Cite this article: Aghalino, S. O. and Amos, O. O. (2022). “The Nigerian Oil Industry and the Challenges of Covid-19 Pandemic”. in Sokoto Journal of History Vol. 11. Pp. 200-216.
Abstract
The outbreak of the Covid-19 pandemic was not only a global health challenge, but had also caused unprecedented economic crisis. The pandemic had evidently disproportionately impacted the oil industry in Nigeria as the negative externalities of the pandemic are searing for Nigeria that is a mono-cultural economy. This paper therefore is a preliminary analysis of the impacts and challenges of the Covid-19 pandemic on the Nigerian oil industry. The study adopted content analysis of extant literature, and argued that the severity of the pandemic on the Nigerian oil industry is massive and hard-hit because the Nigerian economy is not diversified as it relies heavily on the enclave oil and gas industry. We concluded by stressing the need for diversification of the Nigerian economy, which can be achieved if the political leadership invest the rent from sale of oil on industrial manufacturing such as petrochemical and agro-allied industries in order to absorb the long term shock of the Covid-19 pandemic.
Keywords: Oil industry, Nigeria, Covid-19 pandemic, challenge, stakeholders
DOI: 10.36349/sokotojh.2022.v11i01.008
THE NIGERIAN OIL INDUSTRY AND THE CHALLENGES OF COVID-19 PANDEMIC
Samuel O. Aghalino
Department of History and International Studies
University of Ilorin,
Ilorin, Nigeria
Email: soaghalino@gmail.com
&
Ominigho
Owem Amos
Department of History and International Studies
University of Ilorin,
Ilorin, Nigeria
Email: omonighoowem@yahoo.com
Introduction
Since the
establishment of the first major United States of America oil company, the
Standard Oil Company founded by John
Rockefeller in 1870, the industry has unfolded over several decades (Knowles, 1990). Its impacts on world development and civilization has been
profound than any single natural
resource in recorded
history. Suffice it to say that at the global level, there is considerable dependency on the
development of the oil industry due to growth in the transportation sector as well as increasing global energy
demand. This has culminated into continuous investment in petroleum-based products all over the world. Essentially
therefore, oil has been and perhaps, remains
a very decisive element in defining the nature and character of today‘s
economy. It is equally a crucial
factor in world politics and the diplomatic strategy of states. In Nigeria, the
oil sector is to a very large extent,
the treasure base of the country in terms of what it contributes to the national
economy and its necessity
for daily living.
However, over
the past years, the Nigerian oil industry has been beset by a myriad of
challenges, notably oil theft and pipeline vandalism, stalled economic reforms,
legal and regulatory frameworks, and threat of international oil price volatility amongst others. While stakeholders are
still
grabbling towards curbing these challenges, the World Health Organization (WHO)
declared Covid-19 a global Pandemic
in January 20201. Conceptually, Covid-19 which is an acronym for Corona Virus Disease of 2019 is an
infectious disease whose symptoms includes; cough, shortness of breath, fever and loss of smell while
at its complicated level could lead to pneumonia, acute respiratory distress and kidney failure, and eventually, death2.
The public
fear of the life-threatening impact of the virus created a situation as it were
in many countries including Nigeria,
which elicited governments with no other option than to adopt drastic strategies toward the containment of the
spread of the virus. While, according
to the National Geographic3
, reduction in environmental pollution and improved societal quietness are some
of the positives associated with the
measures taken to contain the spread of the pandemic, it is important to state that such measures as the lockdown
of the global population, closure of industries and the complete shutdown
of borders with heavy restrictions placed on movements and the grounding of airplanes and other means of
transportation in many cities, impacted heavily on travel and trade which caused substantial disruption in
several sectors and aspects of our national life and the global system. The Corona Virus like a tsunami hit heavily on the global economy such that every aspect of human society was affected by the
pandemic4. In the oil
industry, players reported unexpected low
profitability and negative consequences on production and investment. The
International and indigenous oil
companies operating in Nigeria‘s Oil and Gas Industry were not insulated from
this unprecedented crisis,
mainly because most of the hydrocarbons produced
in the country are exported.
Hence, there
have been concerns among observers regarding the current and long-term effects
of the novel corona virus
(COVID-19) on the Nigerian oil industry and the economy. Notably, the impacts of the pandemic
have been dramatic
and excruciating. Informal
sectors have been devastated leading to lose of many jobs to the tone
of four in ten working Nigerians losing their jobs in April 2020 alone5. With particular
reference to the oil industry in Nigeria, the restrictions and ban to national and international travels and
other economic activities slowed and relatively brought oil businesses in Nigeria to a halt. It is
much more worrisome the adverse effect that this global pandemic has had and continue to have on the petroleum sector
considering how crucial revenues from
the sale of crude oil is to the sustenance of the Nigerian economy. In May
2020, the Nigerian government
predicted that as much as 80% of oil revenue plan for the year would not be
realized. Two months into this
prediction, the Minister for Finance, Budget and National Planning reported that due to the unhealthy
circumstances created by the Corona Virus quagmire,
the country
![]() |
1
World Health Organization 1, Statement
on second meeting of the International Health Regulation Emergency Committee regarding the outbreak of novel
corona virus. Available online at www.who.int/news-room/detail/30- 01-2020-statement-on-the-second-meetingof- Accessed 16/6/202
2
Thevarajan, I. N., Breadth of concomitant immune responses prior to
patient recovery: A case report of non-severe
Covid-19. Nature Medicine, 26(4),
Pp. 45-55
3
National Geographic, Corona virus-is-quieting-the-world-seismic-data-shows. Available
online at www.nationalgeographic.com/science/2020/04/coronavirus-is-quieting-the-world-Retrieved 27/6/2021
4
Ezeani, N., Covid-19 pandemic and the likely consequences on the oil
and gas sector on Nigeria: Any feasible options?‖
The Center for Public
Policy Alternatives, 2020.
