Ajumogobia identifies challenges in Nigeria’s oil and gas sector

A former Minister of Petroleum Resources, Mr. Odein Ajumogobia has identified the challenges facing Nigeria’s oil and gas sector, saying that the industry has witnessed dwindling fortunes, especially since 2004, when oil industry workers and facilities came under incessant and direct attacks by the ex-militants in the Niger Delta.

In a keynote address on ‘Nigeria’s Energy Evolution: A Glimpse at the Future,’ which was delivered at a recent a symposium in honour of the first Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Festus Ayodele Marinho, on the occasion of his 80th birthday, Ajumogobia noted that the dwindling fortunes of the industry had been affected by several unrelated factors.

He identified pipeline vandalism, oil theft, militancy, frequent changes of the management of the NNPC, ageing assets and volatility of oil prices as key challenges.

The former minister said despite the news of continued pipeline vandalism, the Amnesty Programme substantially reduced the disruptions to industry facilities and enabled production to go back up to previous peaks of approximately 2.5 million barrels per day

“Yet in 2013 a new and frightening phenomenon emerged. It was revealed by our Finance Minister that Nigeria was losing up to 400,000 barrels per day to crude oil theft!  This damaging phenomenon is completely inexplicable, especially in the light of vehement denials of collusion and assurances of our security agencies of their resolve to stop oil theft. Though apparently reduced from that incredible level the current estimates of approximately 150,000 bpd are an indication of a serious malaise,” he said.

Ajumogobia also listed incoherent petroleum policy as a major challenge, saying that Nigeria’s petroleum policy is not always or entirely coherent due in part to the frequent change of important officials.

According to him, since the NNPC was created 38 years ago, it has had 16 Group Managing Directors.

“In 30 years from 1977 to 2007 there were nine – an average of one every three years! Thereafter, appointments to that office became even more frequent. As minister, I encountered four GMDs of NNPC in a space of 32 months between July 2007 and March 2010. There have been three others since 2010. That is seven GMDs of our national oil corporation in as many years, with the incumbent being the fifth, since 2010,” he added.

He also stated that the Department of Petroleum Resources (DPR) has had a similarly high personnel turnover – six DPR directors in seven years, adding that the development is not a recipe for coherent policy making or implementation.

The former minister noted that the dwindling fortunes of the industry had been considerably worsened by plummeting oil prices, adding however, that the fall in the oil price was really no surprise.

“The rapid devaluation of the Naira can be attributed in part to lower oil prices which have wiped out billions of Naira in market cap for Nigeria’s fledgling indigenous oil and gas companies especially and with it probably a good percentage of the value of our recently rebased economy. Of course the US dollar has also strengthened against world currencies,” he added.

He also pointed out that “lack of investment based on the joint venture structure in particular and the inability of NNPC constrained by budget limitations to always meet is financial obligations to the JV, for replacement of ageing and dilapidated assets, especially pipelines and depots many of which have long passed their ‘shelf life’ is another risk factor that will continue to affect the efficiency and well being of the industry by substantially increasing operating costs, and environmental pollution.”

He accused the industry regulators of neglecting the issues of health and environment and focusing only on safety.

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