Nigeria’s Powerhouse

Oil and Gas

Nigeria’s Powerhouse

The country seeks to increase its production and become a fuel exporter in the foreseeable future.

Petroleum was officially discovered in Nigeria for the first time over sixty years ago. In 1956, five decades of exploration finally yielded fruit when Shell D’Arcy (today Shell Petroleum Development Company of Nigeria) at last found the country’s first commercially viable oilfield in Oloibiri, a small community located in modern Bayelsa State, in the Niger Delta region, about 70 km from Port Harcourt. Within a couple of years, Nigeria joined the ranks of oil producing countries: in 1958, the oilfield came on stream, producing 5,100 bps. Oil exportation changed the course of Nigerian history: by the late 1960s and early 1970s, Nigeria produced over 2 million barrels of crude oil per day, a figure eventually topped in the early 2000s, when production peaked at the record level of 2.5 million bpd.

Despite the many fluctuations that characterised the oil market in recent years, petroleum production and export still account for a major share of Nigeria’s gross earnings: in the first quarter of 2018, sales of crude oil made up 76.3% of Nigeria’s export earnings, bringing in about US$11.7 billion. In the same time span, processed oil products (e.g. condensates and lubricants) earned an additional US$1.75 billion, i.e. 11.4% of the total export earnings. In 2018, the increase of oil prices supported the economic growth of Nigeria, and new investments keep being launched to make sure the oil and gas industry can keep sustaining further growth in forthcoming years.

Until 2019, the four major existing refineries of Nigeria were the two Port Harcourt refineries, with a combined capacity of 210,000 barrels per stream day; the Warri Refining and Petrochemical Company, with a capacity of 125,000 bpsd; the Kaduna Refining and Petrochemical Company, with a capacity of 110,000 bpsd. Further efforts have been made, and in the next few years, two major sites will reach their peak production rate, providing a further combined increase of 450,000 bpd: the Dangote Refinery and the Egina oilfield.

Located in Lekki, not far from Lagos, and fully owned by the homonymous Nigerian company, the US$9 billion Dangote Refinery will be the largest oil refinery in Africa. Once operational, by the end of 2020, the Dangote plant will have an expected refining capacity of 10.4 million tonnes of gasoline per year, contributing to double Nigeria’s overall capacity and sustaining the country’s transition from fuel importer to fuel exporter.

The government signed the landmark Seven Critical Gas Development Projects, which are expected to bring 96.3 mcm per day of gas and generate at least 15,000 MW of electricity by 2020.

The Egina offshore oilfield, located in the Gulf of Guinea, approximately 150 km from the coasts of Nigeria, became operational in early 2019 and has rightly been dubbed “one of the most ambitious ultra-deep offshore projects on Earth.” The field, discovered in 2003, lies at about 1,400-1,700 m beneath the surface. The facility is based on a subsea production system with 44 ultra-deep subsea wells connected to a FPSO (floating production, storage and offloading vessel). At its peak, the Egina offshore oilfield will produce 200,000 barrels of oil per day. In July 2018, Nigerian National Petroleum Corporation (NNPC) then-Group Managing Director Maikanti Baru affirmed his commitment to increasing Nigeria’s crude oil reserves from 37 to 40 billion barrels by 2020 while achieving a production of 3 million barrels per day by 2023.

In the same occasion, the Ministry of Petroleum Resources, together with the NNPC, reaffirmed the government’s will to focus on taking all the necessary steps to ensure Nigeria can take full advantage from its vast gas resources: the government signed the landmark Seven Critical Gas Development Projects, which are expected to bring 96.3 mcm per day of gas and generate at least 15,000 MW of electricity by 2020. The projects are poised to contribute decisively in bridging Nigeria’s demand-supply gap in the domestic gas market. Key projects among the so-called 7CGDP include the development of the 4.3 trillion cubic feet Assa North/Ohaji South gas field.

The Nigerian oil and gas market is relatively consolidated and competitive, with players such as NNPC, Royal Dutch Shell PLC, Total SA, Chevron and Exxon Mobil Co. sharing the majority of the market. Recently, NNPC Group Managing Director Mele Kyari thanked Chinese enterprises for their investments in the industry, which amount to approximately US$16 billion. Experts predict that China will import about 80% of its crude oil supply by 2030, and Nigeria is poised to play a key role in that sense, especially since Chinese companies such as the China National Offshore Oil Corp. (CNOOC) trade and invest in Nigeria since the early 2000s. CNOOC’s Executive Vice-President Lu Yan Ji recently said that his company aims at increasing its production output from 800,000 bpd to over 1.2 million bpd, and that he hopes Nigeria will help in that regard.