5
Nafi, C., Sayne, A. and Alexandra, G., Nigeria: Updated assessment of
the impact of the Corona virus pandemic on
the extractive sector
and resource governance. Natural Resource
GovernanceInstitute.2020, Pp.23-41.
experienced a
65% decline in projected oil and gas net revenue, and by the second quarter of
the year, the economy shrank by 6% 6.
Thus, it was
evident from the outset of the global pandemic that the global oil space in
general and the Nigerian
oil industry in particular would not be spared from the Covid-19
overwhelming impacts and
challenges. In the Nigerian case, in less than two years into the existence of
the pandemic in the country,
it has continued to weigh heavily on oil business
activities, and stakeholders are reportedly facing
daunting challenges arising from travel restrictions, depressed need for refined products and chemicals as
well fluctuations in oil prices among other issues. This is especially a challenge for Nigeria bearing
in mind, the mono-cultural nature of the Nigerian economy which is highly dependent
on the oil and gas industry. The virus and its implications on our national and
individual existence are still much with us and the Nigerian state has
continued to experiment with
approaches in finding workable solutions to the novel virus and its impacts. It
is based on the forgoing that
this paper is aimed at providing a preliminary survey of evolving
situation and the current and long term challenges of the COVID‐ 19
pandemic on the Nigerian oil industry.
Evolution and
Spread of the Covid-19 Pandemic in Nigeria
Covid-19 is an
abbreviation of ‗Corona Virus Disease of 2019.‘ The corona virus as it were,
was first discovered in Wuhan, the
Chinese capital within the Hubei Province when the first known victim of the virus, on 1st
December 2019 exhibited its symptoms which include; fever, cough and shortness
of breath, loss of smell among others.
Its complications which severity is largely dependent on the health status of the
individual include; pneumonia, viral sepsis, acute respiratory distress and kidney failure among other
issues (Sohrabi, 2021). At the outset, sufferers of the symptoms of the virus were taken to be a form of pneumonic cases
within the Province until the Chinese
office of World Health Organization (WHO) identified it as a new strain of the
SARS-COV virus of 2002 (WHO, 2020)
By the end of
the month of its discovery, the virus had spread to other countries in Asia. In
February 2020, cases were reported
throughout Europe and the United States. Since then, the virus exponentially spread globally. It has transmitted locally in countries
across all six WHO regions,
and on 30th January 2020, the World Health Organization (WHO)
declared the disease a Public Health
Emergency of International Concern (PHEIC) and a pandemic on 11th March, 2020 after the United States declared it a national
emergency on March3, 20207. According to a report by Ozili8, the earliest mode of transmission of the
virus was from animal to person. This was based on the argument that residents who lived in Hubei Province
of China particularly the Wuhan area, had some trade link to a large seafood and
live animal market, which implies that the virus was from animal
to human.
![]() |
6
Nafi, C., Sayne, A. and Alexandra, G., Nigeria: Updated
assessment of the impact of the Corona virus pandemic…Pp.23-41.
7
Norouzi, N., Post‐Covid‐19 and Globalization Oil and Natural
Gas Trade: Challenges, Opportunities, Lessons, Regulations, and Strategies. International Journal
of Energy Research,45(2), 2021, Pp. 14338– 14356.
8
Ozili, P.K,, COVID-19 in Africa: Socio-economic impact, policy response
and opportunities. International Journal of Sociology and Social Policy, 7(2), 2021, Pp. 14-28
In Nigeria,
available sources reveal that the corona virus entered the country through an
infected Italian citizen who arrived
the Murtala Muhammed International Airport, Lagos on 24th February, 2020 from Milan,
Italy. According to the Nigeria
Center for Disease
Control NCDC9, the said Italian while undergoing medical check in
his company clinic in Ogun state a day after he arrived Nigeria was referred by his physician to the Infectious Disease
Hospital (IDH), Yaba, Lagos State, where
the COVID-19 status was confirmed on the 27th February, 2020. Between March to
May, 2020, the corona virus had
infected people in Lagos and then spread to other parts of the country10. Two weeks after, a number of infected
cases were for example discovered in Lagos and Abuja, which marked the beginning of the spread of the Covid-19 in
Nigeria. Swiftly, the Nigerian Civil Aviation
Authority (NCAA), on 23 March, 2020 reacted by imposing restriction on
international commercial flights into
Nigeria11. However, a significant point to note during the early
period of the transmission of
Covi-19 in Nigeria is that within the first month, the disease distribution
appeared to be elitist. The
majority of those who tested positive according to NCDC, were returnees from abroad. In the second phase of its transmission however, the incidence
of the disease grew steadily
in Nigeria, moving from somewhat imported
case and elitist pattern to community transmission thereby endangering
the lives of the generality of
Nigerians. The community transmission
as it were, made the deadly virus to
pose stronger challenge. This is so because, although Covid-19 is not airborne but can be spread in various
ways primarily during close contact among people in the community.
