By Omoh Gabriel
President, Lagos Chamber of Commerce and Industry, Mr Goodie Ibru, OON weekend warned Nigeria of the posed by the impending global oil glut to the economy. In a statement he said “The evolving global energy market dynamics suggest an urgent need to take a sober look at the Nigerian oil and gas sub-sector in particular and the energy sector in general, especially given the importance of the sector to the Nigerian economy. Despite the declining contribution to the nation’s Gross Domestic Product (GDP) – currently at 14.7 per cent, the extreme dependence of government finances and external trade balances on proceeds from the sector exposes the nation to significant risks from oil price and production shocks”.
According to Ibru “There are profound concerns over dwindling performance of the sector which has been attributed to the structural gaps in its regulatory, fiscal and business practices which have supported high inefficiencies. Unfortunately, the Petroleum Industry Bill (PIB) which was adjudged the most significant attempt to address these challenges through the reform of the governance and business structure of the sector as well as resolution of fiscal issues is yet to see the light of the day. From 18.89 per cent in the first quarter of 2009, the year after the PIB was first presented to the national Assembly, oil contribution to GDP has fallen to 14.7 per cent by the first quarter of 2013.
“The risk of a glut in the global oil market, potentially detrimental to Nigeria
The international oil market landscape is changing very fast and eroding the competitive value of Nigeria’s oil and gas. First, the number of countries discovering oil and gas reserves within their national boundaries is increasing; thus expanding the supply base of oil and gas products in the international market. Also, improvement in refining technology is helping to eradicate the difference between the Nigeria light crude and the other types of crude oil; a feature that reduced the price premium on Nigerian’s bonny light for many years.
“Countries in East Africa and West Africa including Ghana, Liberia, Sierra Leone, Kenya, Uganda and Tanzania have discovered large oil reserves and have started oil production. Vast natural gas resources have also been discovered in South Africa, Mozambique offshore, Namibia and Botswana. Additional discovery in an offshore oilfield in Angola will potentially make the country the largest oil producer in Africa, ahead of Nigeria. Furthermore, oil exploration in Madagascar, Seychelles, Ethiopia and Somalia is under way. Outside the African continent, Israel discovered natural gas reserves off its Mediterranean shores in late 2010 which led to the discovery that the entire eastern Mediterranean is endowed with huge untapped oil and gas reserves.
“The unfolding global oil market scenario and the shortfalls in domestic oil output pose a major threat to the 2013 budget. At an output level of 1.85 million against the budgeted 2.54 million barrels, Nigeria currently records an estimated shortfall of N10.7 billion ($69 million) daily due to oil theft, bunkering, illegal refineries and rising spate of insecurity.
“The domestic and international issues facing the oil and gas sector pose both risks and opportunities for the Nigerian economy. The greatest risk is the potential shock to fiscal sustainability if the global oil price slumps at a time when Nigeria’s oil output is declining.
Diversification and Fiscal Prudence are inevitable in the long run
The permanent hedge against the impending oil market glut is a substantial diversification of the economy from oil to non-oil activities. In the short term however, enacting a competitive, inward looking Petroleum Sector Act – the PIB is germane. While we note that the passage and implementation of the PIB will not entirely eliminate the problem, it would expand investment in the sector. Curbing corruption and other forms of fiscal leakages would further stabilise the economy”.
