Oil industry watch: What is Nigeria’s game plan for 2021?

The year 2020 was a tumultuous one for Nigeria's oil sector, as the country grappled with the combined effects of the COVID-19 pandemic, a global oil price crash, production costs, and postponements. Data from the National Bureau of Statistics revealed that Nigeria's oil sector recorded an average daily production of 1.56 million barrels per day, resulting in an 8.89% contraction compared to the 4.59% growth rate seen in 2019. Oyeyemi Oke, an Oil and Gas Lawyer and Partner at A02 Law, discussed the challenges and opportunities facing Nigeria's oil industry in an interview with CNBC Africa. The interview shed light on the impact of the pandemic on the sector, the fluctuating oil prices, and the potential for growth in the gas segment. Oke highlighted the decline in the net present value of Nigeria's oil projects by approximately 20% in 2020, translating to a loss of around $19 billion in value. The major drivers of this negative performance were attributed to the unprecedented drop in global oil demand caused by the pandemic, as well as decreasing demand for crude oil both globally and locally. OPEC and OPEC+ discussions to manage oil production quotas were also highlighted, with concerns raised about members adhering to production levels amidst rising oil prices. Oke emphasized the importance of maintaining production levels to prevent a flood of supply in the market that could lead to a decline in prices. The focus on gas projects in Nigeria was identified as a potential avenue for growth in the sector. Oke mentioned the NLNG's successful corporate finance arrangements, as well as Seplat's gas processing plant transaction, as positive developments. He noted that these gas-focused projects, although long-term in nature, could significantly contribute to Nigeria's GDP once operational. The interview also touched on the impact of rising oil prices on projects like the Dangote Refinery, highlighting the potential for increased production costs if crude prices surge. Oke emphasized the importance of policymakers harnessing the potential of the oil and gas industry to drive economic growth, particularly through a renewed focus on gas projects. While the immediate impact on GDP growth may be limited, the long-term benefits of these investments could be substantial. Overall, Oke expressed cautious optimism about the future of Nigeria's oil sector in 2021, emphasizing the importance of strategic decision-making and prudent resource management to navigate the challenges and capitalize on emerging opportunities.