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NNPC failure to cover Nigeria’s share of production costs threatening oil, gas supply

The failure of the Nigerian National Petroleum Company (NNPC) to fully cover the country’s share of production costs has threatened the country’s ability to produce oil and gas and also the supply of electricity.

According to the November 2022 World Bank Public Finance Review on Nigeria, this failure resulted in declining oil and gas production in joint venture (JV) operations.

The World Bank in the report said Nigeria’s liquefied natural gas market is the only market in which there is full payment discipline.

According to the report, Nigeria Liquefied Natural Gas (NLNG) Limited, in which the federal government, through the NNPC has a 49 per cent stake, is active.

In March 2021, President Buhari praised NLNG Limited for generating $114 billion in revenues over the years with $9 billion in taxes. The president also said about $18 billion was paid as dividends to the federal government and $15 billion in feed gas purchases.

These achievements and others, the president said were accomplished with 100 per cent Nigerian management and 95 per cent Nigerian workforce.

The World Bank recommends that Nigeria needs to improve payment discipline for the benefit of the country’s energy security and economic development.

The Bank advocates for safeguarding the country’s oil and gas assets by amending the Petroleum Industry Act (PIA) to specify that oil and gas assets will belong to the federation and the ownership will be transferred to the NNPC Limited or any other party upon payment of the full market value.

Requiring that oil and gas fiscal revenues be transferred first to the federation account by amending the PIA to require the government revenues related to the oil and gas contracts be paid to the federation account and verified by the commission.

Ensuring that all oil and gas fiscal payments be made in cash by amending the PIA to remove references to tax oil, royalty oil, and production sharing contracts, and retain only profit-sharing contracts, thereby ending all in-kind fiscal payments.

Global energy demand is expected to increase from slightly below 286 million barrels of oil equivalent per day (mboe/d) in 2021 to 351 mboe/d in 2045, an increase of 65.3 mboe/d, or 23 per cent, over the outlook period.

The Outlook also highlights the fact that the share of fossil fuels has remained astonishingly stable at above 80 per cent between 1990 and 2021. In the same period, the share of oil and gas in the mix has also been stable, hovering at around 55 per cent.



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