was targeted at achieving stability in the global market, as quota for several other oil producing countries were also reviewed upwards. “The Meeting noted the dynamic and rapidly evolving oil market fundamentals, necessitating continuous assessment of market conditions,” OPEC+ had stated.

A perusal of the September 2022 required production would reveal that amongst African producers, Nigeria’s 1.830 mb/d quota was the highest on the continent. The increased quota however, bears reflections of certain consideration, particularly as questions relating to whether the Country would  meet up the daily production output are such demanding thoughtful assessment. Such doubt has higher degree of negativity as oil production currently in the Country stands at about 1.4 million barrel per day (mb/d), including condensate, a condition associated with oil theft, pipeline vandalism, and illegal refining in the Niger Delta.  Nigeria’s August, 2022, oil production quota was increased by 1.5 per cent to 1.826 million barrels per day from 1.799 mbpd in July, 2022. The Country had struggled meeting up, but wasn’t able to, till present.

Moreover, as Nigeria suffer deficits in production, the need for increased diversification and investment in the gas sector in the spirit of the Energy transition, currently sweeping across the globe, is pertinent. To further stay at an advantage of exploring benefits amidst oil market instability, leveraging on gas as the pathway to clean energy, has been identified. However, walking the path demands creating a lot of opportunities for local operators to leverage. Speaking in June at the 2nd West Africa LPG Expo and NLPGA Summit in Lagos, former president Olusegun Obasanjo, who commended the Nigeria LNG Limited for dedicating 100 per cent of its output to the domestic market, had called for increased production, massive infrastructural development and removal of the value added tax (VAT) currently affecting demand. Reflecting on the government policies, he had said, “The government under my leadership saw the Nigerian Gas Master Plan as a major interventionist concept to move the gas sector from its essentially dormant status in 2006 to a market-based system with willing sellers and willing buyers, realising the full potential of the sector for the benefit of all Nigerians.”

The President, Nigeria Liquefied Petroleum Gas Association (NLPGA), Mr. Nuhu Yakubu had said, “This year is, however, more profoundly important for players in the LPG industry as it marks the 15th year of the commencement of the Nigeria LNG (NLNG’s) intervention in domestic Liquefied Petroleum Gas (LPG) supply, otherwise known as cooking gas, with its Domestic LPG (DLPG) Scheme.  This scheme has made the most significant impact on domestic LPG supply. It has catalyzed reduction in household energy poverty with reduction in the use of dirty fuel sources for cooking. It has also stimulated growth in the industry, through its multiplier effect, positive impact on forward and backward linkage businesses with massive infrastructure build out that is currently experienced across the value chain today.

“To ensure a steady supply of products, deliveries are made with NLNG’s dedicated vessel to all NLNG’s approved domestic receiving terminals in Nigeria. The company has recently announced that it is dedicating 100 per cent of its LPG production to domestic market, as well as commenced deliveries of propane into the domestic market since 2021. With huge LPG production and supply prospects from its recent commencement of the LNG Train 7 project, clearly NLNG’s LPG supply intervention remains Nigeria’s most significant domestic energy policy.”

Leveraging on this spectrum of the oil and gas value chain is essential for comparative advantage – a demand the government must strategically work on with intelligent policies to meet the necessities. Stakeholders collaboration among regulators, partners, and industry players to grow the domestic LPG market and bring cleaner energy to Nigerians is pertinent. Management of resources accruing from same is also pertinent. It is therefore essential that the government develop a system of working structures to create the pathway for diversification and investment in the gas value chain, such that would cover up gaps which are presently reflecting deficits in the accruals from the oil and gas sector. Such measures are pertinent, as the country is largely constrained by revenue to execute profound capital projects. Since, no ready substitute can formidably substitute oil and gas as Nigeria’s economic mainstay for the time being and in any close perception, creating structures in the gas value chain to blend existing ones to maximise the tangible potentials of the oil and sector is pertinent.