Petroleum Industry Bill
The long-awaited Petroleum Industry Bill (PIB) is set to be passed by the Senate in June. This is according to the Minister of State for Petroleum Timipre Sylva. This key legislation, which seeks to overhaul the Nigerian oil industry and offer new fiscal incentives to investors, has been debated in the legislative arm of government since 2008. Its delay has sparked a great deal of uncertainty and led to an estimated loss of over $15bn annually in lost investment in Nigeria's oil and gas industry. With the global shift from fossil fuels to renewable forms of energy picking up pace, the passage of the PIB may just be too little too late. It is unlikely that Nigeria will be able to make up for either the lost time or the lost in-vestment.
The PIB is currently undergoing last minute modifications in three key areas to enhance its effectiveness. These are the deregulation of the price of gas supplied to power plants, the Nigerian National Petroleum Corporation (NNPC's) public offer and the adoption of a single regulator. The price deregulation of gas supplied to power plants is a key ingredient in incentivizing power output in Nigeria. While this is likely to translate to increased tariffs for electric-ity consumers, it is needed to attract investment in both the gas and electricity generating industry. On the NNPC's public offer, selling shares to the public will mean that the corporation will be able to source its own funding. This means that it will come under higher levels of corporate governance and scrutiny.
The adoption of a single regulator, while more efficient and allowing for enhanced cohesion in regulating the entire industry value chain, may already be too little too late. The PIB, as currently constructed, recommends two regulators - one for the upstream sector (Upstream Regulatory Commission) and another for the midstream and downstream sectors (Midstream and Downstream Regulatory Authority). These agencies will oversee and enforce standards in all aspects of the oil industry.
Full deregulation of the downstream oil sector
The PIB could also become a source of acrimony. It gives legal backing to the complete price de-regulation of the downstream segment of the oil and gas industry. The Nigeria Governorsâ€™ Forum (NGF), made up of the governors of the 36 states, has proposed the implementation of the full deregulation of the downstream oil industry and determined that the pump price of PMS will be somewhere around N385/liter (137.65% above the current fuel pump price of N165/liter). While this will bring relief to the state governments that have been grappling with lower revenues, the chance of the federal government allowing such a spike in the near term is slim because of the negative impact on the poor. The subsidy will cripple the government's finances if sustained, but deregulation is the only way to unlock domestic refining. There is simply no easy way around or through the dilemma. Something is going to have to give.
When delay becomes a deal breaker
International oil companies (IOCs)are squarely in the thick of the energy transition. Some are al-ready on well laid out paths that will see them fully evolve to clean-energy companies. Royal Dutch Shell is in talks with the federal government of Nigeria to divest from its onshore oil fields and focus on its offshore and gas operations citing recurring incidents of theft, sabotage, and oil spillage. The IOCs have stated that their Nigerian onshore business is incompatible with their long-term strategy which focuses on climate change and net-zero carbon emissions by 2050. The companies have been gradually disposing of these onshore assets over the last decade. Shell CEO Ben van Beurden, at the oil giant's annual general meeting, told investors that "the balance of risks and rewards associated with our onshore portfolio is no longer compatible with our strategic ambitions.. .We cannot solve community problems in the Niger Delta".1
Many analysts believe that beyond the obvious reasons of insecurity and unrest in the Niger Delta stated by the oil giant, the protracted stalemate in passing the crucial piece of energy legislation - the PIB - is a major factor in Shell's decision to exit its onshore operations in Nigeria.
Navigating the Uncertainty
Shell accounts for slightly under 40% of Nigeria's crude and condensate production capacity (2.2 million barrels per day). While its move to offload its onshore oil fields could have implications on Nigeria's oil and gas output, it could also send wrong signals to international investors considering doing business in Nigeria. Other IOCs, Chevron and Mobil, have also begun to gradually dispose of their Nigerian assets in response to their changing goals and strategies which have been influenced by climate change and the need to go green. A number of questions arise: what will happen to Shell's onshore assets? Are they acquired by the NNPC through its upstream arm, Nigerian Petroleum Development Company (NPDC) or does the government invite bids from indigenous and foreign producers? Do the indigenous producers have the capacity to acquire these assets even as we expect more divestments in the future across the continent? Does this create an opportunity for indigenous players in the oil and gas sector to grow their continental foot-print? It remains uncertain how the events will play out. What is certain is that the passage of the PIB should have happened at least a decade ago and would have been crucial in the federal government's drive to achieve production of 4mbpd and domestic oil refining for regional exports.