The complexity of the community transmission of Covid-19 in Nigeria and elsewhere for that matter was compounded by the irregularity
nature of the symptoms such that was humanly difficult to identify an infected person without testing. Hence, there
were silent carriers of the virus such as; the asymptomatic individuals who were carriers of the active virus but never developed
any symptoms to indicate
illness. The pre-symptomatic people
on the other hand were known infected people
but who were yet to show any symptoms, while a third group were mildly
symptomatic who may show little
evidence of Covid-19 illness but continue to come in close contact with others12. This factor of silent carriers helped to
increase the spread of the virus and thus made the community more vulnerable to the infection of the disease.
Overview of
the Nigerian Oil Industry
The
development of the Nigerian oil industry had a challenging but fascinating
beginning. Oil was discovered in
commercial quantity in Nigeria by Shell D‘Arcy Petroleum in 1956 at Oloibiri in
the Niger Delta after half a century
of failed exploration efforts13. Pioneer production which made Nigerian
join the ranks of oil producing nations began in 1958 and the volume of production
at the
![]() |
9
Nigeria Centre for Disease Control. ―COVID-19
outbreak
in Nigeria:
Situation repot. Available online at https://ncdc.gov.ng/diseases/sitreps Accessed 17/7/2021
10
Adegboye, O. A., Adekunle, A. I., and Gayawan, E. Early Transmission Dynamics of Novel Corona Virus
(COVID-19) in Nigeria. International Journal of Environmental Research
and Public Health, 2020, 17(9), P. 3054.
11
Onyeyi, E.(2020), Bans on all international flights
as corona virus cases rises. Available online atwww.premiumtimesng.com/news/383095-update-nigeria Accessed 17/7/2021
12
Oyeranti, O. and Sokeye, B, The
evolution and spread of Covid-19 in Nigeria. University of Ibadan: Centre for Petroleum, Energy
Economics and Law (CPEEL),
2020.
13
Umejesi, I and Akpan, W, Oil Exploration and Local Opposition in
colonial Nigeria: Understanding the Roots of
Contemporary State-Community Conflict in the Niger Delta. South African Review of Sociology, 44(1),
2013, Pp. 111-130
initial stage
was 5,100 barrel per day (bpd). By
the late sixties and early seventies, the country reached a production level of over 2 million bpd, and by 1971
Nigeria became a member of the Organization of Petroleum Exporting Countries (OPEC) and established the Nigerian National
Petroleum Company (NNPC) in 1977 as regulatory agency in the oil sector.
Although production figures dropped
in the eighties due to economic slump, by 2004 the oil industry witnessed a
total rejuvenation of crude oil
production to a recorded level of 2.5 million bpd, and until 2020 following the significant shock of the Covid-19
pandemic, development strategies were aimed at increasing production to 4 million
bpd by the year 2010.
Among other important
sub-groups, the primary
or key stakeholders of the
Nigerian oil industry are; the Nigerian state as represented by the Federal Government, the oil producing
states, regulatory bodies such as the Oil Spill Detection
and Response Agency(NOSDRA), the Nigerian National Petroleum Company (NNPC)
and the Oil Companies.14
As it were,
the oil industry is usually considered to be in two distinct classes namely;
the Upstream and Downstream Sectors.
The Upstream sector refers to activities in oil exploration and production that are conducted
within or around the oil wells. These activities include
oil prospecting, production and transportation while the
downstream sector involves the refining of crude oil into various products like petrol, diesel,
kerosene, naphtha among other products, and the transportation and marketing of refined products to
consumers by pipelines, sea, road, tankers and rail tankers. Essentially in Nigeria, the Niger Delta
region harbours the country‘s oil and gas resources. Hence, oil exploration and production activities
are concentrated in the onshore and offshore parts of the region.
It goes
without saying that oil and gas are essential components of industrialization
and economic growth of its bearer
nation. In Nigeria, the Nigerian oil industry has played undeniable dominant roles in the nation‘s economy
through revenue from export of petroleum resources
since 1958.15 The industry accounts for about 90% of
Nigeria‘s gross earnings thereby making the Niger Delta oil enclave region the treasure base of the
country‘s economy. Nigeria is ranked
among the major oil producing
countries around the world, the
largest natural gas reserve in Africa and the second largest oil reserve in Africa, and until recently when it was
overtaken by Angola, Nigeria was Africa‘s
primary oil producer16. The revenue accruing from the enormous oil
and gas deposits of Nigeria has been
huge. For instance, the report by NNPC in 2008 revealed that an estimated 29.8 Trillion Naira had accrued to Nigeria from
the export of crude oil between 1958 and 2007 alone as indicated in the
table below.
14
Osabajo, O. and Moore, D, Who is Who? Identifying the different
subgroups of secondarystakeholders within a community:
A case of the Niger Delta region of Nigeria communities, International Business Research, 10 (9), 2017, Pp.188-205.
15
Ogbogbo, C.B.N., The Niger Delta peoples and the
resource control conflict,
1960-1995: An Assessment of Conflict
Handling Styles. In: I. A. Olawole (ed), Perspective
on Peace and Conflict in Africa. Essays in Honour of General (Dr) Abdusalam A. Abubakar. ,
University of Ibadan: Institute of African Studies,
2006.
16
https://energycapitalpower.com.
