The Senate is determined to pass the much-delayed Petroleum Industry Bill (PIB) by the end of 2020 but this may be too late to have the desired impact on reviving investment in the oil and gas sector. Final Investment Decisions (FID) are still pending on several offshore projects that are expected to create an additional production capacity of 875,000 b/d and hopefully attract about US$100 billion in new investments.
The major projects include:
- Shell’s Bonga and Southwest Aparo which is expected to add 225,000 b/d; and Bonga North (100,000 b/d);
- Eni’s Zabazaba-Etan (120,000 b/d);
- Chevron’s Nsiko (100,000b/d);
- ExxonMobil’s Bosi (140,000 b/d); Satellite Field Development Phase Two (80,000 b/d); and Ude (110,000b/d).
FIDs on these projects have been delayed because of the failure to pass the PIB which has been in the works for at least 15 years.
The National Assembly has promised to ensure that the PIB is passed and signed into law by May but this may come just when the IOCs are reconsidering their investments. A recent consultancy report noted that they are shifting attention to projects that would yield returns within four years instead of long-term projects. None of Nigeria’s delayed projects will produce a return within that period.
Concerns about climate change and the emphasis on gas as a relatively clean transition fuel — following significant switches from coal to gas in power generation and increasing adoption in the industrial sector — would also drive investment decisions on major projects this year. This is another drawback for Nigeria which, despite its abundant natural gas reserves, has a poor regulatory environment that has ensured that they have remained largely untapped.
A lot will depend on what the final PIB that comes from the National Assembly looks like. Members have not said if they will adopt the same approach as the last assembly — which broke the bill into four sections and decided to pass each as a different bill — or if they would attempt to pass an omnibus bill that tries to cover all of its aspects. Whatever approach they decide the fiscal aspect of the bill will be a key determinant of future investment inflow. The oil majors were uncomfortable with some of the fiscal provision in the draft bill that was under consideration in the last national assembly that ended in 2019 because some of the terms were unfavourable to making profitable investments in the sector.
Nigeria is currently even more determined to increase oil sector revenues because it is struggling with a declining tax base and increasing expenditure. This means that the government may adopt a more negative approach in the new bill and aim to squeeze more money from the IOCs which will jeopardise future investments.
The government has already shown this intention with the amendment of the Production Sharing Contract Act to grab more revenues from oil companies and the imposition of additional taxes on oil production. The expectation is that the new PIB will come with fewer incentives and more taxes. Incentives are required to boost oil production at a time when the oil sector is losing its charm. Despite this Nigeria’s cash constraints mean that the government is less amenable to reason and patient regulation for future returns. This could mean that there is less chance that oil production will expand in future and there is a high risk of its starting to decline within the next four years.