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Nigeria faces dire consequences if challenges in oil and gas sector are not addressed

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Nigeria faces dire prospects in the oil and gas sector if the current challenges in the sector are not urgently addressed.

Some stakeholders in the sector expressed this concern, saying that current challenges in the sector might frustrate the achievement of major production targets in future.

They listed the challenges to include vandalism of oil facilities in the Niger Delta which has affected oil production and falling crude oil prices in the international market.

The stakeholders expressed these concerns in separate interviews with the News Agency of Nigeria (NAN) in Lagos on the occasion of Nigeria’s 56th independence anniversary.

They said that effects of these challenges on the economy were already manifesting.

The Nigerian National Petroleum Corporation (NNPC) reported that Nigeria lost N51.388 billion to oil pipeline vandalism in the last four months.

The report said that the country would record more of such losses if the current spate of pipeline bombings by militant groups in the Niger Delta region was not addressed

The NNPC monthly financial and operations report for April 2016 reported that the NNPC  spent N33.994 billion on pipeline repairs and management during the period.

The report said also that as a result of the vandalism, N10.335 billion worth of crude oil was lost, while petroleum products losses between January and April 2016 stood at N7.059 billion.

The Minister of State for Petroleum Resources, Dr Ibe Kachikwu, said that following the spate of attacks on oil and gas assets, Nigeria’s output of crude oil had declined to 1.4 million barrels per day from 2.2 million.

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Mr Dolapo Oni, EcoBank, said that oil prices would continue to slide in future with some rather extreme scenarios to under 40 dollars per barrel.

Oni said that if the crude oil prices declined further, many oil and gas companies in Nigeria would face difficulties with meeting repayment obligations to banks.

He said that currently there were cost efficiency problems in the oil and gas industry and the development could make it impossible for government and other stakeholders to reposition the sector effectively.

The oil expert said that one of the challenges facing the sector was the noticeable delay in the contracting processes and this challenge also included funding and security problems.

He frowned at the situation where priority attention was given to oil to the detriment of gas production.

Oni advised that efforts should be made to tackle Nigeria’s dependence on oil to the detriment of gas when the country had about 184 trillion cubic feet of proven natural gas reserves.

Mr Samuel David, the Chairman of Divoc Energy, advised that Nigeria should continue to diversify its resource base and stop its heavy reliance on crude oil revenue.

David said that diversification required strong leadership, good policies and the political will as well as money.

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“So ironically, income from oil is required to diversify Nigeria’s economy to fill the infrastructure gap, to provide power and to create and grow other industries that are holding the country back.”

He said that the industry had witnessed dwindling fortunes, especially since 2015, when oil industry workers and facilities came under incessant and direct attacks by the militants in the Niger Delta.

David said that the dwindling fortunes of the oil sector was already affecting other sectors.

“The rapid devaluation of the naira can be attributed in part to lower oil prices which have wiped out billions of naira in Nigeria’s fledgling indigenous oil and gas companies.”

A former PENGASSAN, Mr Oluwaseyi Gambo, said that the ongoing insecurity in the Niger Delta had forced many multi-national international oil companies to commence divestment in oil blocks and marginal fields.

Gambo said that many of these assets were Nigerian onshore assets that had been plagued by industrial-scale oil theft, insecurity and spillages.

The former PENGASSAN spokesman said the security challenges should be resolved to assure investors that the environment was safe for investment.

The Chairman, Board of Trustee, IPMAN, Abdulkadir Aminu, also said that in spite of the relatively large volume of crude oil reserves, Nigeria’s oil production was being hampered by instability and supply disruptions.

Aminu said that the non-passage of the Petroleum Industry Bill (PIB), which had been pending before the National Assembly since 2009, was also a major concern to stakeholders.

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The PIB has suffered a number of setbacks; the delays have been on account of diverse interests scrutinising its provisions.

“At a point in time, the last administration promised to pass the bill before the end its regime, but was not able to do so,” he said.

Aminu said that the country was still facing serious issue of gas flaring in spite of  long standing  laws against gas flaring.

He said that the shifting of deadlines to end the practice had made the the activity to continue with serious health consequences to the people living nearby.

The Nigerian government has been working to end gas flaring for several years, but the deadline to implement the policy has been repeatedly postponed.

According to the International Energy Administration (IEA), the instability in the Niger Delta has resulted in significant amounts of shut-in production at onshore and shallow offshore fields, forcing companies to frequently declare force majeure on oil shipments.

Security concerns have led some oil services firms to pull out of the country and oil workers’ unions to threaten strikes over security issues.

Experts agree that now is the time for Nigeria to stop its dependence on crude oil revenue and stop paying lip service to the diversification of its revenue sources.

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