Thirsty in a River!

Nigeria's debt stood at $91.46bn in Q1 2024. This includes $42.12bn external debts of $15.12bn Eurobond; $15.10bn World Bank, $5.05bn China Exim Bank; $2.03bn IMF, $1.63bn AfDB; $0.993bn African Development Fund; $0.65m France AFD, and $1.55bn International Bank for Reconstruction. Islamic Development Bank, etc.

Whilst most of the debts have accumulated since 2006 Paris Club $30bn debt relief, the House of Reps recently reported that the government has borrowed $6.45bn in the last year, mainly from the World Bank. In addition, Afreximbank disbursed a $3.175 bn loan by June 2024 under an NNPC syndicated $3.3bn crude repayment facility.

Yet during the last year, crude oil prices have averaged $76pb, Henry Hub gas prices at $3/MMBtu, and Asia LNG prices above $10/MMBtu since January 2021. They peak at $54/MMBtu in August 2022, well above the previous historical peak of $19/MMBtu in May 2012.

In the same year, Nigeria's crude oil production averaged 1.5mbopd against a capacity of 2.5mbopd (level produced in 2010). This means we are missing producing 1mbopd, which, at $76pb, means we miss earning $76m per day or $22.8bn, year to date. Nigerian government's net take in the JV and taxes (CIT, etc.) is over 35%; thus, $7.99bn revenue should have accrued to the government. In addition, only 60% of NLNG 6 Trains is being utilized, meaning 40% of the production is being missed daily. Taking NLNG's earnings in 2012, when gas price was at a similar level, revenue then was $12bn. Thus, a 40% loss means that $4.8bn in revenue will be lost by the end of 2024. The Nigerian government's earnings to NLNG revenue ratio is 42%, which means that if the loss of $4.8bn had been made, the Nigerian government would have earned $2.02bn. Thus, total losses in the oil and gas industry in 2024 are over $10.01bn (i.e., $7.99bn oil losses plus $2.02bn), a figure that is more than all we have borrowed in the past year. We are in the midst of a river, yet looking to others for water!

The question is, why are we losing so many opportunities? There are many reasons, such as inadequate investments since 2008 with the 13-year uncertainty of the Petroleum Industry Bill until 2021 when the Act was passed into law. This period coincided with the Energy Transition agenda, which meant that global financial institutions reduced financing fossil fuel projects. Furthermore, our business environment remained unfriendly (still ranked 131 of 190 countries). For example, it took 2-years to get approval for a project in the Oil Industry (JV), by which time inflation would have impacted quoted prices. In addition, the security situation in the Niger Delta meant that it takes much longer (and costlier) to execute projects in Nigeria compared to other countries.

However, a key reason is deferment and losses due to pipeline issues like bunkering. Oil companies now plan for 20-50% deferment from their production volumes due to the expectation that pipelines will be unavailable due to bunkering and the need to shut down and repair them. The 97km Nembe Creek Trunkline (150,000bopd) and the 180km Trans Niger Pipeline (180,000bopd) have hardly been in operation, with hundreds of illegal connection points needing to be removed at various times.

The government has set up many joint task forces at different times to curb the problem. The Task Forces have had varied levels of success, typically at the beginning of their deployment. For example, in May 2023, following a presidential directive, the TNP was available 100% after nearly 500 illegal tapping points were removed by the Task Force. However, this subsequently deteriorated. There was also a period around February 2024 when the lines were available 100% for some days, attributed to a period of reprisal by the Task Force against the pipeline thieves, who had allegedly killed members of the task force. Clearly, the task forces demonstrate that it is possible to sort out the problem and make a difference, however it has not been sustained.

To ensure a sustainable solution, a single-point accountable Czar is required whom the President can task to ensure pipelines' sustainable availability. The Czar (the likes of an incorruptible Colonel or Brigadier) will be empowered to coordinate all government security forces assigned to this task, government agencies, oil and gas companies, communities, etc., and also deploy technologies (sensors, drones, etc.) to secure our pipelines sustainably.

In addition, and for precisely similar reasons (inadequate investment, business environment, etc.), the NLNG Train 7, which is 75% completed, may start without any gas supply. With current Trains 1-6 only getting 60% gas supply, the fate of Train 7 hangs in the balance. Only 1 of the projects expected to supply gas has taken FID, i.e., the Total's $550m Ubeta gas field. This means the potential annual revenue of $4bn ($1.7bn to the government) will not materialize as the plant will likely stay idle for a while. Proactive actions by the government are required.

Nigeria does not need to keep borrowing and paying interest, as we are in the river and should not thirst.