Oil is the mainstay of the economy but diversification into natural gas and petrochemicals is a high priority.

resident Olusegun Obasanjo sees the energy sector as one of the pillars of future economic growth and prosperity. Oil remains the mainstay of the Nigerian economy, as it has been for over three decades, but diversification into natural gas and other areas such as petrochemicals is a high priority. Oil revenues still account for 95% of the country’s foreign exchange earnings, and make up approximately half of GDP.

Nigeria is the biggest crude oil producer in Africa – pumping around 2.5 million barrels per day (bpd) – and is a member of OPEC. Investment in the industry is growing steadily following a string of high-profile deepwater discoveries and the start of a number of large-scale development projects. Major deepwater schemes under way in the Gulf of Guinea include ExxonMobil’s Erha and Yoho fields, and Shell’s Bonga development. When these come on-stream in the next few years, oil production will be over three million bpd.

By 2010, Nigeria plans to have boosted oil production to four million bpd. It is also looking to bolster crude reserves with enhanced exploration efforts both onshore and offshore.

RILWANU LUKMAN Presidential Advisor on Petroleum & Energy

Rilwanu Lukman, Presidential Adviser on Petroleum and Energy, believes oil reserves have already reached the government’s 2003 target of 30 billion barrels. By 2010, the government expects to raise total reserves to 40 billion barrels, ensuring the longevity of the industry.

Dr. Lukman says that Nigeria has worked hard in recent years to re-ignite interest in the local oil sector. This involved the restoration of transparency, the elimination of shortages of petroleum products, the rehabilitation of the country’s refineries, the establishment of private export refineries, the encouragement of gas sector development, and moves toward liberalization and privatization.

He believes that the return of democratic rule in Nigeria, and the adoption of ideals of openness and transparency, will continue to support the rejuvenation of the industry. “These ideals will undoubtedly have a positive impact on Nigeria’s future role as a hub of activity in the oil and gas industry.”

The natural gas sector offers rich potential. The government hopes to put an end to gas flaring by 2008, and harness more of its vast stock of reserves, roughly 159 trillion cubic feet (tcf), equal to approximately 5% of the world’s total. Presently, around two-thirds of associated natural gas produced in Nigeria is flared, with less than 20% utilized for economic purposes, and the balance used for re-injection into wells to enhance oil recovery.

The Nigeria Liquefied Natural Gas (NLNG) complex on Bonny Island, which started operations in 1999, is a symbol of what can be achieved. As the country’s first world-class gas export project, it has recorded an impressive performance rate of on-time deliveries and uninterrupted production. NLNG is now investing in major expansion works.

A range of incentives, introduced to make the development of other gas projects more viable, are now beginning to bear fruit. Other LNG schemes are being promoted by U.S. firms ExxonMobil, Conoco and Phillips, while ChevronTexaco is leading a project to build the West Africa Gas Pipeline that will take Nigerian gas to neighboring Ghana, Togo, and Benin. Another ambitious initiative is to pipe Nigerian gas north across the Sahara desert to Algeria, and on to Europe.

Funsho Kupolokun, Special Assistant to the President on Petroleum Matters, says that the domestic market for natural gas is also taking shape with the restructuring of the power sector. Large-scale industrial enterprises are switching to gas as a result of the shift in policy. He says the rapid advance of the oil and gas sector since the return of democracy is set to continue offering plenty of opportunities for foreign investors.

The level of activity is unprecedented. Offshore exploration and development is at an all-time high, and there is substantial investment in downstream activities. Oil giants such as ExxonMobil and Shell are injecting billions of dollars into the country, while other foreign companies are looking to gain a foothold in the market.

“Never in the history of our industry have there been several projects under way simultaneously,” says Mr. Kupolokun.
The liberalization of the energy sector presents substantial opening for investment. A number of subsidiaries of state-owned Nigerian National Petroleum Corporation (NNPC) are going to be sold, including the three main refineries: the Eleme Petrochemicals Company, the Nigerian Petroleum Development Company, and the partially-owned oil marketing firm, Hyson Nigeria.

The recent decision to deregulate fuel prices is part of the process to attract foreign capital into the refineries sector. Several American firms have expressed an interest in investing in this area.

Mansur Ahmed, NNPC Group Director for Refineries and Petrochemicals, says that Nigeria must invest to keep up with demand. He sees a need for an additional 200,000-250,000 bpd refining capacity in the medium term. “As the economy improves, we expect demand to increase. We see an opportunity for new investments both in the existing plants, and in new facilities,” says Mr. Ahmed.
As a company with significant foreign links through its oil and gas contacts, including partnerships with some of the world’s largest corporations, NNPC is playing its part in improving Nigeria’s image abroad.

NNPC wants to grow into a fully-fledged integrated oil company, along the lines of Norway’s Statoil, or Saudi Arabia’s Aramco, with interests spanning exploration, refining and marketing.

Mr. Ahmed says things have changed for the better. “Our operations are increasingly transparent and accountable.”