[Nigeria Economy] Short Article About Nigeria Petroleum Industry And Its Way Forward [Must Read]

On November 4, President Muhammadu Buhari signed a major oil reform into law — the first in years affecting the country’s most important industry — that will increase the percentage Nigeria earns from each barrel of oil on nearly half of its crude production, bringing in an estimated $1bn a year. It was a sign that the Buhari administration is taking seriously Nigeria’s desperate need to raise revenue, and seen in many quarters as an inevitable rebalancing: Africa’s biggest oil producer has, as Mr Buhari argues, long been short-changed over its share of deepwater production contracts with oil majors. “A combination of complicity by Nigerian politicians and feet-dragging by oil companies has, for more than a quarter-century, conspired to keep oil taxes to the barest minimum,” Mr Buhari said in a statement. “Today this changes. For the first time under our amended law, 200m Nigerians will start to receive a fair return on the surfeit of resources of our lands.” Mr Buhari said the reform marked a “new and beneficial relationship with our oil company partners”. But it comes amid challenging times for the Nigerian oil and gas industry, which provides roughly 90 per cent of the country’s foreign exchange — and analysts warn it could drive investment elsewhere. Resetting the fraught relationship between the state and western oil companies, as well as the country’s reputation for corruption surrounding the poor distribution of hydrocarbon revenues, could prove difficult to achieve. The royalty rise in part addresses a regulation that allows the government to renegotiate revenue-sharing contracts once oil prices rise above $20 per barrel. Last month, the attorney-general said Nigeria was seeking $62bn in arrears from the oil majors under the criterion, which was met in the 2000s, but neither the government nor the oil companies triggered the renegotiation. Chart showing oil price and Nigeria’s oil revenue The government has maintained — and some oil executives concede — that contracts struck decades ago are unfair and have called for improved terms. Gail Anderson, research director at energy consultancy WoodMackenzie, says in a note that the average royalty hike for the government of about 5 per cent was “not as bad as investors feared”. But by increasing the royalty, Nigerian oil projects, already high-risk, become even less economical. “Although in the short term, the change will deliver the intended increase in revenues for Nigeria, in the long-term it won’t if investors allocate capital to better projects elsewhere,” she adds. Map of Nigeria with oil region and states with security risks highlighted At the same time, Nigerian legislators are promising the passage of long-awaited reforms to overhaul the entire sector. The Petroleum Industries Bill has been floating around Abuja for the best part of two decades, holding back investment into an industry vital to Nigeria’s success. The bill is meant to make the opaque national oil company Nigerian National Petroleum Corporation (NNPC), an epicentre of corruption, more transparent by breaking it up, establishing an independent regulator and stripping the oil minister of the ability to award, renew or revoke licences. Nigeria’s relationship with the international oil companies has been strained for more than half a century. The government has struggled to pay for its share of oil production costs while pumping barrels has caused environmental devastation in the Niger Delta. Amaka Anku, Africa head of the political risk consultancy Eurasia Group, thinks the bill could pass in the next two years because “the incentives have never been more aligned”. Oil majors have generally opposed previous bills in part because “the fiscal reforms would reduce their revenue share”, she says

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