Oil, Gas 2022 expectations: Subsidy, forex, slow implementation of PIA, Omicron to shape sector outlook
By Uthman Salami
Last year, rift between oil marketers and indecisiveness on the part of federal government almost threw Nigerians into torrid moments – the time they had to wait for hours, and sometimes days before they could get fuel. This row between private depot owners and the Federal Government hinged on dollar payment of dues and levies by marketers.
This singular rift almost shattered the stability of fuel supply and price across the country, a feat that had been enjoyed for almost half a decade.
Meanwhile, till date, nothing has changed as private deport owners still pay charges and levies in dollars to relevant government agencies, a development that threatens the stability of supply and price of the product.
While speaking in an exclusive with our Correspondent yesterday, on whether this toga of war may lead to a resurgence of long queue greeting filling stations across the country, Chairman and Chief Executive Officer (CEO), International Energy Services Limited, Dr. Diran Fawibe believed otherwise.
He said fuel scarcity would only surface as a result of government removal of fuel subsidy.
According to him, “The issue is that if there’s going to be fuel scarcity is in the fact that government is trying to stop subsidy. If government is stopping subsidy, this will cause some disruptions with regards to importation of product.”
Questioning the eventual removal of subsidy, he said “If government stops subsidy, who is going to be importing? Is it the NNPC? Presently NNPC is doing the sole importation of products.
“And one of the reasons why government wants to stop subsidy is that, government doesn’t want to be funding the subsidy. If government is not going to be funding it, it means that the National Assembly will no longer be appropriating money. And in this regard, the whole situation is still very much cloudy.”
However, he said, “In the process, there could be scarcity resulting from non importation of products. If the government is not providing the money, you will now ask marketers to be importune. Marketers will want to recover their money and that raise the price of products.
“I believe before government will stop subsidy, the federal government will have to make arrangements to endure the sustainability of products flow. One can never tell. This area is still very unclear.
“Already, the trade union had announced, even though there are some civil security organization backing government by the traditional hostility of labour and now joining hand together with the student union National Association of Nigeria Students (NANS), it doesn’t give confidence as to input importation of products, so the end result will be scarcity of petroleum.”
Dangote’s refinery, Nigeria LNG’s decision may drop LPG price
One of the torrid effects of deregulation in the oil and gas sector is the skyrocketing price of liquefied Petroleum Gas (LPG), popularly known as cooking gas. Its gnawing effect threw many back into the dark age where charcoal and firewood are used as alternate energy source especially in rural areas.
After several outcries, the Federal government finally spoke out against their lack of control over the product. It declared that it had no control over rising prices of cooking gas in the country.
President Muhammadu Buhari also expressed concern over sundry developments, especially as the global market determines gas prices.
While reacting, Dr. Fawibe noted that “One of the areas where we can expect LPG is from Nigeria LNG, this is a question of supply and demand, if there’s supply obviously the price will go down and Nigeria LNG has pledged to increase the supply of NPG.
“To that extent, this may affect the price of LPG in bringing the price down, but as long as we continue to import, it is expected that some volumes of products from Dangote refinery.
“On government side, they want to discourage people from using fire wood, Kerosene, etc. You will expect that there will be a match plan to ensure that people key. But what we have presently is demand and supply components.”
Bala Zakka, an energy analyst, said so long Nigeria Internalised the production of LPG, the prices will go down invariably.
According to him, “On the issue of cooking gas, as long as we don’t internally refine, we are still going to suffer from importation. That means a lot of the cooking gas we use in Nigeria will be imported which will be unfortunate. And if the price of crude oil continues to go up and offshore refinery but crude oil at higher prices when the refined products like cooking gas come out, they will sell to Nigeria at higher prices.
“In the interest of Nigeria, as long as we continue to import products like liquified petroleum gas, the countries that produce those products will sell them at any amount they want.
“If we continue to import regardless of the prices, they have no option than to buy. But if we are to be refining and also knowing that we have the capacity to do. When we decide to do it internally, of course even if the differences will be N1 each, by the time we sell a lot of cylinders, we will gain so much.”
The minister, Timipre Sylva had said the “price of cooking gas is not determined by government or by anybody in the industry. In fact, gas prices are determined internationally.”
“And you all are aware that in Europe, today, gas prices have gone up. There was even crisis in Europe relating to gas prices. So, the pricing of gas internationally affects also the price of gas in the country.
“These are the issues of balancing that the midstream and downstream regulatory authority are handling. And I want to assure you that we are quite concerned. Mr. President also is very concerned. Meanwhile the NLNG has also promised to increase its Local supply of the product.”