Table I: Estimated Crude Oil
Production and Revenue in Nigeria, 1958 - 2007
Year |
Production(million barrels) |
Revenue (Million Dollars) |
1958 |
1.9 |
0.2 |
1959 |
4.1 |
3.4 |
1960 |
6.4 |
2.4 |
1961 |
16.8 |
17.0 |
1962 |
24.6 |
17.0 |
1963 |
27.9 |
10.0 |
1964 |
44.0 |
16.0 |
1965 |
99.4 |
29.2 |
1966 |
152.4 |
45.0 |
1967 |
116.6 |
29.6 |
1968 |
51.9 |
n.a |
1969 |
196.3 |
75.4 |
1970 |
395.8 |
167 |
1971 |
558.7 |
510 |
1972 |
655.3 |
764 |
1973 |
719.4 |
1,016 |
1974 |
823.3 |
3,724 |
1975 |
660.1 |
4,272 |
1976 |
758.1 |
5,365 |
1977 |
766.1 |
6,081 |
1978 |
696.3 |
556 |
1979 |
845.5 |
8,881 |
1980 |
760.1 |
12,354 |
1981 |
525.5 |
8,564 |
1982 |
470.6 |
7,815 |
1983 |
450.9 |
7,253 |
1984 |
507.5 |
8,269 |
1985 |
547.1 |
10,915 |
1986 |
535.9 |
8,107 |
1987 |
482.9 |
19,027 |
1988 |
529.0 |
20,934 |
1989 |
646.7 |
39,131 |
1990 |
660.6 |
55,216 |
1991 |
689.9 |
60,316 |
1992 |
711.3 |
115,392 |
1993 |
695.4 |
106,192 |
1994 |
696.2 |
160,192 |
1995 |
715.4 |
324,548 |
1996 |
681.9 |
369,190 |
Year |
Production(million barrels) |
Revenue (Million Dollars) |
1997 |
855.0 |
416,811 |
1998 |
806.4 |
298,532 |
1999 |
774.7 |
500,000 |
2000 |
828.3 |
1,34,000 |
2001 |
859.6 |
1,707,600 |
2002 |
725.9 |
1,230,900 |
2003 |
844.1 |
2,074,300 |
2004 |
900.0 |
3,354,800 |
2005 |
923.5 |
4,762,400 |
2006 |
814.0 |
6,109,000 |
2007 |
880.0 |
700,000 |
Total |
23,183.9 |
#29.8 trillion |
Sources: NNPC, Report and Statement of
Accounts published by the Inspectorate division, Lagos, 2008.17
In more recent
foreign trade report released by the National Bureau of Statistics (NBS), it is
shown that Nigeria recorded N16 trillion from crude oil sales between
January and September
2022.18 From the
huge revenue that accrued from crude oil production, the sector has over the
years served as the backbone of
Nigeria‘s economy with significant impacts on the generality of the people of
the country in terms of employment
creation and improvements in the well-being of Nigerians. For instance, official statistical reports by
the Nigerian National Assembly in 2004 show that about eight people in Nigeria gets financial support
from every one oil worker in the country19. The industry has also engendered improvement in community
infrastructures such as schools, hospitals, and other basic needs including skills acquisition and development amongst
others arising from training programmes of oil companies as part of
their corporate social responsibilities to the people. Again, as one of the
leading crude oil producers in the world, the oil industry has immensely
benefited Nigeria as the country has
had substantial savings made into her Excess Crude Account (ECA) over the years,
even though this easily depleted through unnecessary profligacy
and corruption20.
However, the
Nigerian petroleum industry is not immune from the myriad of challenges that
may beset the oil business
anywhere in the world. Oil companies operating
in the Niger Delta for instance
are faced with the challenge of continuous community unrest arising from the
problem of environmental pollution of
oil exploitation in the area, oil pipeline vandalism, kidnapping and other forms of violence
against foreign oil workers arising
partly from conflict
over the control
of oil
![]() |
17
Nigeria National Petroleum
Corporation, NNPC, Report and Statement
of Accounts. Lagos: Inspectorate Division,
2008.
18
National Bureau of Statistics (NBS), NBS Change Unemployment Data
Methodology after criticism by Labour Ministry.
Published November 28, 2022. Available online at https://www.ripplesnigeria.com/nbs-to-change- unemployment-data-methodology-after-criticism-by-labour-ministry/
Accessed 11/1/2023
19
National Assembly, Oil and gas Policy. Abuja: National Assembly, 2004.
20
Daily Trust Newspaper., How excess crude account was depleted to $71.8m in
2020. 10th March. Available online at www.dailytrust.com.ng/how-excess-crudeaccount-was-depleted-to-71-8m-in-2020-Accessed 13/8/2021
resources 21.
Also, the different shades of agitations against the adverse effects of oil
extraction on the socio-economic
lives of the people and for environmental justice in oil bearing communities have continued to disrupt oil production
in the country. Communities most times agitate and seek compensations that have sometimes involved litigation with the oil companies.
The question
of deregulation has also been a challenging issue to stakeholders of the
Nigerian oil industry due to swift
and harsh reaction from the public. Many Nigerians view the subsidy as their only benefit from the exploitation of the
natural resource. Trade Unions among other sub-groups in the country have at different times reacted with general strikes
to disrupt the nation's oil business. Lack of infrastructure, regulatory issues, and security
concerns have also weakened Nigeria‘s
capacity to utilize its refining facilities, thereby pushing the country
to become a net importer of refined
petroleum products.
These
challenges and other forms of limitations have remained entrenched as clogs in
the wheel of the progress of the
Nigerian oil industry, and while stakeholders are still grabbling to cope or perhaps to resolve the lingering
consequences of these challenges, the outbreak of the Covid-19 global pandemic stamped
an overwhelming deadly shock on the industry.
