The volatile (and mostly negative) growth of the oil & gas sector in recent years is evident from the accompanying graph (Real GDP, Oil and Non-Oil Growth). Due to its continued contraction, the oil & gas sector was 24.1% smaller in real terms in the first quarter of this year than in Q1 2011.
In the period from 2005 to 2009, Nigeria experienced annual oil output declines owing to an increase in pipeline vandalism, kidnappings and militant takeovers of oil facilities in the Niger Delta. Disruptions to oil production during this period were also caused by direct attacks on oil infrastructure, as well as explosions resulting from bunkering activities and pipeline leaks. The number of pipeline vandalism incidents increased to over 3,500 in 2006, after which it gradually declined, falling below 1,500 in 2009 and below 1,000 in 2010. The amnesty signed with the Movement for the Emancipation of the Niger Delta (MEND) in mid-2009 led to a substantial decline in attacks, and consequently to an increase in production. Output was further boosted by higher deep offshore production on the back of government incentives.
However, oil production has declined since then due to an escalation in oil theft and pipeline damage. After averaging 2.30 million barrels per day (mbpd) in 2010 and 2.38 mbpd in 2011, oil production declined to an average of 2.32 mbpd in 2012 and just 2.20 mbpd last year. Supply disruptions last year led to the closure of the Trans Niger Pipeline and the Nembe Creek Trunkline, and force majeure was declared on various crude grades. Oil theft as well as the delay in passing the Petroleum Industry Bill (PIB) will keep Nigeria’s oil output and exploration activities below-potential in the short term.
Nigeria’s oil production averaged 2.26 mbpd in the first quarter of this year. Although this was a marked improvement from the levels seen in Q4 2013 (2.14 mbpd), it was still slightly below the output level of the corresponding period of 2013 (2.29 mbpd). With the assumption that the PIB will be passed sometime after the elections in February 2015,
we might start to see an acceleration in oil & gas output growth from 2016 onwards, although the terms of the bill would obviously be a key consideration. Our baseline scenario assumes that the PIB will contain terms that are at least favourable enough to encourage some companies to continue with their ongoing investments in Nigeria that have been put on hold by the uncertainty created by delays in passing the bill, but that improvements in the levels of corruption and oil theft will only happen very slowly.