Omicron to leave mild effect on oil, gas sector
Positive indications have shown that the third wave of COVID-19, Omicron will have little effect on the sector. OPEC+ expects the effect of the Omicron variant of the coronavirus on oil prices to be mild and temporary, Reuters reported, citing a technical report by the group.
“The impact of the new Omicron variant is expected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges,” the report, by the extended cartel’s Joint Technical Committee, said. “This is in addition to a steady economic outlook in both the advanced and emerging economies.”
In his input, Dr. Fawibe revealed that though “There is this conflicting report about the effectiveness of omicron. In UK for instance,” there are rising cases of Omicron as well as U.S. report also has it that Omicron is not as Virulent as Delta variant.
He said “That is why you have the price of oil going up to $80 per barrel. Following the outbreak of the virus, the price of oil crash as against what it is now.
“The wishful effect means that inspite of the virus, activities is not as serious as that of the adverse effect witnessed in the past.
“To this extent, the price of oil will still go up. And also, Nigeria for example has not been able to beat her OPEC quota for sometime. But there was a little improvement in the last two months.
“But there is lack of strong capacity among OPEC country due to lack of investment. The industry is feeling this. As a result of this, the price of crude could still go up probably $90 per barrel as the case maybe.
“The new wave of COVID-19 will not crash the price of crude oil. The reason everything crashed in 2020 and early 2021 was because the virus was novel. It took the world by surprise. Economists and analysts theories were rendered useless. Now, we have understood how to manage and live with it,” Zakka indicated.
“The sector will be mildly affected. Humanity has come up with strategies to be able to live and cope with the pandemic,” he concluded.
PIA: Indefinite suspension of inauguration of Board members of NNPC Limited
On whether the indefinite suspension of the inauguration of Board members of NNPC Limited will affect the sector, “I don’t really think so. The Chief Executives are already working assiduously. The DPR is the agency that government is using to do this. To a large extent, when the Chief Executive and the officials are working.
“I don’t expect there would be any effect only if there would be major decision that the board will approve, but it will not cause major distraction,” Fawibe noted.
However, Mr. Zakka believed that “The non-inauguration of the board members of the NNPC will definitely have an effect because the success of the implementation was vindicated on the inauguration of the board. if the Board is not inaugurated, then the members have no legitimate standing to operate or carry out their activities. If the inauguration has not taken place, it is not In the interest of the country.
“We hope and pray that now that things are looking reasonably stabilized and knowing that 2023 is going to be a year of the election, the best that can happen is for the inauguration to take place now so that a reasonable time can be taken in this 2022 to put things in order.”
President Buhari had directed the immediate suspension of the inauguration of the newly constituted board of the Nigerian National Petroleum Company Limited (NNPC).
The inauguration was scheduled to hold but was later postponed till further notice.
2022 prognosis: More investment, commitment required for effective results — Experts
“There has been a lot of pronouncement by the minister as well the Chief Executive of the agencies. The major thing that the industry is looking at right now is the investment in the industry and how the oil companies will begin to invest.
“Some of the news coming from the Press. Unless the companies are putting in some investment – Nigeria has been cut off in this energy transition programme and some of the problem the companies are facing in Nigeria are ways of the hostility in the oil producing region and some of the policies of government. The kind of policies reactions we expect following the passage of the PIA have not been too favorable perhaps in the next few months.”
To Bala Zakka, “the 2022 expectations for global oil and gas industry is positive. In terms of performance, the expectations are high. Right from early 2020 and 2021 the COVID-19 and the omicron. Because of this we have been experiencing energy gap in different areas.
“Many companies worked below what was expected. Refineries across the world at a point could not access the quantity of products they needed to meet up with distillate products. Till this moment, there is shortage of gas.
“However, we will not see the restriction like we had in the previous experience. People will still want to ramp up production because of the requirements for energy. There will be high demand for crude, distillate and energy and gas. The oil and gas industry globally is going to do well.
“But in the context of Nigeria, there are Internal peculiarities that need to be settled. Till now, we have not been able to meet up with the OPEC quota.
“This is as a result of the government’s relationship with the technical experts, otherwise known JVs in the sector for more exploration so that production can increase.
“The importation of crude products should stop. We need to improve the capacity of our refineries. If we refine internally, we will require rail lines and pipelines for easy distribution across the state.
“Though government needs to sort itself out with the marketers. Since legal tender is Naira, dues and charges should be transacted in Naira.”
