Can Nigeria’s State Oil Group Become Next Africa’s Saudi Aramco?

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By ISHAKA SHITU ALMUSTAPHA, 

Nigeria is Africa’s largest exporter of crude oil according to the Organisation of Oil Exporting Countries (OPEC, 2024). Nigeria’s state oil group is the Nigeria National Petroleum Corporation Limited (NNPCL). NNPCL was recently commercialised in late 2021 by ex-president Muhammadu Buhari and founded in April 1977 by military administration of General Olusegun Obasanjo. In the past, major international oil companies (IOCs) dominated operations in Nigeria’s oil Exploration and production (E&P) with limited technological advancement. Now, many Domestic oil companies (DOCs) and servicing companies are working optimally in Nigeria. In one word, theoretically, oil business is in accordance with global best practices mostly in Nigeria.

AFRICA’S NEW OIL FRONTIERS

In the past, it is possible to count Africa petrostates on your fingertips but now the story is quite changing as oil has been discovered in most places in the continent. A key example is Uganda, Tanzania, Mozambique and recently Namibia. Industry report revealed that Shell and Total, two biggest Europe’s energy companies are stepping up efforts to open a potentially giant oilfield off the coast of Namibia as one of the clearest signs that industry is pursuing new fossil fuel resources.

Despite transition to cleaner sources of energy, oil companies appear investing in drilling more oil wells in most African countries. There is a game plan to capture the market share in case energy transitions global effort fail in most consuming nations. NNPCL must maximize the opportunity to close the gap in energy poverty in Africa through building resilience in the supply chain. 

CHALLENGES OF A SUSTAINABLE PETROLUEM POLICY

Formulating a Petroleum policy is a huge challenge that will set the tune for investment in the value chains. Importantly, implementation of Petroleum Industry Act (PIA 2021) is laudable. A sustainable oil policy is a driving force for investment in pipelines for export, strong financial health, strengthening of security architecture etc. Nigeria must work with key players in the global oil market in driving it proposed oil policy reforms.

Nigeria can start with urgent summit of international stakeholders in the oil industry in New York, London and/or Dubai. The aim of the summit is to spell out Nigeria’s oil strategies and challenges of doing business in the oil industry from companies operating in Nigeria.  Nigeria is a leader in Africa’s crude oil export market and reliable partners such as the IOCs can support this ambitious goal of a global NNPCL for future Africa energy security.

Nigeria has succeeded in separating oil from gas and streamlined oil industry regulation into 2 major aspects of Upstream, Midstream, and downstream sectors respectively. In those days, there were many people doing the same things/jobs, but it is different now. As a former intern in defunct Department of Petroleum Resources (DPR) in Lagos, I will say there is huge improvement in oil regulation in Nigeria from industry report, conferences, and summit respectively. Importantly, major issues are around oil production problems with ageing pipelines, pipeline vandalism, crude oil theft, non-contract disclosures, Nigeria–OPEC policy focused on non-fulfilling of production quota etc.

NNPCL OPERATIONAL PERFORMANCE REVIEW

The challenge of full digitally operations for competitiveness advantage implementation is gradually taking place. Most of contracting processes appears online. However, a lot of government interference is still a concern to local and international investors. Bidding processes needed to be streamlined from perspective of digitalisation and financial health of acquisitions companies both domestically and internationally.

Nigeria’s major challenges in crude oil export remains around Joint venture (JV) and production sharing (PSC) accountability in relation to accounting for a drop of crude oil exported from all exporting terminals. However, a lot of export terminals are either in JV or PSC. In essence, lots of calculations between stakeholders in dividing shares/revenue, sometimes lead to delay in export and entitlement to stakeholders.

The Nigeria’s state oil group needs to institutionalised recruitment processes, particularly review and kick start the abandoned college of Petroleum and energy studies in Kaduna. This will help to train experts in energy studies, with other institutions working together with centre for Petroleum studies, Effurun Delta.

PRESIDENTIAL POLITICAL SUPPORT

Nigeria’s president speech at the UN General Assembly in September 2023 depicts a departure from seeking for support economic and financial assistance from most industrialised nations.  Already western companies are very familiar with Nigeria’s oil industry in the last 60 years. 

Although President Bola Ahmed Tinubu was a former oil executive with huge experience in the industry, it safe to say he will provide all necessary support needed to facilitate NNPCL floatation to compete with Saudi Aramco from developing countries perspectives. 

