The passage of the Petroleum Industry Bill by the National Assembly may have set the agenda for the energy sector as the second half of the year kicks in. While there are still grey areas yet to be harmonised by the lawmakers, coupled with the changing tide in the global oil market, experts are convinced that whatever happens, the effects will be very critical to the country’s economy as the second half of the year begins, MUYIWA LUCAS reports
It may not have been intentionally planned, but the passage of the Petroleum Industry Bill (PIB), on July 1, this year was quite significant. Not only did it mark the realisation of a 20-year-old dream, it also marked the beginning of the second half of the country’s fiscal year. The PIB, which seeks to provide legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry and development of Host Communities.
Among the features were the objective of ensuring good governance and accountability; creation of a commercially oriented national petroleum company and fostering a conducive business environment for petroleum operations. It also encompasses the creation of the Nigerian Upstream Regulatory Commission which will be responsible for the technical and commercial regulation of the upstream petroleum operations and the Nigerian Midstream and Downstream Petroleum Regulatory Authority to be saddled with the responsibility of the technical and commercial regulation of the midstream and downstream operations in the country.
While harmonisation on the PIB between the two arms of the National Assembly Chambers are soon to commence, it is clear that the government’s ambition of producing 40 billion barrels of reserves and production levels of four million barrels per day may have been further boosted by the PIB passage.
To achieve the goals set out for the nation’s 40 billion barrels crude reserve, the Group Managing Director of the NNPC, Mallam Mele Kyari, said the corporation is revving up exploration in the inland basins with the drilling of the Kolmani River II Well, culminating in oil find in commercial quantity in the Upper Benue Trough. The drilling of Kolmani River III Well is ongoing. These, it is believed, are activities that are capable of defining the later part of oil activities this year.
Similarly, with the resolution of disputes around some oil blocks that had led to production shut-in, experts are convinced that the result may begin to manifest in the second half of the year thereby making the three million barrels per day oil production capacity possible before year end. The resolution of the dispute involving Shell and Belema Oil that shut in over 30,000barrels per day production in OML 25; execution of Abo OML 125 Heads of Terms leading to the resolution of the issues around most of the deep offshore Production Sharing Contracts, among others are pointers to brighter production prospect for the sector in the later part of the year.
Other initiatives that have bolstered hope for the second half include but not limited to the signing of agreement between the NNPC, SNEPCo and other PSC partners to resolve the disputes around another deep offshore block, OML 118, leading to the renewal of that acreage with the prospect of a new $10 billion investment in the development of the Bonga Southeast Field. This will further boost the nation’s oil production.
The happening in the international oil market will to a large extent affect the local market. International stakeholders are already upbeat about potentials laden in the second half of the year for the product.
According to S&P Global Platts Analytics, global oil demand rebound will be hugely accelerated in this period. The firm predicts that oil demand will rise by over six million b/d; oil supply to rise three million b/d with OPEC+ dominant supplier
Looking into his crystal ball, Chris Midgley, Global Head of S&P Global Platts Analytics, had noted last December: “Oil demand will rebound by more than six million barrels b/d in 2021, but consumption is still expected to be more than two million b/d below that of 2019’s 101.9 million b/d. Why? The global middle class – the real engine of oil demand – faces continued pressures from wealth inequality and the ongoing COVID-19 cloud.” He, however, emphasised that given the indices used in the analysis, the outlook presumes a recovery in global gross domestic product (GDP), highlighted by an acceleration of growth in the second half of 2021. He submitted that the rollout of effective coronavirus vaccines has “created a wave of optimism across commodity markets despite the fundamentals being unchanged’’.
Similarly, the Organisation of Petroleum Exporting Countries (OPEC) has also predicted brighter prospects for the product in the second half of the year. Bloomberg reports that this will be buoyed as OPEC prepares to consider reviving more halted output. This position is based on a report by the world global oil regulator, OPEC, which forecast recently that oil consumption will jump by about five million barrels a day — or roughly five percent – in the second half of 2021 versus the first as the world emerges from the pandemic slump.
“The recovery in global economic growth, and hence oil demand, are expected to gain momentum,” the OPEC’s Vienna-based research department wrote. The need for transport fuels should climb as vaccination programmes contain the virus, it said.
The 23-nation OPEC+ coalition has already indicated it expects world crude markets to become tight in the coming six months, while the International Energy Agency (IEA) has warned of higher prices if the group doesn’t open the taps. Although OPEC and its partners have restored almost 40 percent of the production they shuttered when the coronavirus crushed demand a year ago, consideration is in the pipeline to consider reviving the remainder.
Bloomberg, according to the OPEC’s report, noted that the demand for OPEC’s crude will average 29 million barrels a day in the second half of the year; whereas the organisation’s 13 members pumped only 25.46 million barrels a day in May. It submitted that even if the organisation proceed with an increase scheduled for July, it will still be considerably below the level needed.
By and large, the second half of the year, barring any unforeseen dislocation to the local and international oil market, may well be a time of rebound for the sector.