Nigeria is the largest oil and gas producer in sub-Saharan Africa with a technical capacity to produce over two million barrels of crude and condensate per day and up to 7.5 billion cubic feet of natural gas per day. The oil and gas sector remains a major driver of the Nigerian economy, accounting for over 80% of the country’s foreign currency earnings which are distributed among the federal, state and local governments.
In 2020, the global oil and gas industry started off to a rocky start due to the COVID-19 pandemic and the attendant decline in demand for oil, which culminated in a crash of global crude oil prices. The price of Nigeria’s bonny light averaged $41.5 per barrel as at September 2020, declining to as low as $14 per barrel in April 2020. The fall in oil price was also driven by a supply glut which was eventually curtailed to some extent by the OPEC+ supply cut agreement. The Nigerian oil & gas industry was not exempted from the headwinds and has thus witnessed a significant reduction in cash flows and profitability.
Given the adverse impact of the three-pronged crisis (drop in oil price, COVID-19 and a looming recession) on government revenue, changes have been made on the regulatory front in the last year, aimed at increasing government revenue from oil and gas activities. A few major projects also commenced in 2019 and 2020 which we expect will improve the Industry’s revenue in the short to medium term. We recognise that the Nigerian oil and gas industry continues to battle major challenges such as a lack of a clear regulatory framework, weak infrastructure, a volatile global market and reducing investments in new explorations. However, opportunities exist in new oil discoveries, a growing world population and emerging middle class, improved technologies and proposed oil licensing rounds. The country’s large untapped gas reserves which ranks 9th largest in the world also offers prospects for growth.