FLOATATION OF NNPCL IN 2025-26

Although NNPCL is fully integrated energy company but what is missing are its valuation, due diligence, increase financial accountability and operational performance etc.

Nigeria has a lot to learn from Saudi Aramco valuation and floatation of energy group in the global stock market. Significantly, it is important to maximize bank loans, bonuses, and as well as elite Nigerians in the oil industry to buy in this strategy and encouraged to prop up floating of the energy group.

I believe major challenges underlies in transparency of financial account, curbing oil theft, strengthening security system, a need for anti-piracy law, sustainable national and private maritime security strategies, vessels and ships management, access to tankers from domestic and international investors respectively.

Remuneration in the oil industry appears to be low in comparison to other counterparts in the Middle East and the North Sea in the UK. It is imperative that Nigeria fast track all intended programmes and administrative procedures to raise remuneration of oil employees and improve better working conditions for all irrespective of status. In addition, there is should be a consensus among workers and key management to curb incessant strikes in the industry. 

NNPC’S CHEMICAL ARM

Petrochemical is an integral part of oil E&P. In essence, Nigeria should acquire a majority stake in this important arm of business. Nigeria needs strong chemical arm like Sabic in Saudi Arabia. Nigeria can borrow from sovereign investment fund. In addition, key in Nigeria’s 2050 industrial strategy into making NNPCL an international oil company of repute.

The good news is that Indorama, an Indian conglomerate has received loan worth $75mn from the African Development Bank (AFDB) to boost petrochemical and increase fertilizer production and to develop a port terminal for export, this will help in supporting food production and food security across regional and international market. 

NIGERIA CRUDE OIL SALES AND THEFT CHALLENGES

The major challenges in Nigeria’s crude oil export are crude oil theft, ageing pipelines, and investment issues. The international oil market had great concerns on non-reliability and steady flow of crude oil from main export terminals. The big question is that how can Nigeria become a reliable source of crude oil in the global market?  This was my question during S& P Global commodity insight in mid-October 2023 in London Mayfair hotel, I had huge conversation with key participants on reliability of Nigerian crude oil in the global oil market, the report appears negative, and this posed a challenge to the Nigerian authorities to ensure effective and efficient security strategies are provided for long term crude oil flow to global market. In February 2024, the Nigerian Navy discovered over 40 illegal oil wells in the Niger Delta according to the national daily.

 A lot is said around security contract to ex-Niger Delta militants to secure key oil installations and pipelines, however, this has not stopped oil theft and vandalization of pipelines. Over the years, managing insecurity in the oil rich region is huge task for all government since returned to democratic governance. 

The restiveness in onshore terminals has led supermajors oil companies to sell their assets to domestic investors such as ND Western, Aradel holdings, First E&P and WalterSmith. Next is for Nigerian authority under the office of National Security Adviser to churn out marshal security strategies agreed by all stakeholders to curb oil theft, violence, and environmental damage in the Delta.

I believe top priority strategy is the ability to changing the narrative of crude oil export supply chain towards strengthening both domestic and export supply chain ecosystems, contributing to NNPCL resilience, reliability, and ability to meet evolving needs of its customers.  For its to meet international oil market standards, it must provide suppliers with long-term visibility of demand, enabling them to capture future growth and advance localization efforts.

Finally, oil production has generated billions of dollars for Nigeria since 1956 when the first oil well started production but it is increasingly costly for IOCs and NNPCL to produce oil in recent years. In comparison to Saudi Arabia, the cost of production is extremely low, and with peace and stability of oil flows, it is ahead of Nigeria in all ramifications despite Nigeria’s sweet crude oil with less than 0.5% sulphur. Nigeria must act and compete to be Africa’s next Saudi Aramco. The journey has begun with PIA 2021 implementation and the tempo need to be maintained.

Managing effective and efficient crude oil export supply chains and financial accountability is critical for NNPCL now.

It is important to set a specific timeframe to end refined oil importation and fully privatise non-functional refineries.

Dr ISHAKA SHITU ALMUSTAPHA, PhD. is a Transport and oil logistics expert, an associate to London based Port and Logistics Consultant and lecturer at Canterbury Christ Church University, London. Can be reached via email: ishakashitu@gmail.com.

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