New Oil Directives Won’t Fix Nigeria’s Operational Issues, Expert Says
Energy expert Kelvin Emmanuel has stated that recent policy directives aimed at improving Nigeria’s oil and gas sector, issued by President Bola Tinubu on February 28, 2024, fail to address the fundamental operational challenges plaguing the industry. While these directives—comprising one executive order and two policy directives—seek to enhance the investment climate through fiscal incentives, reduced contracting timelines, and relaxed local content requirements, they do not tackle systemic issues like pipeline vandalism, oil theft, underinvestment, and poor corporate governance. Below is an analysis of the issue based on Emmanuel’s critique and broader context from available sources.
Key Points of the New Directives
- Fiscal Incentives: The directives introduce tax breaks and incentives for non-associated gas, midstream, and deepwater oil projects to attract investment.
- Contracting Efficiency: The directives aim to shorten the contracting cycle to six months, raise approval thresholds to account for inflation, and extend third-party contract durations. For instance, contracts under Production Sharing Contracts (PSCs) or Joint Operating Agreements (JOAs) now require Nigerian National Petroleum Company Limited (NNPCL) consent only for deals exceeding $10 million.
- Local Content Adjustments: The policies relax some local content requirements to reduce costs and promote cost efficiency, aiming to make Nigeria a preferred destination for oil and gas investment in Africa.
These measures were developed with input from multiple stakeholders, including the Federal Ministries of Justice, Finance, Petroleum, and others, to streamline operations and boost investor confidence.
Why the Directives Fall Short, According to Experts
Kelvin Emmanuel, as cited in posts on X, argues that the government is “skirting the core issues” in the oil and gas sector. The following operational challenges remain unaddressed by the new directives:
- Pipeline Vandalism and Oil Theft: Nigeria’s oil production is severely hampered by vandalism and theft, with production at 1.5 million barrels per day (bpd) in 2025, well below the government’s 2.1 million bpd target. For example, NNPCL’s CEO Mele Kyari noted that vandalism has rendered some pipelines, like those from Warri to Benin, inoperable for 15 years.
- Impact: Oil theft costs Nigeria an estimated $6 billion annually, and the Bonny oil hub has lost nearly all its output due to these issues.
- Directive Limitation: The new policies do not propose specific measures to enhance security or address theft, which undermines production capacity.
- Underinvestment and Declining Rig Capacity: Nigeria’s oil rig count dropped 37% from 16 in 2019 to 10 in August 2022, reflecting underinvestment in exploration and maintenance. The Petroleum Industry Bill (PIB), now the Petroleum Industry Act (PIA) of 2021, has failed to attract significant new investment due to delays and unfavorable fiscal terms.
- Impact: Projects like Shell’s Bonga South West/Aparo and Exxon’s Bosi fields remain on hold, limiting reserve growth.
- Directive Limitation: While fiscal incentives may encourage some investment, they do not address the broader issue of legal uncertainty or the high operational costs that deter investors.
- Poor Corporate Governance at NNPCL: The NNPCL has been criticized for its opaque financial practices and illiquidity. Its 2023 Audited Financial Statement revealed significant non-performing receivables and reliance on revaluation gains to declare profits, indicating a broken financial model.
- Impact: NNPCL’s inefficiencies, including unrecoverable receivables and high debt, limit its ability to fund operations or expand assets.
- Directive Limitation: The directives focus on contracting efficiency but do not reform NNPCL’s governance structure or address its financial distress.
- Fuel Scarcity and Refinery Issues: Despite Nigeria’s vast crude reserves, persistent fuel scarcity stems from dilapidated state-owned refineries and reliance on imported gasoline. The Dangote Refinery, operational since September 2024, has reduced import dependency but faces resistance from oil marketers and an entrenched “oil mafia” benefiting from import trade.
- Impact: The high cost of imported fuel and inefficiencies in the downstream sector drive inflation and economic strain.
- Directive Limitation: The directives do not address downstream inefficiencies or the lack of crude supply in naira to other local refineries, limiting their impact on fuel availability.
- Systemic Corruption and Mismanagement: Corruption has long plagued Nigeria’s oil sector, with NNPCL accused of unaccounted billions and opaque oil swap deals. Experts note that vested interests have historically blocked reforms like the PIB.
- Impact: Corruption deters foreign investment and exacerbates operational inefficiencies, with oil majors like Shell and Exxon divesting onshore assets due to these challenges.
- Directive Limitation: The directives lack mechanisms to tackle corruption or enforce transparency, critical for long-term sector recovery.
Broader Context and Expert Sentiment
The Nigerian oil sector, which accounts for 90% of export earnings and 85% of government revenue, is critical to the economy but faces structural challenges. Despite the PIA’s passage in 2021, which aimed to enhance transparency and attract investment, progress has been slow due to political interference and regulatory bottlenecks. Experts like Akpan Ekpo argue that Nigeria must diversify away from oil dependency, as its share of GDP has dropped from 13% in 2010 to under 6% in 2022.
Posts on X reflect similar sentiments, with operators highlighting evacuation bottlenecks as a major barrier to achieving the government’s 3 million bpd target. Emmanuel’s critique aligns with these views, emphasizing that without addressing security, governance, and infrastructure, the directives are superficial.
Opportunity for Savings Amid Debt Issues
Interestingly, the government’s debt problem, as discussed previously, ties into the oil sector’s challenges. Nigeria’s rising debt (31% of GDP in 2020) and high debt servicing (over 80% of revenue) are exacerbated by low oil revenues due to these operational issues. For individuals, this creates a borrowing problem through higher interest rates and inflation but also an opportunity to save by investing in government bonds or high-yield savings accounts, as outlined earlier. The oil sector’s inefficiencies contribute to economic instability, increasing the need for personal financial prudence.
Conclusion
While President Tinubu’s directives aim to streamline operations and attract investment, they do not address the root causes of Nigeria’s oil sector woes—pipeline vandalism, oil theft, poor governance, and systemic corruption. As Kelvin Emmanuel and other experts note, these fundamental issues require comprehensive reforms, such as improved security, NNPCL restructuring, and transparency measures, to restore the sector’s viability. Until these are prioritized, the directives are unlikely to deliver the promised economic benefits, leaving Nigeria’s oil production and fiscal health vulnerable.
Sources: Nairametrics, ARISEtv, Businessday NG, Reuters, Punch Newspapers, OilPrice.com, and posts on X.
For further details, visit https://www.nnpcgroup.com or https://nuprc.gov.ng for updates on Nigeria’s oil sector policies.
