By Ikenna Omeje
Nigeria’s proposed upstream projects may experience more delays as oil and gas Exploration and Production companies across the world cut spending by $285 billion in two years.
According to a Rystad Energy report, this is as a result of the toll of the Covid-19 pandemic on upstream investments in the first two years of the downturn, which it estimated at a whopping $285 billion, adding that although spending will slowly start to rise from 2022, it will not reach pre-crisis levels in the coming period,
In the last three years, International Oil Companies (IOCs) operating in Nigeria have not shown willingness to do more investments in the upstream sector. This may not be unconnected with the delays in the passage of the proposed Petroleum Industry Bill (PIB), currently before the National Assembly.
The Final Investment Decision (FID) on five offshore oil and gas projects have been put on hold, due to issues around fiscal terms, which the IOCs want the country to address in the proposed bill, to encourage investments in deepwater projects.
The five projects that their FID are being delayed include the 225,000bpd Bonga Southwest-Aparo project; 120,000bpd Zabazaba-Etan project; 140,000bpd Bosi project; 110,000bpd Uge project and 100,000bpd Nsiko deepwater project. These projects are estimated at over $23.5 billion as of 2018.
GlobalData in its report in April, “Africa Oil and Gas Projects Outlook to 2025 – Development Stage, Capacity, Capex and Contractor Details of All New Build and Expansion Projects” stated that Africa is expected to witness 428 oil and gas projects to commence operations during the period 2021-2025. Out of these, upstream and midstream sectors would witness the highest project starts with 129 projects each. Refinery and petrochemical segments would witness the start of operations of 65 and 105 projects respectively.
GlobalData noted that Nigeria accounts for 23 percent of the total projects expected to start operations during the 2021 to 2025 period. But the current cut in spending may be a stumbling block to realizing these projects.
In February 2020, before Covid-19 started impacting the global energy system, Rystad had estimated that the global upstream investments for the year would end up at around $530 billion, almost at the same level as in 2019. Its forecast at the time suggested 2021 investments would remain in line with the previous year’s level.
“However, as the Covid-19 pandemic triggered a collapse in oil prices during the early part of the second quarter last year, E&P companies slashed investment budgets to protect cash flow. This spending trend was not reversed in 2021, when prices rose. Compared to pre-pandemic estimates for 2020 and 2021, we observe that spending fell by around $145 billion last year and will end up losing $140 billion by the end of this year. This implies Covid-19 removed 27 percent of planned investments.
“Upstream spending was limited to $382 billion in 2020 and is forecast to marginally grow to $390 billion this year. Rystad Energy expects the effect of the pandemic to be a lasting one as – even though spending will start growing from 2022 – it will not return to the pre-pandemic level of $530 billion. Growth will be limited and investments will only inch up annually, rising to just over $480 billion in 2025, when this report’s forecast ends,” Rystad stated.
The report informed that over the two-year period between 2020 and 2021, shale/tight oil investments are the ones most affected in both absolute and percentage terms, losing $96 billion of the previously expected spending or 39 percent for the sector.