…For GDP, the growth of the oil sector is expected to remain in positive territory due to an anticipated improvement in domestic oil production underpinned by improved investment from local players
MON DEC 23 2024-theGBJournal| Nigeria’s oil sector maintained growth in 2024E following the increase in domestic oil production compared to the previous year.
Specifically, oil production averaged 1.52 mb/d in 9M-24 (9M-23: 1.39 mb/d), leading to an average growth rate of 7.01% y/y in the sector, a significant improvement from the contraction (-6.16% y/y) recorded within the same period last year.
Research analysts at Cordros say they attribute the improved oil production to increased security measures to curb oil theft, the integration of new oil fields (OML 13) & terminals, including Utapete – which accounted for c.18.0% of total increases in the review period, and reduced terminal shut-ins.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the Nembe (+346.6% y/y), Bonny (+63.1% y/y), Okwuibume (+36.0% y/y), and Forcados (+19.2% y/y) terminals recorded the most significant production increases within the review period.
In Q3-24, the oil sector grew by 5.17% y/y, falling below the Q2-24 GDP growth rate (+10.15% y/y) primarily due to a high base in the corresponding period of the prior year (Q3-24: 1.47 mb/d vs Q3-23: 1.45 mb/d).
For GDP, the growth of the oil sector is expected to remain in positive territory due to an anticipated improvement in domestic oil production underpinned by improved investment from local players in the sector and enhanced security, transparency and accountability measures by the government.
However, IOC divestment and weak infrastructure are likely to constrain growth.
In 2025, the potential for an increase in domestic crude oil production in 2025E is seen. This is due to the FG’s efforts to increase transparency and accountability in the oil sector while improving security measures to curb oil theft activities.
For context, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) launched two key projects to promote transparency and regulatory oversight in the upstream oil sector in July 2024.
These include the Audit of Upstream Measurement Equipment and Facilities (AUMEF) in the Nigerian Oil and Gas Industry and the Advance Cargo Declaration Solution (ACDS).
The AUMEF is to ensure the accurate tracking of production flows, transfers, and resource allocation through a thorough assessment of the current state of oil & gas measuring equipment, identification of gaps, and implementation of necessary solutions.
At the same time, the ACDS complements the AUMEF as it provides a comprehensive tracking system for crude oil movements – from initial transport through final export to tame disruptions, theft, and understatement of crude oil volumes.
The launch of the key projects was followed by the introduction of a 1.00 Million Barrels of Oil Per Day (1MMBOPD) project by the NUPRC aimed at creating solutions and securing alternative funding for oil production growth.
We highlight that all of these efforts by the government are likely to lower crude oil losses from oil theft and underreporting while pushing domestic oil production
higher.
Specifically, we think the implementation of the AUMEF and the ACDS, along with other contributing factors, supported higher oil output in Q3-24 (1.55mb/d) relative to Q2-24 (1.47mb/d).
However, we think sub-optimal investments amid increased International Oil Companies divestment will continue to limit oil production growth below pre-COVID levels (Q1-20: 2.10 mb/d) and the FGN target (2.00 mb/d).
Precisely, we anticipate a gradual improvement in oil sector investments following FG’s approval of some on-shore oil asset divestment deals between International Oil Companies (IOCs) and local companies, including ExxonMobil – Seplat Equinor – Project Odinmin Eni – Oando and TotalEnergies – Telema divestment deals.
Notwithstanding, we think investment by local companies in onshore oil assets will be insufficient to boost oil production significantly in the short to medium term, especially given the ageing and dilapidated state of the oil infrastructure, which typically requires an extended period to restore full operational capacity.
Additionally, the global shift towards renewable energy is likely to constrain Foreign Direct Investment (FDI) in the sector.
Considering these factors, we project that crude oil production will average 1.60 mb/d in 2025E (2024E: 1.52 mb/d), pushing the average growth higher to 6.14% y/y in 2025E, compared to the oil growth estimate of 5.58% y/y in 2024E. Analysis is supported by Cordros Research
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