The global upstream oil and gas industry in 2024 navigates a perfect storm of conflicting forces. . Geopolitical tensions, particularly in oil-rich regions, are proving disruptive, adding a layer of uncertainty. Conflicts, diplomatic strains, and shifting alliances obscure the demand and supply picture, making oil prices even more unpredictable. The growing focus on clean energy adds another wrinkle, raising questions about long-term oil demand. This complex interplay of factors creates a challenging environment for the global upstream oil industry in 2024.
Battered but Resilient: Nigeria’s Upstream Woes
Despite its proven oil reserves of 37.5 billion barrels, making it the second largest in Africa and the 10th largest in the world, Nigeria’s upstream oil and gas industry faces a critical struggle for relevance. This industry, the lifeblood of the nation’s economy, accounts for over 85% of exports and 50% of the government budget. However, years of underinvestment in exploration and production, coupled with persistent infrastructure issues, have stifled growth and innovation. This has been exacerbated by rampant oil theft and vandalism, hemorrhaging billions in potential revenue annually. The environmental consequences are equally severe, deterring potential investors and casting a shadow over the industry’s future. Reform efforts, like the recently enacted Petroleum Industry Act (PIA), aim to overhaul regulations and entice investment. However, the impact is yet to be seen. Current production languishes at a meagre 1.3 million barrels per day (mbpd) in 2024 (as at May), falling short of both OPEC+ quotas (1.5 mbpd) and the government’s own budget-dependent target (1.78 mbpd). This is a stark decline from the 2 mbpd produced a decade ago, highlighting the urgent need for a turnaround.
Shifting Sands: IOCs Retreat, Independents Ascend
A significant shift is roiling Nigeria’s upstream oil industry. Major international oil companies (IOCs), frustrated by onshore sabotage and theft, are exiting these fields and focusing on less disrupted deepwater projects. This creates a unique opportunity for local Nigerian independents to acquire these assets, potentially marking a move towards greater domestic control over the nation’s oil resources. However, this “power move” by Nigerian independents comes with a hefty price tag. The divested assets often carry the very baggage – operational issues, environmental concerns, and security risks – that drove the IOCs out. Successfully managing these assets requires significant capital investment and technical expertise, areas where domestic independents may struggle. Agusto & Co. believes that the Nigerian government’s role is paramount. Developing supportive policies and regulatory frameworks will be crucial for these indigenous companies to thrive and ensure the long-term sustainability of the industry. This is a leap of faith for Nigeria, but with the right support, it could be a transformative one.
Natural Gas: A Glimmer of Hope Amidst Challenges
Nigeria’s vast natural gas reserves, estimated at 209.26 trillion cubic feet (tcf), has become a major focus area, echoing the global shift towards cleaner fuels. However, the industry faces significant hurdles: infrastructure (inadequate pipelines), non-market pricing, and regulatory inconsistencies, which have stifle development, and constrained output to a modest 1.9 tcf in 2023. While initiatives like the AKK pipeline, Ubeta gas development as well as NLNG Limited Train 7, offer promise, Agusto & Co. projects that gas production in 2024 will remain largely unchanged due to the near-term need for substantial infrastructure improvements.
Reasons for Optimism: Policy Reforms and Investment Drives
Efforts are underway to revitalise the industry. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has announced an expansion to the 2024 licensing round, offering a total of 36 oil blocks, including 17 deep offshore blocks in addition to the initial 19 onshore and deepwater blocks. This move was down to the significant interest from local and international investors, which also prompted an extension to the application deadline, by 10 days, from 25 June 2024 to 5 July 2024. In addition, signature bonuses have been slashed from a hefty $200 million to a more manageable $10 million per field. Furthermore, the government has further sweetened the deal by implementing fiscal incentives for specific non-associated gas projects through the “Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order 2024”. These combined efforts aim to reverse the decline in production and make Nigeria’s upstream industry a more attractive proposition for investors by improving the ease of acquiring oil blocks. This strategic push is critical to halt the flow of investments to competitors like Angola and Namibia, and unlock the true potential of Nigeria’s vast oil and gas reserves.
The NUPRC’s ambitious target of reducing oil production costs to below $20 per barrel (from an estimated $48 per barrel) is a crucial step in improving the profitability and investment attractiveness of Nigeria’s upstream industry. Agusto & Co. believes that, if successful, this cost-cutting measure will boost oil production, attract more investment, and strengthen its position as Africa’s leading oil producer.
Charting a Future of Resilience
Agusto & Co. expects a modest rise in Nigerian oil production to 1.45 mbpd (best case scenario) engendered by expansion projects and uptime in key pipelines on the back of improved security. However, OPEC+ quotas and a global price forecast of $85 per barrel in 2024, reflecting a balance between geopolitical tensions and sluggish growth, will act as counterweights. While natural gas gains global momentum, significant improvements in Nigeria’s domestic market remain unlikely until bottlenecks, especially non-cost reflective pricing, are addressed. The government’s commitment to implementing the PIA’s regulations and enhancing the gas industry’s attractiveness through targeted initiatives is encouraging, particularly as sustainability takes center stage. Nigeria’s long-term energy security and economic well-being hinge on effectively navigating this complex landscape. This requires successful implementation of reforms, infrastructure investments, improved security, and tackling gas industry bottlenecks to unlock sustainable growth.