The effects of the pandemic across various sectors in Nigeria
continue to evolve with far reaching developments that are impacting negatively on the oil and gas industry in Nigeria. Hence, this survey of the challenging developments of the Covid-19
pandemic on the Nigerian oil industry and the conclusions on appropriate mitigation
strategies is a worthwhile
engagement.
Challenges of the Covid-19 Pandemic on the Nigerian Oil Industry
Under the new
global realities created by the impact of the covid-19 pandemic, the oil
industries all over the world are
dealing with a plethora of challenges. As stated earlier, the oil sector in the country is extremely important to the
general well-being of the citizens. Thus, a critical survey of any development such as the Covid-19 pandemic
that negatively affected the sector is an effort aimed at saving the Nigerian nation from plunging into a
disastrous state. Within the Nigerian oil industry,
one major aspect of the impact of Covid-19 was in the area of oil field
operations within the upstream
sector. At the outset of the pandemic, a key challenge before the oil industry
was on how to maintain the safety of
its workforce as well as the continued operational functionality of its assets in an environment where everyone
felt unsafe. As part of measures therefore to mitigate the spread and impact of Covid-19, there were
a number of regulatory directives by agencies such as the Department of Petroleum Resources (DPR)
and the Nigerian Maritime Administration and Safety Agency (NIMASA) especially on the need for reduction of
personnel during oil business operations. A
case in point was the directive of the DPR on March 23, 2020, in which the
agency through a circular, directed
oil and gas companies to reduce their workforce on offshore platforms as part
of the measures to curtail the spread
of Covid-19. Only staffs who were
engaged in essential duties were by
the directive allowed to be nominated and permitted to travel to offshore and
remote locations while non-essential staffs
at those locations were withdrawn with immediate effect22.
![]() |
21
Fajana, S., Industrial relations in the oil industry
in Nigeria. The Sectoral
Activities Programme, Geneva: International Labour
Office, 2005.
22
Department of Petroleum
Resources), Covid-19: DPR expresses concern,
admonishes oil companies.
Available at https://www.dpr.gov.ng/covid-19-dpr-expresses-concern-admonishes-Accessed 51/9/2021
In addition,
the DPR directed that permitted-to-work staffs were to work only for a period
of twenty-eight days on rotational
basis. While agencies were required to monitor this arrangement on oil business offshore operations, they
were directed to have only one personnel per rotation period. In a similar development, while asserting
that the evolving situation caused by the outbreak of the Covid-19 is tantamount to ―force majeure,‖ the DPR directed that all oil and gas contractors and
service providers in the industry be demobilized and were required to comply
with the directives of lockdown,
curfew, and where it was mandatory to be at work, the rule of physical
distancing and limiting the number of personnel on construction and other project
sites were strictly
applied23.Within the context of the life-threatening
situation occasioned by the pandemic, the above steps taken by the DPR are understandable in view of the need to
ensure the welfare and safety of oil industry workers and to contain the
spread of the virus. However, it is important to note that activities within the oil sector were
largely sustained by several contractual arrangements especially with regards to oil field operations such as drilling
contracts, joint operating
agreements, construction
contracts, production sharing agreements/contracts and maintenance contracts
amongst others. Hence, the Covid-19-
driven measures as applied, affected all operators and their contractors in the oil industry, and no doubt had
effect on the performance of parties under these contracts as it became
an excuse for non performance of
contractual obligations and meting of
deadlines.
Essentially
therefore, the dwindling of operations would result in reduced production
targets across all production and
supply chain of crude oil business. For
instance, prior to the advent of the pandemic,
Nigerian crude oil production rose to the highest level in more than ten years
to 2.4 million barrels per day.
However, the obvious challenges of covid-19 aided Nigeria‘s decision to participate in the Organization of Petroleum Exporting
Countries (OPEC+) crude output cut agreement, which according to the Nigerian
National Petroleum Corporation (NNPC), was necessary to usher in a re-balancing of
the oil market in the face of covid-19 havocs in the global oil sector24. According to the
OPEC+ oil production cuts agreement, which commenced in early 2020, countries
were to adjust downward, their overall oil production by 10 million
bpd, which represented about 23 percent of their
production levels for the initial two months. This was followed by 8
million bpd for six months and another 6 million bpd
reduction for subsequent sixteen months.
Notably, this deal coupled
with the dwindling
production operations resulted
into significant reduction in oil production in Nigeria.
For instance, according to Premium Statistics25, from April 2020, Nigeria's daily oil production was
1.7 million barrels against the pre-Covid-19 era of 2.1 million barrels. Corroborating the preceding viewpoint, George26
reveals that from January 2021 within the Covid-19 circumstances, the country‘s crude production dwindled
between 1.579 and
1.81 million
bpd while condensate production fluctuated between 250,000 and 280,000 bpd,
which represents a remarkable
production reduction from the over 400,000 barrels during the pre-covid-19 era. Consequently, the National Bureau
of Statics notes that before
the Corona virus pandemic,
![]() |
23
Department of Petroleum Resources, Covid-19: DPR expresses
concern, admonishes oil companies…
24
Nigeria National Petroleum
Corporation (2021), NNPC Remains Committed to OPEC+ Agreement, Gmd Tells Global Forum. Premium Times, 13 January, 2021.
25
Premium Statistics 2021, Impact of Corona virus on oil production in Nigeria 2020. Available online atfile:///C:/Users/User/Desktop/•%20Nigeria%20impact%20of%20coronavirus%20on%20oil%20production%2020
20%20Statista.html Accessed 13/7/2022
26
George, L, Nigeria's
oil output could fall 35% without reforms.
