Oil
Nigeria faces revenue shortfall as impact of shale boom on oil price looms
ABUJA – Nigeria’s revenue from crude oil may be on course to slumping this year as the abundant supply of shale oil to the global market is expected to lead to a reduction in oil price, amidst less tax revenue from international oil companies (IOCs) that have divested some of their assets in the country.
Analysts from KPMG Professional Services, a member of KPMG International, in a discussion on ‘Shale gas and its implications for Nigeria’ in Lagos at the weekend, said shale oil production from the United States (US) posed a risk to Nigeria as increased volume will put oil price on a downward trajectory.
They also stated that the divestment of assets by IOCs would lead to reduction in government tax revenue as indigenous firms that acquired the assets, are given
pioneer status, with a 5-year tax holiday. Michiel Soeting, global head of KPMG’s energy and natural resources practice, said: “The impact of shale oil on energy prices is in the early stages. With more supply in the market, prices will go down. Clearly there will be more volume.”
He stated that one third of the gas in the US is already linked to the shale oil.
The shale oil is a double- edged sword. China, Argentina and South Africa are potentially shale gas
producers. The hunger for countries to achieve energy security is high, especially in China, which is now seeking investments from IOCs. “With shale resources,there is now increased competition for resources by IOCs. The IOCs now have better opportunity to make choices about where to invest.
It is more choice for them. Nigeria has to consider whether it wants to attract investments from IOCs or not,” Soeting said.
Dimeji Salaudeen, partner, risk consulting head, Africa oil and gas sector, KPMG, said Nigeria had slipped from the third largest supplier of crude oil to the US to sixth position, impacting on the revenue profile of the country.
Nigeria supplies the world with Bonny Light, a sweet crude, most preferred in many parts of America before the discovery of shale oil in the US. Shale oil’s low sulphur content positions it as a direct competitor to the Bonny Light.
“Government has been able to move very quickly by taking measures to counteract some of the headwinds.
It has been successful in finding alternative markets in Asia such as India, China and South Korea. But to what extent is this measure sustainable because some of these countries, like China, are sitting on large resources. What would happen when they begin to produce? We need to begin to look for more sustainable, longer-term solutions,” said Salaudeen.
Victor Onyenkpa, partner and head, tax, regulatory and people services, said: “Nigeria’s crude reserves have remained more or less the same for the past ten years and oil companies are waiting for the PIB before making final investment decisions. There are now more opportunities (resources) than there is money to invest.”
He stressed the need for competitive fiscal terms in the Petroleum Industry Bill (PIB) to attract investments to ramp up crude oil production in the country.
“Nigeria needs to produce more, and to produce more, we need to attract investments bearing in mind that we are competing with other countries. We need to have very competitive fiscal terms. It is important that we get the right fiscal terms into the PIB that is currently in the National Assembly,” said Onyenkpa.
– BUSINESS DAY
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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