The global oil and gas industry has had a rocky start to 2020, having been hit by several challenges – the most significant of which is the effect of the COVID-19 pandemic on crude oil demand supply ,price bench mark and other related issues with an oil-dependent economy, is highly vulnerable to the impact of these external shocks due to the country’s increased dependency on global economies for fiscal revenues, foreign exchange inflows, fiscal deficit funding and capital flows required to sustain the country’s economic activities.
COVID-19 on Nigeria’s Upstream Oil and Gas Market
The COVID-19 pandemic does not only present a severe health crisis for Nigeria, its impact reaches far beyond the health sector to other critical sectors of the country. The country’s upstream oil and gas sector, which provides a significant portion of Government revenue and foreign exchange earnings, is one such critical sector that has felt the ripple effect of the pandemic. Some key impacts of the COVID-19 pandemic to this sector are as follows:
Most Affected lines of Business are:
- Production and Exploration
- Geophysical and Seismic
- Drilling Contractors
- Deep water Constructions Services
- FPSO Contractors
- Offshore logistics and related services
Nigerian Gas Transportation Network Code
The Ministry of Petroleum Resources, through the Department of Petroleum Resources (DPR) recently launched the Nigerian Gas Transportation Network Code (NGTNC or “the Network Code”) aimed at opening access, and enhance availability and affordability of domestic gas for Nigerians. The Network Code, which became effective on 10 February 2020, is a set of rules and contractual framework established by the government to be observed by gas producers and transporters. Its provisions allow a six-month window for legacy agreements to migrate into the Network Code, while new and intending agreements are to align with the new Code.
The NGTNC is designed to govern the operations between the network operator(s) and users of the gas transportation system (including all existing and future gas pipelines) in Nigeria. It will serve as an important negotiation component for gas business and transactions in the Nigerian domestic gas market. Some key objectives of the Network Code are to:
- ensure fair and non-discriminatory access to the gas network;
- promote gas trading; and
- Deepen domestic gas penetration in-country.
The Federal Government of Nigeria announced on 30 June that the construction of the 614km gas pipeline had begun.
The National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association (PENGASSAN), both affiliated to IndustriALL Global Union, see the development as an opportunity to create decent jobs and reduce the high levels of unemployment. According to the country’s National Bureau of Statistics, unemployment is over 23 per cent or 21 million unemployed, and underemployment is 20.1 per cent or 18 million. The underemployed are those who work less than 40 hours a week.
The government and the state-owned enterprise, the Nigeria National Petroleum Corporation, said the pipeline will provide gas for power generation and stimulate the creation of new industries in the towns of Kogi, Niger, Kaduna, and Abuja. It is hoped that the new industries will create thousands of local jobs, transfer technology and promote local manufacturing. The pipeline will also benefit existing industries that rely on gas.
The construction is being carried out as part of China’s new Silk Road, where energy investments supported by China’s Belt and Road Initiative (BRI), which Nigeria joined in 2019. Through this initiative, the Bank of China and Sinosure (China Export Credit Agency) will finance the pipeline by $2.8 billion. Chinese construction and engineering companies are contracted, and the Nigerian partner is Oilserve, an oil and gas company.
Nigeria’s current production of 7,000 megawatts falls short of the country’s electricity demands for domestic and industrial use. It is hoped that the pipeline will close the gap by adding 3,600 megawatts to the national grid. Upon completion of the project, 2.2 billion cubic feet per day of gas will be produced according to the government.
The pipeline will join the Trans-Saharan gas pipeline which will export the natural gas to Europe. With Nigeria’s oil reserves expected to last three or four decades, the huge gas deposits allow for economic diversity.