Available online at www.reuters.com/article/nigeria-oil/nigerias-oil-output-Accessed 19/7/2021
Nigeria‘s oil sector generated about nine percent of
the country‘s Gross Domestic Product
(GDP) but that between October and
December 2020, the oil industry contributed 5.9 percent to the total GDP, a
decrease of roughly three percentage points compared to the previous quarter.
One other
major challenge for the oil industry occasioned by the new circumstances
created by the Covid-19 pandemic was
the unavoidable sharp decline in the demand for crude oil by countries around the world. In the wake of the
Covid-19, the increasing rate of infected persons necessitated most countries to place restrictions and
lockdown on vehicular movement, air travel and economic activities as approaches toward suppressing the spread and
impact of the pandemic. The effects of these
measures have been overwhelming on industrial slow-downs. This, to a large extent has resulted
in reduced need of, and depressed demand for oil, refined products
and other petro-
chemicals nationally and internationally leading to an excess supply
over demand in the crude oil market.
For Nigeria as
an oil dependent nation, most of its exports trading partners were similarly
severely hit by the Covid-19 pandemic
forcing them to shut down their economies. For instance, major oil export destinations of Nigeria‘s crude oil
in 2019, such as India, Spain, Netherlands, France, South Africa and the US were all battling the
pandemic and were under both partial and total lockdowns at different times. This, in the first place, largely reduced economic activities
between Nigeria and its trading
partners with expected negative
externalities for all parties involved. The International Monetary Fund (IMF), while watching the
trend of the ugly events forecasted that Nigeria‘s total oil and gas exports will decline by at least
$26.5 billion by the end of year 202027. Expectedly, during the 2020 when the pandemic had taken a
drastic toll on almost all nations of the world, the export of crude oil from Nigeria experienced a
huge fall due to sharp reduction in oil demand from countries especially those of Europe and
Asia who are major buyers of Nigeria‘s
crude.
Table II: Crude Oil
Export Value of Nigeria (1st quarter of
2020 to the 2nd quarter of 2021)
Destination Regions |
Q1, 2020 |
Q2, 2020 |
Q3, 2020 |
Q4, 2020 |
Q1, 2021 |
Q2, 2021 |
Europe |
1,257,960.94 |
634,941.96 |
1,029,786.64 |
853,409.19 |
675,242.74 |
1,484,727.92 |
Asia |
938,523.02 |
55,326.31 |
910,575.54 |
887,630.31 |
716,284.83 |
1,455,992.75 |
Africa |
550,056.08 |
295,561.66 |
343,455.58 |
431,368.56 |
254,256.74 |
435,855.85 |
America |
163,194.61 |
72,109.15 |
111,162.54 |
333,452.26 |
284,041.36 |
701,625.27 |
Oceania |
34,862.13 |
0 |
29,824.3 |
15,485.76 |
34,862.13 |
0 |
Source: Nigeria‟s oil export statistics. Accessed
from https://www.statistica.com/statistics/1166636/export-value-of-crude-oil-from-nigeria Accessed 20/9/2021
Table II above
indicates that the export of crude oil experienced a sharp fall in the second
quarter of 2020, and by December, marking the end of the fourth quarter of 2020, crude oil export
recorded the lowest amount, going far
below one million barrels per day.
In Africa and American regions also, the fall in the demand for Nigeria‘s crude were consistent even up to the second
quarter of
![]() |
27
Shola, A, Nigeria
Oil and Gas Export to Dwindle by $26.5 Billion,
International Monetary
Fund IMF) Financial
Energy Review. Available Online, https://Financialenergyreview.Com/2020/04/30/ Nigeria-Oil- And-Gas-Export-To-Dwindle- Accessed19/7/2021
2021 which
indicate much less values than it was in the first quarter of 2020. It goes
without saying, that these crude
oil export reductions have taken drastic negative toll on the country‘s oil
business with grave consequences for
the oil-rich nation‘s income. However, the value of crude oil export from Nigeria to Europe and Asian regions
experienced increase in the second quarter of 2021 possibly due to the relaxation of lock down restrictions imposed
in several countries as measures to curb the spread
of the corona virus and the resuscitation of global economic
activities.
On April 16, 2020, World Oil Magazine analysis of oil glut, reported that ―… In West Africa, about
20 million barrels of April-loaded crude oil remained unsold, and particularly
in the Nigerian case, oil tankers
were being stranded
at sea with unsold Nigerian
crude due to lack of willing purchasers‖28. The NNPC for
instance, revealed that Nigeria had 50 cargos of oil and 12 of liquefied natural gas that could not find buyers as
at March 2020 due to the prevailing circumstances created by the pandemic. Sources revealed that
this seller-buyer dichotomy resulted in Nigeria losing 35 million dollars per day, as a result of
the huge decline in oil purchase and prices occasioned by the novel Corona virus pandemic29.
Consequently, the short as well as medium-term outlook for the Nigerian oil business in these
circumstances was so challenging than ever. For one, there were weak prospects for new investment in the
sector as investors were weary of investing their capital due to the prevailing business climate. Olumuyiwa
and Ibrahim30, acknowledge that in the past 10 years, investors have considered the oil sector
increasingly unattractive due to a number of issues. The conventional oil business
models became much riskier and less financially viable due to the business situation created by the Covid-19
pandemic. The attendant effect of this was that investors diverted their resources elsewhere and
evidences abound that existing oil companies and other critical stakeholders of the industry pushed back investment
decisions31. The crisis affected job security within the oil industry. In October 2020 for instance,
Chevron announced that in order to remain
competitive in business in the light of the Covid-19 impact on oil demand, the
company was to lay-off its Nigerian
staff to the tune of 25 percent across its operations, and available evidence indicates
that this action was implemented although the actual number of job lose was
uncertain32.
