Crude oil is an international commodity whose price is determined by global market. Nigeria which ranks the 6th major oil producer has benefitted from crude oil business which accounts for about 90 per cent of its foreign exchange earnings, though without much to show for it.

As the industry emerges from near price collapse in the last two years, the Organization of Petroleum Exporting Countries (OPEC) is repositioning itself to deal with supply overhang with the intention to bring about stability in crude oil prices for the benefit of her members which include Nigeria.

The production cuts announced last year, in coordination with Russia, which were then extended by six additional months into 2018, seem to have helped start a re-balancing of the market. Although prices have recently moved up above the mid-$50 per barrel range, slow demand growth coupled with supply increases in the United States, Brazil, Iran, Libya, and Nigeria have, as yet, limited the pace of a return to market equilibrium.

At the end of November, OPEC announced that the current level of cuts would be extended by another nine months to the end of 2018, with Libya and Nigeria adding a promise not to raise their production; but, at some point, the market still needs a real demand boost to get prices moving upward in a meaningful way.

OPEC’s role will likely continue to be a very important one for many years to come, but the rise of US oil has certainly changed market dynamics and will likely continue to do so for the foreseeable future.  Meanwhile, 2018 possess serious challenge to the government to address weak fiscal regime and security issues around oil producing communities to reap the benefits which the production exemption provides.

Nigeria has projected to increase oil production to four million barrels per day and increase refining capacity to a level which would meet local demand and export potentials. It has also proposed to advance gas-to-power projects in order to meet the rapidly growing energy demand of the country.

The year will equally see the country achieving its plans to increase gas production capacity from 7,580 to 11,000 million cubic feet per day, mcfpd, 15,000 mcfpd by 2023 and 30,000 mcfpd by 2043. The increase in gas production is necessary to supply the planned gas power stations and develop other gas-based industries such as fertilizers, agro-processing and petrochemicals.

These are ambitious targets, especially against the backdrop of historical performance. For example, upstream oil production has been between 2.1 and 2.6 mbpd in the last eight years as a result of security issues, crude theft, and long-term funding challenges of NNPC. Concerning midstream, there is a huge shortfall in refined products (about 12 billion litres), with the difference made up in very expensive subsidies.

Current data suggests that Nigerian refineries run at a low capacity utilisation rate of below 35 per cent. The corresponding manufacturing capacities of the gas-based industries are set to grow accordingly. In terms of exploration, the goal is to grow natural gas reserves from 187 Tcf to 191.5 Tcf in 2023 and 200 Tcf in 2043 (which translates into a need for finding 85 Tcf over the 30-year period).

Against the backdrop of these targets, it needs to be stressed that insecurity, especially in the Niger Delta, poses a substantial threat to growth in the oil and gas sector. Steps being taken to address the issues need to be vigorously pursued to stem the tide and foster a conducive environment for oil and gas activities. Poor government funding, especially in the area of exploration will be urgently and strategically addressed. The menace of pilfering and theft of products need to be urgently addressed also in order to fully realize the targets set for oil and gas in general, and for oil in particular.

Nevertheless, the federal government through the NNPC is intensifying efforts to ramp oil production during the year. Indeed, the NNPC, has already projected a 200,000 barrels per day increase in Nigeria’s crude oil production by the first quarter of 2018. This is being made possible with the commissioning of the Umbilical Flow-lines and Risers (UFR) for the Egina Deep Offshore Project.

The group managing of the NNPC, Mr. Maikanti Baru also restated the commitment of the corporation to the development of Nigerian content in the oil and gas industry.  Government expects to add 200, 000 barrels per day to national production from the Egina field by the first quarter of 2018.

The completed the Egina UFR project involves the engineering, procurement, construction, installation and pre-commissioning of 52 kilometers (km) of oil production and water injection flow-lines; 12 flexible jumpers; 2km of oil export line; 20km of gas export pipelines alongside the installation and commissioning of 80km of steel tube Umbilical and mooring FPSO and Offshore Loading Terminal. (OLT).

Managing director/chief executive officer, Total upstream companies in Nigeria, Nicolas Terraz, assured that the firm would boost the country’s daily oil production by 200,000 barrels from 2018. The NNPC, which has shown intention to expedite oil search in the country’s frontier basin is committed to meet federal governments aspirations to achieve 2.3 million barrels per day crude oil projection for the 2018 which was highlighted in the 2018 budget proposal.

Group general manager, Corporate Planning and Strategy of Total, Mr. Bala Wunti, at a presentation to the House of Representatives Joint Committee on 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) gave the assurance that the year will certainly see oil production increase.

Mr. Wunti said the current production capacity for the country was more than 2.3 million barrels per day, and that due to the insecurity in the Niger Delta region, the full production capacity has not been achieved over the years. “The 2018 crude oil national production projection for Joint Ventures, Modified Carry Arrangement or External Financing, Production Sharing Contracts, Independents, Marginal Fields and Service Contracts is about 2,298,000 barrels per day,” Mr. Wunti said.

He added that the 2018 price projection on the long term price assumption was based on price scenarios of $35 (low), $45 (medium) and $55 (high), stressing that most price forecasting agencies thought that the medium price scenario had the highest probability of occurrence which the 2018 budget was hinged upon.

“Consequently, a conservative price projection of $45 per barrel was used as benchmark for crude price for 2018 budget,” Mr. Wunti stated. The country’s average performance late last year stood at 1,885,000 barrels per day which is equivalent to about 86 per cent of the budgeted 2.2 million barrels per day.

The performance shortfall was mostly due to Niger Delta security related factors and vandalism of key export infrastructure, including Trans-Forcados Pipeline (TFP), Forcados Oil Terminal (FOT) export line, Nembe Creek Trunk Line (NCTL) and Trans Niger Pipeline (TNP), all of which have been relatively rectified to pave way for the 2018 projections.

He said robust engagement of stakeholders in the Niger Delta by the federal government and the NNPC had led to improved production in recent months, disclosing that sustained peace in the Niger Delta, price recovery and improved joint venture production would help to support government revenue aspirations.

Our correspondent notes that reports that average crude oil price performance between January and October 2017 was $52.49 barrels per day, an equivalent of 18 per cent over performance of budget price benchmark of $44.50 barrels per day and the 18 per cent above budget benchmark was due to a stability in the crude oil market and various geopolitical dynamics around the world.

Under the power sector, government has set for itself an ambitious agenda to increase power generation from the current 3.5MW to 20 Gigawatts (GW) by 2018 and to 350 GW by 2043, with focus on gas as the immediate priority and adding alternative sources after 2023.

There are also plans to increase transmission capacity, with immediate focus on the national backbone, increase distribution capacity, with priority placed on making power available for industrial users and reducing distribution losses, finalise privatisation of power generation and distribution, and extend privatisation to include NIPP asset.

Government also intends to build capabilities, increasing human capacity 20 times by from 2018 to 2023 and 40 times by 2043, improve rural electrification and implement all power infrastructure projects shall comply with available international best practices.