oil and gas

Oil & Gas sector in Nigeria: Current industry issues

The Nigerian oil and gas industry has been vibrant since the discovery of crude oil in 1956 by the Shell Group. However, the sector was largely dominated by multinational corporations until the early 1990s when Nigerian companies began to make a foray into the industry. Local participation was boosted with the implementation of the Nigerian Content Directives issued by the Nigerian National Petroleum Corporation (NNPC) about a decade ago, and eventually, by the promulgation of the Nigerian Oil and Gas Industry Content Development (NOGIC) Act (The Act) in 2010. The Act seeks to promote the use of Nigerian companies/resources in the award of oil licences, contracts and projects.

Challenges in the Nigeria Oil & Gas Sector

Some of the challenges facing the country’s oil and gas industry are discussed below:

Niger-Delta Crisis

Although, most of Nigeria’s oil comes from then Niger Delta; yet the people in the area live in abject poverty. Pollution and environmental degradation is very high. Consequently, the region has remained unstable with periodic attacks on oil facilities and pipelines. The government has committed efforts to resolving the problems with the commencement of the Amnesty Program, which has seen most of the Niger Delta youths rehabilitated and sent outside the country for training and capacity building. This has resulted in relative peace in the region where petroleum is produced.

Government underfunding

A recurring problem in the upstream sector is the inability of the NNPC to meet its funding obligations to JV operations. In response to this problem, the FGN has explored other models like the PSC terms and Modified Carried Agreement (MCA) with MOCs to provide permanent solutions.

Long Contract Award Process

Typically, the process of contract award in the Nigerian oil and gas upstream sector is tedious and lengthy. The duration of contract award between initiation and eventual execution of the agreement could take as much as 36 months in some cases. This could affect the project economics of contracts.

In response to this slow pace of award process, MOCs start contract award process well in advance of commencement of project, to ensure that all regulatory and contractual approval processes are complied with before actual project execution.

Infrastructure

Nigeria is also faced with the challenge of lack of sufficient infrastructure to run the oil and gas industry. Government aims to fast track the monetization of the nation’s gas resources, instituting a gas based industrialization and increasing the generation capacity of the power sector, to ensure sustainable electricity delivery for domestic and industrial uses.

The above is an excerpt from our thought leadership material on Nigeria’s Oil and Gas Industry. Read more about the Recent Developments in Nigeria’s Oil & Gas Sector

Adewale Ajayi

 

 

 

 

 

 

Adewale Ajayi
Partner, Tax, Regulatory & People Services
KPMG Nigeria
T: +234 803 402 1014
E: mailto:adewale.ajayi@ng.kpmg.com

David Okwara

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