Bearing in mind the economic principle that fall
in demand leads to reduced price, the fall in demand of crude oil resulted in a
nose-dive in crude oil prices. The pandemic brought a consistent and volatile period in the price of oil. Few months into the Covid-19 era, the
International Energy Agency (IEA)
warned poorer crude oil production countries such as Ecuador and Iraq of the
likely economic hit saying that their revenues
from oil and gas sales could fall as much as 85 per cent 33. In the same development, it was revealed
that countries like Nigeria that are dependent on oil sales to fund government
budgets, would experience
a collapse in revenue that would undermine
![]() |
28
World Oil, It‘s already too late for OPEC+ cuts to save the physical
oil market. Available
online from www.worldoil.com Accessed 19/7/2021
29
Nwachukwu, O., NNPC Boss admits
50 Cargoes of Unsold Oil, prepares Nigerians
for Tough Times Ahead.
Business Day News Paper, 11 March, 2020
30
Olumuyiwa, A. J and Ibrahim, S. M,, Effects of Covid-19 on the Economy of Oil Dependent Nigeria.
Journal of Energy Technologies and Policy, 11
(1),2021, Pp. 11-21
31
George, L., Nigeria's Oil Output could Fall 35% without Reforms. Available online at www.reuters.com/article/nigeria-oil/nigerias-oil-output-Accessed 19/7/2021
32
Owolabi, T., Chevron
Nigeria plans to cut 25% of staff after oil price drop. Available online at www.reuters.com/article/us-nigeria-chevron-Accessed 19/7/2021
33
International Energy Agency, Monthly
oil Price Statistics. Available online at www.iea.org Accessed 22/7/2021
developments
including the health systems set to be burdened by the corona virus‘s spread.
These predictions were not
unconnected with the observed steady negative oil price reaction to the Covid - 19 especially after the release of the
first corona virus monitoring report by the World Health Organization (WHO) up to the first quarter of 2020. During this period, international oil
prices witnessed the sharpest drops in history
from a peak of $60.94/barrels in December 2019 to
$18.84/barrels
in April 202034. According to the 2020 International Energy Agency
report, the Corona Virus - induced drastic fall in oil price has never been experienced in more than 17 years.35
In addition to
the impacts of the pandemic that limited energy usage all over the word, a
major catalyst to the oil price
collapse was the production and price war between Saudi Arabia and Russia in the wake of the covid-19 pandemic.
Saudi Arabia produces 12.9% of the world‘s oil supply while Russia produces 12.7% and they are
followed by the United States which produces 8.6 %36. As the two biggest oil producers in the world, both Saudi Arabia and Russia in a bid to reduce the impact
of covid-19 pandemic on the oil sector had previously co-operated and
agreed on crude output (Quinn, 2020).
The reality however
was that both countries have taken steps to maintain
their market dominance, and
have yielded to pressures for greater production in order to cushion the effects
of the collapsing oil price.
The result of flooding the market
with oil was the greater challenge of oil glut thereby plunging oil
price further such that between
December 2019 and April 9th
2020 for instance, there was a sharp dwindling of oil price from 67 dollars per
barrel to less than 20 dollars per
barrel. On the global scale, the table below indicates the monthly price trend
of oil volatility in 2020 as a result
of the occurrence of oil price collapse occasioned partly by the global pandemic
and by the oil war
between Saudi Arabia and Russia.
For nations
and stakeholders in the oil industry, the implications of the dwindling oil
prices were far reaching. In
Nigeria, the fall in oil price was devastating and unhealthy for the economy.
Although Nigeria is reputed as the 49th largest exporter in the world but oil and
gas dominate her export market with
2.7% of the world‘s oil supply37.
The crash in oil price therefore in no small measure exposed the unsustainability and
uncertainty of an oil dependent economy. Oil analysts have argued that even if the oil production cut deal
with Russia, Saudi Arabia and a few other oil producing countries was maintained, it would not have been enough to
balance the market in face of a deep economic
recession caused by the Covid-19 pandemic (IEA, 2020), As it were, in less than
a year into the Covid-19 pandemic,
Nigeria‘s Finance Ministry in the closing months of 2020 stated that as Africa‘s biggest crude exporter,
Nigeria sought $7billion
in emergency funds to cushion the effect
of covid-19 induced oil price shock in the face of imminent recession38.
Earlier in July 2020, reports revealed
that Nigeria recorded a 65% decline in expected net revenues from the sales of
oil and gas in the first half of the year as a result of Covid-19
related challenges to the petroleum
industry,
![]() |
34
Chibuzor, A,, The Twin Shocks and the Nigerian Energy and Natural
Resources Industry: An Analysis of the Challenges,
Consequences and Cure. Available online at www.file://the-twin-shocks-and-the-nigerian-energy-and- natural-resources-industry.pdf. Accessed 3/8/2021
35
International Energy Agency, Monthly
oil Price Statistics. Available online at www.iea.org Accessed 22/7/2021
36
Olumuyiwa, A. J and Ibrahim, S. M, (2021), Effects
of Covid-19 on the economy of oil dependent Nigeria…
Pp. 11-21
37
Nafi, C., Sayne,
A. and Alexandra, G. (2020),
Nigeria: Updated Assessment of the Impact of the Corona Virus
Pandemic on the Extractive Sector and Resource Governance…Pp.23-41
38
Ukpe, W., Covid-19:
Nigeria To Seek $750 Million
From World Bank. Available Online At Https://Nairametrics.Com/2020/11/14/Covid-19-Nigeria-To-Seek-750-Million- Accessed 15/7/2021
which were not unconnected with unsold vessels
of crude oil and liquefied natural gas (LNG) as well as the sharp drop in the price of
crude oil in the market, that resulted into 6 percent shrinking of the economy.
