Why Nigeria remains an attractive oil & gas frontier

As Africa’s biggest oil producer, Nigeria currently faces a number of challenges that affect its short-term recovery prospects. While the country can usually rely on its oil sector to boost its economy in periods of high oil prices, the current surge in commodity prices has been more a curse than a blessing for Nigeria.

Nigerian blends typically attract generous premiums due to the quality of Nigerian oil, but while prices have soared the country’s output continues to stagnate. Nigeria monetised an average of 1.3 million barrels of oil per day (bopd) in 2021, on top of some 308,000 barrels per day (bpd) of condensate according to government data. This remains far below the country’s production capacity of 2m bopd.

As a result, Nigeria continues to underperform with little gains from oil production while its petroleum imports bill continues to climb and put pressure on its budget.

Under-investment and pipeline vandalism are to blame for significant losses incurred by Nigerian operators, with losses from export terminals such as Bonny sometime going as high as 90%.

An Attractive Brownfield Frontier

But despite this grim situation, Nigeria still offers some of the best proven reserves of oil & gas in the world, existing infrastructure and a large, established energy industry. Because of its world-class resources, it is also one of the most attractive brownfield destinations in the world with better and shorter investment returns.

Last year, the adoption of the Petroleum Industry Act (PIA) has brought much-needed clarity to the country’s regulatory framework. While the transitioning of one regime to another came with necessary adjustments, the implementation of a clear and stable framework is just what Nigeria needed to support investments.

Deals in the market are currently driven by ongoing divestments by Shell and TotalEnergies from the Shell Petroleum Development Co. (SPDC) joint-venture and by the recently concluded Marginal Fields Bidding Round. Both are supporting strong mergers & acquisitions (M&A) activity in the market, which notably saw Seplat Energy proposing to acquire Mobil Producing Nigeria for some $1.283bn in February, in what remains the biggest transaction of the year so far, globally.

Meanwhile, projects activity is picking up onshore and in shallow water. Seplat Energy is currently executing an extensive drilling campaign onshore, while several shallow water fields are being developed or re-developed over the coming months.

A Focus on Gas

Nigeria has long produced gas for exports but is increasingly encouraging the development of its domestic gas value chain to support industrialization and create jobs.

Virtual pipelines operators have been busy providing alternative sources of energy to the transport and manufacturing sectors for whom soaring diesel prices have made operating costs unmanageable since 2021. Nigeria now houses several CNG ventures and is seeing the emergence of a strong domestic LNG industry on the back of several small-scale projects breaking ground in 2022.

Meanwhile, the country’s gas grid continues to be expanded. Piped natural gas (PNG) is on the rise around key economic clusters, driven by companies like Axxela who just secured fresh equity from Sojitz of Japan, but also by Shell Nigeria Gas or Falcon Corporation to name a few. To make gas available nationwide, the NNPC is also building the 614km AKK pipeline providing a connection between southern gas producing states and northern gas consuming ones. The first leg is expected commissioning in 2023.

Across the rest of the value-chain, most Nigerian players are busy investing in gas or seeking to monetise the country’s vast gas reserves to generate value for the economy.

ND Western, one of the country’s leading independent E&P investor, is building an industrial park on OML 34 offering industrial and manufacturing companies the opportunity to access cheap gas feedstock.

The RusselSmith Group, known for its subsea and technology offering, has established a new joint-venture, G2L Energy Solutions, to deploy modular gas-to-liquids facilities in the Niger Delta.

UTM Offshore, one of Nigeria’s leading maritime groups, is progressing on the development of the country’s first floating LNG project.

These are some of many examples demonstrating the attractiveness of Nigeria’s gas sector now and the wide range of investment opportunities it offers.

Hawilti is a proud Research & Content Partner of the 21st NOG Conference & Exhibition, set to take place at the ICC, Abuja, on July 4th-7th, 2022. https://www.nogevent.com/

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