The 36th Annual International Conference being hosted by the Nigerian Association of Petroleum Explorationists (NAPE), is again bringing to the public domain the same issues that have challenged Nigeria’s oil and gas industry in the last couple of years.
The association recognised the fact that oil and gas would continue to be a commodity characterised by peaks and troughs because the cyclicality of the Industry is not a new phenomenon.
To grow and sustain an industry that generates the highest revenue for government there is the need to have a legislative framework that would attract the needed investment.
Experts observes that in the wake of high and rising oil prices from the beginning of this decade until mid-2008, economic developments and macroeconomic policy issues in oil-exporting countries have increasingly attracted attention.
This they argued was because oil revenues are large and, in most countries, like in Nigeria accrue to government’s, fiscal policy choices in particular have a significant impact on economic performance with regard to economic growth, inflation and current account balances, and also have a bearing on advanced economies with regard to the recycling of oil revenues via the trade or the financial channel and in the context of global imbalances.
Fiscal policy in Nigeria is facing a number of specific challenges, stemming mainly from the fact that oil revenues, which constitute the bulk of government revenues are exhaustible, volatile, uncertain and largely originate from external demand, said NAPE president, Mr. Andrew Ejayeriese, as he announced the commencement of the 2018 conference.
These specific features of oil revenues pose challenges in the long – term with regard to intergenerational equity and fiscal sustainability and in the short- term with regard to macroeconomic stabilisation and fiscal planning.
Stability in oil prices remain critical in order to achieve high economic growth, but while the global energy market is getting increasingly more complex with the low oil price regime hydrocarbon exploration and exploitation are no longer as profitable it was prior to the price decline in 2015.
Before this time, macroeconomic developments in oil-exporting countries like Nigeria have been broadly favourable, owing to high and rising oil prices until mid-2008, and have been characterised by buoyant economic growth and large current account and fiscal surpluses.
Nevertheless, Ejayeriese, noted that while global demand for reliable and affordable energy would continue to rise in the foreseeable future, the world is seemingly moving toward a low carbon era, thus oil and gas companies would find it expedient to review long term strategies and innovate, recognising the possibility that oil is on brink of suffering a fate similar to coal.
Though, he observed that the global economy continued to recover, growth has been slower than anticipated.
According to him, oil price fluctuations were strong determinants of inflation rate and unemployment levels which in turn impacts the growth rate of a nation’s economy, adding that for most developing economies oil accounts for a large proportion of gross domestic product (GDP), expenditures in energy production.
Nigeria for example relies on crude sales to make up 70 per cent of its revenue and the recent sharp drop in prices was responsible for its economic crises including the recession it suffered.
Ejayeriese, also sees significant hikes in energy prices as having negative impact on production as it would certainly lead to appreciable rise in production, transportation and sundry costs for many allied industries.
Though, he believes that in emerging economies, the challenges are similar, like uncertainty in regulatory frameworks, poor physical infrastructure, lack of skilled resources, corruption and poor ethics, however, for Nigeria, there is no better time than the present to begin to envision an era beyond oil.
“It has been said that Africa is the new frontier for energy in many ways. Now is the opportunity for oil and gas companies to reinvent themselves. Against the backdrop of low oil price, dwindling oil revenue, there have been strident calls for the nation to diversify her economy from the monolithic economy and absolute dependence on oil into other areas to sustain the nation in terms of revenue generation,” he said.
Even though he said successive administrations had enunciated economic policies and strategies on how to diversify the nation’s economy from oil to other sectors like agriculture, mining and tourism, nonetheless the economy has not diversified at the anticipated speed.
Although significant achievements have been recorded in the management of Nigeria’s oil and gas resources, compared to recent past, the NAPE president said that to build a more diversified and resilient economy, governments plan must include finding and enhancing new opportunities and prudently allocating its revenue which comes mainly from oil and gas to the development of other key sectors of the economy and must offer oil and gas investors an attractive environment by reforming the regulatory, fiscal and licensing systems.
Ejayeriese stated that knowing that the sustainability of the industry would be affected by a number of drivers including prices of oil, impact of renewable and alternative energy sources, emergence of new competition and legislative frameworks, oil and gas companies would need to look beyond new discoveries and pursue improved efficiencies and operational excellence and innovation.
All of these would also help to shore up the country’s production profile and meet reserve target of 40 billion barrels.
According to him, “The hydrocarbon resource is finite, if you continue to produce and not replace, your reserve will be declining. Regardless of what people may think, the oil and gas industry continue to be the cash cow of this country and that is troubling enough.
“More worrisome is that new technologies are catching up and making the use of oil less important, thereby reducing the demand side of the equation. For us as a country that wants to diversify, we need the revenue from the oil and gas sector to help with the diversification.
“The exploration for hydrocarbon in the Northern Nigeria frontier basin has been on before now; the recent resumption is just a continuation of the process. There is absolutely a need to fully explore the Northern Basins, but has to been done in the best technical and professional manner.”
He said concentration of efforts in the Niger Delta was stagnating productions as the country has about seven sedimentary basins yet to be explored.