Sunday, September 05, 2021 05:50 AM / by PwC/
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Nigeria is home to about 206 million people (Worldometers, 2020) and is Africa's largest market, with a young, growing and vibrant population. The population is forecast to grow by an average of 2.6% per annum (World Bank, 2020). This population growth is expected to fuel greater energy demand.
Nigeria's economy entered a recession in 2020, reversing three years of recovery, due to fall in crude oil prices as an aftermath of falling global demand and containment measures to fight the spread of COVID-19. The economy lost $15.8 Billion as a result. The GDP contracted by -6.1% in Q2 and -3.62% in Q3 of 2020 before rebounding to 0.11% in Q4 of 2020. This brought Nigeria's GDP contraction to -1.98% due to the impact of COVID-19. The economy however has seen a recovery to 0.51% in Q1 of 2021 (NBS). The economy is projected to grow by 1.5% in 2021 and 2.9% in 2022, partly based on an expected recovery in crude oil prices and Nigeria's production.
Despite being a major source of revenue, the oil sector lags other sectors in terms of GDP contribution. The relative importance of the oil and gas sector in Nigeria appears to be declining, from 13% of Nigeria's GDP in 2013 to about 7% in 2020, while those of other sectors continue to increase. The federal government continues to seek means of diversifying the economy, particularly sources of government revenue and foreign exchange receipts to include Agriculture, Petrochemical, Refining, Retail, and ICT as priority sectors of the economy. It is clear however that even the oil sector needs to grow and be diversified to stimulate overall economic development
The Nigerian oil and gas industry is segmented into the upstream, midstream and downstream sectors with several players and regulators playing across the value chain.
The upstream oil and gas sector is dominated by international oil companies (IOCs). Shell, Chevron, Mobil, Agip, Addax and Total, currently dominate the oil industry accounting for over 80% of the country's crude oil production. Activities in the sector are carried out under various arrangements including Joint Ventures (JVs) and Production Sharing Contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC). Other contractual arrangements include sole risk contracts and risk service contracts.
The IOCs also hold more than 90% of the oil reserves and operating assets. Production by IOCs has shrunk over the past ten years by an annual average of 4%, while marginal field players have increased production by up to 15% annual growth rate.
Major challenges facing the industry
The ministry of petroleum resources provides the primary oversight function for the industry, with several other agencies acting in different regulatory capacities. Prior to the PIA, the oil and gas industry had four major regulations. Exploration, production and distribution of petroleum products in Nigeria is regulated by several statutes and subsidiary legislations. The most prominent of these laws is the Petroleum Act 1969, Petroleum Profits Tax Act, Deep Offshore and Inland Basin Production Sharing Contract Act, and Associated Gas Reinjection Act. Most of the laws and regulations are outdated and inconsistent with present economic and industry realities. The Petroleum Industry Act now provides a more robust framework to drive growth within the sector.
Credit: The post The Petroleum Industry Act - Redefining the Nigerian Oil and Gas Landscape first appeared in PwC Nigeria on August 29, 2021
This report has been republished with the permission of PwC Nigeria.