As the global community gasps’ for survival following the outbreak of the on-going health tsunami which has ultimately occasioned a global economic shock amongst others, the Nigerian oil and gas sector – the lifeblood of her economy, grieves.
By examining the consequences of the novel corona virus vis-à-vis the Nigerian Oil and Gas sector, this essay recommends post-covid-19 policies capable of revitalizing the sector to better withstand future pandemics.
Keywords: Corona virus (covid-19), pandemic, oil and gas sector.
2.0 COVID-19; THE NIGERIAN OIL & GAS SECTOR
- Since its outbreak on December, 2019 in Wuhan and the World Health Organization declaring it a public health emergency of international concern, the corona virus has increasingly impacted diverse sectors. With cases and death rates in the increase and the much more saddening headline: ‘no vaccine yet’, the virus which is said to be caused by the severe acute respiratory syndrome coronavirus-2 (SARS-CoV-2) has resulted to stringent government actions such as restrictions and severe lockdowns of public places in the bid to contain its spread.
Consequently, the global value chain suffers grave disruptions considering its main players like China (although recently recovering) are hardest hit. Meanwhile, as the very sophisticated nations of the world suffer from the impact of the non-discriminatory pandemic, its brunt on mono-economic countries like Nigeria and her African acutely dependent counterparts unfortunately is infallible.
- Since its discovery also in 1956 and first shipment in 1958, oil has been the heart of the Nigerian economy, or perhaps, her “liquid black gold”. Constituting over 60% of her GDP and a whooping 90% of its forex, the relevance of the oil and gas sector cannot be undermined. Thus, in the event of its worst moments, the Nigerian economy inevitably becomes sluggish. In short, as it is the major source of the country’s liquidity, a sharp decrease in its revenue leads to negative growth in GDP. This is a caricature of the nation’s overdependence on the sector.
However, unfortunate also is that the government who has tilted its focus from agriculture and refused to implement diversification policies since the discovery of oil, risk’s the country’s survival to a nostril.
3.0 CONSEQUENCES OF THE PANDEMIC vis-à-vis THE NIGERIAN OIL & GAS SECTOR
Following hard line measures of borders lockdown to contain the virus’s spread while barrels of Nigerian oil – its overly dependent resource, lay on the high seas, it will be fatal to deny the pandemic’s adverse influence on the Nigeria oil and gas sector.
3.1 Demand Shock: The Policy, Research and Statistics Department of the United Nations Industrial Development Organization (UNIDO) predicted demand to be one of main channels of disruption. According to its study, “a combination of reduced income and fear of contagion will result in lower private spending”. This is evidently true considering the now drastic plunge in oil demand and more so, the barrels of Nigerian oil on the seas with no buyer in sight. With extreme travelling restrictions on the air space and highways, demand for fuel has dramatically dwindled and as a result, necessitated a joint reduction in oil price and production. More disheartening however is that the country’s largest importer of oil (China), being hardest hit has had to reduce its trading activities in other to contain the virus’s spread.
While increased government expenditure may cushion the demand shock, inflation lays wait at the corner. And with inflation comes recession also.
3.2 Slump in Oil Price: With the sink in demand occasioned by the pandemic’s impact, global oil price experiences a deep slump- a kind never before seen in 18 years. What resultant effect this would have on the Nigerian economy is manifestly clear. The country’s 2020 budget that was predicted on an oil price of $57 undergoes a review due to the current reality of $19.23 per barrel sunk in price. According to Goldman Sacs, Nigeria could lose more than $9 billion as a result and her revenue will not escape a slash. In fact, she is at a risk of yet another recession since the 2014 oil price induced one, as the Saudi-Russia price war further compounds the pain .
3.3 Drop in Production: Indeed, production may experience a backward shift. This became inevitably certain as the country’s petroleum regulator, Nigerian National Petroleum Commission recently ordered oil and gas companies to reduce their workforce and move to 28-day staff rotation after the Nigerian Ports Authority (NPA) reported six workers on board an offshore rig to have tested positive for covid-19. By implication, the reduction in labour supply will necessarily cut production volume.
Meanwhile also, the commission (NNPC) on 23rd April announced that persistent price collapse may warrant production halt
3.4 Loss in Oil Revenue: Perhaps, the most adverse effect on the oil and gas sector is the dearth in oil revenue. The combine effect of the demand shock, drop in production and primarily, the slump in oil price intoxicates this revenue loss. As a result, the Atlantic Council predicts Nigeria to suffer the biggest loss in the continent with $15.4 billion. Consequently, the country’s GDP has been heavily severed. In short, while the World Bank recently noted that sub-Saharan Africa drives towards their first recession in 25 years, it stated that oil producing nations such as Nigeria will be hardest hit. This heavy dearth in oil revenue has sent the Nigerian government requesting a $6.9 billion emergency loan from international lenders, which further compounds the economy, as external debts climax.
Another impact on the sector is the delays and cancellation of oil projects. A perfect example is the delay of the FID on Shell’s Bonga South West Aparo project in Nigeria.
4.0 SALVAGING THE NIGERIA OIL AND GAS SECTOR; PREPARING IT FOR FUTURE PANDEMICS
Some experts believe that the current turmoil of the oil and gas sector could cause a new energy order, predicting that economies and investors will resort to much anticipated green technologies which are environmentally friendly and now much cheaper as opposed to oil and gas. However, it is important to note that the oil and gas sector has precedents in surviving through hard times. Much more, a report by the European Commission (EC) notes
that by 2050 almost three quarters of the World’s energy supply will still come from fossil fuels, and with this stay comes future challenges.
There is thus a need to salvage the country’s oil and gas sector and prepare it for future pandemics.
4.1 Deregulation/liberalization of the Sector: For long, the government in the bid to protect the sector have imposed stringent regulations through the sector’s regulator, NNPC, limiting private stakeholders in the sector. We believe that a liberalization of the downstream sector would cause efficiency and open it up to a wider possibilities and exploits.
4.2 Formalisation Oil Revenue Saving: It is no news that countries with oil-based sovereign wealth fund (SWF) have resorted to seeking consolation from such funds. However, as with the high rate of corruption in Nigeria, the SWF and Excess Crude Account have always been unnecessarily tampered with by the so called ‘big boys’ of the sector. With a formalization of an oil revenue savings mechanism, one with transparent operational rules the NNRC noted, revenues will be readily available for critical times as this, instead of seeking funds from international lenders, which further compounds the country’s external debt.
4.3 Investing in the Gas industry: It appears the government have thought less about the gas industry as a propeller to economic development. Investment in gas industry will expand the oil revenue base of the sector as a lot of domestic and industrial
Other reforms of the oil and gas sector will to fast-track the passage of the Petroleum Industry Bill to better expand the industry’s focus and sharpen its operations, especially providing for liberalization and prioritization of the gas industry.
Indeed, we cannot deny the impact of the current pandemic on the Nigerian Oil and gas sector. The sector has proved itself worthwhile to the economy, contributing immensely to its growth. There is thus a need to salvage her from the extreme adverse effect pose by the pandemic and ready it for future ones. With a liberalized downstream sector, a dearth of corruption and an expansion of the industry’s focus, together with commitment from the government in enforcing diversification policies, we believe that the sector will get the required stamina to withstand future pandemics as this.
About the Author
Tom Utum is a tech and IP enthusiast. His passion for AI and Data science has informed his participation in several trainings. He constantly seek platforms to learn and build his career. He’s authored articles on the Oil and Gas sector, IP and Finance. At his leisure, he plays football or write poetries. He is currently a 300level student of Law at the Obafemi Awolowo University, open to internships, volunteering and mentorship.