Please note that despite ongoing amnesty with the Niger Delta militants initiated in late 2009, which led to gradual return of business activities in the oil and gas industry, uncertainties related to Nigeria’s President’s health-related incapacitation and subsequent transfer of power to the Vice President, (major projects require Presidential endorsement),the restructuring of Nigeria’s banking sector (impacting access to local and international funds), the much advertised deregulation of the downstream oil and gas industry and the proposed Petroleum Industry Bill (PIB) have adversely impacted oil and gas activities much of which were already greatly scaled down due to security issues, global financial crises, fluctuating falling oil prices and reduction in oil exploration activities. The foregoing implies that many capital projects and production will continue to be curtailed or suspended, and while several flow stations remain shut, costs will increase, procurements reduced which will adversely impact other ancillary services associated with oil exploration and production activities.
Nigeria is one of the world’s top ten oil producers and Africa’s leading producer, with proven oil reserves of about 36.24 billion barrels (including 4 billion barrels of condensates), while its gas reserves are estimated at 187 trillion standard cubic feet. Daily crude oil production currently stands at less than over 2.2million barrels per day up from about 1.8 million barrels per day in 2008. For over four years, the drastic drop in production were attributed to series of security issues in the Niger Delta especially youth restiveness and militancy. Current falling oil prices had forced OPEC to decrease production leading to a reduction to Nigeria’s production from 1.88 million barrels per day in December 2008 to an estimated 1.67 million by February 2009. Presently, Nigeria’s economic climate has improved with current daily crude production put at over 2.0 million barrels per day, relatively stable high oil price at about US $80 with an annual growth of 6% estimated to continue over the next four years (estimated life expectancy of Nigeria’s crude oil reserve is 35 years while that of gas is over 109). Natural gas that traditionally was flared at oil extraction sites for years has increasingly been recognized as an enormous income-generating resource for Nigeria and is now being captured for processing and sale both regionally and overseas. This implies that of the 2.36 trillion tcf natural gas produced, about 40% is flared leaving a margin of 48% gas utilization while 12% is re-injected for enhanced reservoir oil recovery. This trend of exploiting natural gas resources continued to accelerate in 2005 especially given current ongoing reforms of downstream sector of the oil and gas sector.
About 10% of U.S. market niche for the imports of oilfield machinery and equipment will over the next five to ten years gradually be affected by the influx of Asian investors, especially Chinese, Indian, and South Korean investors willing to invest in Nigeria’s downstream sector. Nigerian government has shown preference to foreign investors willing to invest in Nigerian downstream sector and a number of these new investors won concessions in the last 2006 bid rounds. Although with increased movement of oil and gas activity into Nigeria’s deep offshore, U.S. companies still maintain their dominance of the market share of imports of high end oilfield machinery.
Oil and gas machinery continues to offer strong potential as a source of commercial opportunities for U.S. businesses in Nigeria. Business observers believe that the oil and gas sector offers consistent opportunities for marketing essential capital equipment and technology, for both extraction and production. Drilling equipment appears to hold the most promise for U.S. exporters, with total sales in this sub-sector projected to exceed $500 million in 2005 and to increase over the next four years. This is mainly due to the increase in activity experienced in the offshore deep-sea region lease of oil blocks most especially, Shell’s Bonga (1.2 billion barrels), Agip’s Abo (500 million barrels) and ExxonMobil Erha fields (600 million barrels), most of which came on stream between 2004 to 2006. With Bonga striking first oil in November 2005, producing about 225,000 bpd and another 150,000 bpd from Erha in April 2006, with more field developments from Total and Chevron expected to follow over the next two years. Other activities include the 2005 and 2006 oil bid rounds, which opened up increased activities in both the upstream and downstream segment of this industry, and the exploitation of potentially lucrative marginal oil fields (combined reserves estimated at 1.3 billion barrels) and other reserve acquisition projects to meet Nigeria’s approved OPEC quota.
However, as a result of ongoing global financial crises, simultaneous recession in several developed economy, analyst predict oil investments will be curtailed, leading to a decline in production, capital expenditure and development of wells. Already OPEC plans to decreased 2.2 million bpd from world markets and is tasking its member states to cut production. The lubricant segment of the oil sector remains most lucrative, as there is yet no price control. Training services is another area where U.S. service companies have comparative advantage especially in exploration and production, engineering and seismic techniques.
Within the upstream and downstream segments, opportunities abound in different sub-sectors related to core exploration and production, such as: exploration and production, drilling and manufacturing equipment, support services, marketing, construction, engineering and consulting services, transportation and storage of crude oil, insurance, legal services, facilities maintenance, and environmental management.
Currently, the Nigerian Government is focusing on the reorganization of NNPC, the national oil company, deregulation of the downstream oil and gas industry, enacting of a Petroleum Industry Bill and renegotiation of expired oil leases.
One point to note is the establishment of a new electronic one-stop transaction center - the Nigerian Petroleum Exchange (NipeX) - aimed at improving procurement processes in the oil and gas industry and institutionalizing world-class contracting procedure. NipeX is the amalgamation of the joint qualification system and the e-marketplace. The e-marketplace is an electronic petroleum market place project initiated in 2005 to improve cycle time for procurements of goods and services in Nigeria’s oil and gas industry. This system has now been linked to an industry-developed joint qualification system (JQS), and aims to ensure open and competitive bidding, capture information on all transactions, maintain performance monitoring and cost benchmarking while reducing administrative costs on contract tendering
Despite the Nigerian Government’s commitment to phase out gas flares in Nigeria’s oil and gas industry, and following its inability to enforce the 2008 flare out deadline, the Nigerian Senate has proposed a draft Bill that fixes gas flare out date to December 31, 2010. Under the draft law, any company found flaring gas after that date will be subjected to a fine not less than twice the international market price of the gas flared. In addition, the Minister of Petroleum is authorized to shut down any wells producing flared gas. The bill further stipulates that oil companies must provide reports showing quantity of gas flared, reserve, location and composition within 90 days. Also, all operators are required to submit their plans on how they intend to utilize the flared gas to the Minister of Petroleum for approval on or before the flare-out date of December 2010.
Of the various gas gathering and commercialization projects initiated, some are currently in the developmental stages. These projects include: Liquefied Natural Gas projects (LNG), Gas to Liquids (GTL) and Natural Gas Liquids (NGL), domestics gas market expansion, Independent Power Projects (IPP), the West African Gas Pipeline and Trans Saharan Gas Pipeline projects. Such projects offer significant opportunity for U.S. companies ranging from manufacturing, construction, and services within the full spectrum of natural gas industry development.