Nigeria’s Buhari: Oil companies see optimism and risks
Nigeria’s new government, headed by former-general Muhammadu Buhari, arrives with plans which could be positive for the oil companies - but with the risk of stirring up increased dissent in the producing areas
BUHARI was a decisive oil minister and head of the state company, Nigerian National Petroleum Corporation (NNPC), for three years in the 1970s, before becoming an iron-rule president for 20 months after a military coup in 1983.
Buhari’s election campaign laid stress on tackling Nigeria’s corruption and security problems, and he is expected to be a reformer in the administration of the oil industry. But, as a Muslim from the north of the country, he will have to tread carefully to avoid escalating the troubles in the southern Niger delta area — the heartland of the previous president, Goodluck Jonathan.
The new government is expected to make a priority of passing the Petroleum Industry Bill (PIB) — the seven-year old attempt to re-write the country’s oil laws. But, with deep-water development vir-tually stalled as a result of the higher tax take and inflexibilities of the PIB regime, the new admin-istration is certain to revise it again first. Breaking-up the PIB — at present there are 363 sections, covering 223 pages — into a series of bills has been suggested, to ease its passage through the legislature.
Tackling corruption could bring great benefits. Early last year the governor of the Central Bank of Nigeria, Mallam Lamido Sanusi, claimed that at least $10.8 billion, and perhaps as much as $49.8bn, of oil revenue had not been remitted by NNPC to the government over an 18-month period — but he was dismissed for saying so. At least 150,000 barrels a day (b/d) of oil production is lost through theft, but there are rarely any prosecutions — it is alleged that senior figures in the admin-istration and the military are behind the crimes.
Buhari’s campaign argued that by cutting corruption, increasing transparency and enforcing taxes, public finances could be returned to health despite the fall in oil prices. But much of the country’s corruption is entrenched in support of tribal and political power-bases, so the task will amount to a culture-change. Reducing the political powers and size of the NNPC will be an essential step, in view of the great patronage it wields — there will be new senior management at the company, as well as a new oil minister.
An early target for the new government is likely to be reform of the country’s opaque refined product import arrangements, under which imports are swapped for consignments of crude. Bringing transparency to the award of exploration licences to local companies is likely to be another early measure. Further ahead, the government might seek to deregulate the refined products market with the aim of encouraging the construction of private-sector refineries, although previous moves to raise fuel prices have led to widespread protests.
For the producing companies with onshore operations, increased militancy in the Niger delta is an immediate post-election concern. Since 2009, governments have reduced the level of violence and damage to installations through an amnesty programme, under which militants are paid and offered job training, and many have been given contracts to secure oil installations — although many are also said to be involved in oil theft. If militants feel threatened by the new government there is a risk of violence returning — but continuing the amnesty payments and security contracts could limit that risk.
Meanwhile, the new government will start life with a budget trimmed substantially from that of last year. Oil output in 2015 is forecast officially to run at 2.27m b/d — down from 2.38m b/d in 2014 — while forecasts for the yearly-average oil price have been cut from $77.50/b to $65.00/b and now to $52.00/b.
The market for Nigerian crudes has been particularly hard-hit by the growth of oil output in the US, at one time Nigeria’s largest export destination. In 2005 Nigeria exported nearly 1.2m b/d to the US, but last year the flow was down to only 92,000 b/d. In January this year just 51,000 b/d of Nigerian crude arrived in the US, according to the US Energy Information Administration. India is now the largest destination for Nigerian crudes, followed by Brazil and the Netherlands.