Sunday, January 06, 2013

2013: A year of recovery for Nigeria's oil industry

2012 was arguably a year that Nigeria’s oil industry may wish to forget. The country’s oil output was slashed by one fifth in the last quarter of the year, thanks to a large fire caused by a theft in September. The theft resulted in Royal Dutch Shell Plc eventually having to shut down a major pipeline. Furthermore, a leak at an Exxon Shell facility caused a severe oil spill that spanned more than 20 miles of coastline. Couple these devastating events with the country’s severe floods, and its oil industry was in dismay. By the end of the year, Nigeria had made headlines all over the world for its string of oil catastrophes.


However, a new year brings new hope for the country, which recently stated that it expects oil production to stabilise throughout the next 12 months. Last month, the country’s oil minister, Diezani Alison-Madueke, announced that Nigeria is aiming to continue producing around 2.5 million barrels of oil per day in 2013 and that oil output had recovered since the year’s catastrophic events. “I expect it at least to stabilise [next year],” she said. “The problems have been flooding and bunkering and some vandalism which have disrupted pipeline services.”

New oil rig

This week it was also announced that an offshore oil field, Aje Gas and Condensate Field, will be ready to start oil production by 2014. The important oil field, which is situated approximately 43 kilometres off the coast of Lagos in the Benin Basin, will produce somewhere in the region of 50,000 to 80,000 barrels of oil per day. This will account for up to three percent of the country’s total daily oil output, and will be a significant step forward in achieving stability for the industry’s future.

The new Aje Gas oil field lies within an area of 960 square kilometres, which is now referred to as the Oil Mining Lease 113. Previously known as the Oil Operating Licence 309, the area was assigned to Yinka Folawiyo Petroleum Company Ltd in order to improve the country’s oil industry growth in 1991. It has since been a major force in Nigeria’s increase in oil output.

Future prospects

The OML 113 zone holds exciting prospects for the future of the Nigerian oil industry. In addition to the Aje Gas field, there have also been several other major oil field discoveries, including the Jubilee and the Tweneboa fields; the former is thought to be the largest oil field discovery in West Africa within the last 10 – 15 years. It was estimated by Tullow Oil in 2010 that these two fields contain around 2.9 billion barrels of oil and gas; both fields signify a bright future for Nigeria, which hopes to remain Africa’s largest crude oil exporter.

Cleaning up controversy

Nigeria also looks set to clean up its act in oil exportation, following the revelation in October that the country had lost billions of dollars in cut-price oil deals. The damning report revealed that deals struck between government officials and multinational oil companies had cost the country’s economy tens of billions of dollars over ten years. Among the report’s content were claims that Nigerian oil ministers had issued oil licenses at their discretion rather than using an open bid system, and the sale of oil at slashed prices had led to significant savings and huge profits for oil giants such as Shell, Eni and Total. While the report stated that there had not been any illegal activity, it did show a grave lack of transparency in oil transactions; in many cases it was found that deals were being made without any contracts, and that some debts due on royalties remained unpaid. The report concluded that “the estimated cumulative of the deficit between value obtainable on the international market and what is currently being obtained from NLNG, over the 10 year period, amounts to approximately $29 billion.”

Greater transparency

Oil minister, Alison-Madueke, denied many of the report’s claims over discretionary licensing, saying that a tender was issued in a public newspaper every year that all companies are invited to bid for. However, in response to various reports of corrupt practice, regulators from the United States introduced new regulations back in August that will require all U.S listed oil and gas organisations to disclose all payments that are being made to foreign governments; it is hoped that this will have a positive impact on Nigeria’s oil income from 2013 onwards. The Nigerian report recommends that a similar law should be introduced requiring traders from all countries to disclose payments made to the country, in order to ensure the utmost transparency going forward.

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