As at July, 2020, Uzoho39 notes that the crude oil production cost in Nigeria
ranges between 15 to 17 dollars per barrel, while earlier in the month of May of the same year, the plummeting
price of oil landed the Nigerian Bonny Light crude for 10 dollars, and
slightly higher to between 12 to 13 dollars thereafter and yet without
buyers. The implication of this is that oil operators were technically
subsidizing the production cost of crude oil in Nigeria with resultant effects
of cutting down on contracts and
other production engagements to reduce cost. In these circumstances, suffice it to say that oil production is
increasingly becoming unviable for Nigeria as operators are daily confronted with production challenges that
could lead to liquidity problem. The
direct impact of production cut, lack
of buyers and slump in oil prices among other issues, was the challenge of reduced income and capital flow. This no
doubt impacted heavily on the ability of oil industry players to meet their operational and financing obligations. It is worthwhile to note that the operational and financial models upon which most of the pre-Covid-19 credit facilities and investment
decisions had been structured were based on oil business fundamentals and
average market prices that were more
profitable and attractive than the now Covid-19 prevailing market situation.
Given the
downturn and uncertainties in the oil industry, a drop in investment in
especially in the upstream sector was
inevitable. In fact, it is only normal for players to delay or suspend investment decisions in these circumstances. This
implies shrinking or impeded patronage of investment in the oil fields due to uncertainty about the
duration of the outbreak, the effectiveness of policy measures, and the reaction of economic agents to
these measures—as well as negative investor sentiments, which were causing turbulence in capital markets around the
world. Globally, over 20% decline was recorded
in the upstream investment in 202040. It is therefore understandable
to extrapolate that the dwindling of
investment costs in the upstream oil and gas industry occasioned by the corona
virus crisis will directly impact production
over the next few years.
Indeed, the challenges of business non-viability in the oil industry created
by the Covid-19 pandemic pushed a number of the oil industry
players in Nigeria
to defer Final Investment Decisions (FID) on a number of intended
projects in the oil and gas sector. For instance, an International Oil Company in Nigeria noted that, the collapse in
oil prices was potentially capable of reducing
up to US$800 Million from its finances for the first quarter of the year 2020
and, hence decided to put a pause on significant investment decisions. Similarly, Seplat
Petroleum Development Company
Plc and other independent oil companies in Nigeria embraced
drastic budgetary and other
costs-cutting measures by at least 30% to counter the crash in crude prices in order to
remain in business41.
39
Uzoho, B., COVID-19:
Eko Electricity Distribution Company (EKEDC) Supports
Lagos with N150 million,
Thisday Newspaper, Lagos, 4 July,
2020.
40
International Energy Agency
(2020), Monthly oil Price Statistics. Available online at www.iea.org Accessed 22/7/2021
41
International Energy Agency
(2020), Monthly oil Price Statistics. Available online at www.iea.org Accessed 22/7/2021
Also, the lack
of appetite for investment in the petroleum sector within the Covid-19
circumstances was not only in the
realm of oil business operators but also among financial institutions which
were unwilling to engage in
significant commitment of funds to the oil sector during the unprecedented and unstable business climate of the
industry due to fear of expected inability on the part of oil operators to meet their repayment and
other financial obligations to their financiers in the face of the Covid-19 malady that afflicted the oil industry. In effect, these measures no
doubt affected the ability of oil and gas companies to
acquire oil assets and to engage in meaningful investments thereby slowing down economic activities
in the oil sector due to the inability of significant projects to start-off. There were indications
that the Nigerian National Petroleum Corporation (NNPC) was hindered
from fulfilling its contractual financial
obligations across the various joint venture agreements that it is a party to42.
It is along this line of thought and given the peculiarity of the circumstances that companies were likely
to default on their financial obligations, that the Central Bank of Nigeria
in the circular of March 16, 2020 directed financial
institutions to consider
temporary and time limited restructuring of the tenor and loan terms for
business in some critical sectors in
the country including the oil and gas sector43. Howbeit temporary
and within a limited scope, the CBN intervention and approach prepared
oil companies to manage the outcome of their
inability to fulfill
their repayment and other contractual obligations in order to limit the impact of the hostile
business environment on their
operations.
Furthermore, the oil sector in Nigeria
also manifested unstable
price movements of petroleum energy products ranging from crude oil
to other refined petroleum products such as diesel, heating oil and gasoline. Specifically, the price
of Premium Motor Spirit (PMS) also known as petrol underwent different reviews depending on the prevailing oil
market condition at the material time. The
outset of the corona virus led to an initial fall in prices of petroleum-based
products. In order therefore to
reflect the global reality of falling oil prices in the face of the Covi-19
pandemic and consequent price of fuel
imports, the Nigerian government through the Petroleum Products Pricing Regulatory Agency (PPPRA) reviewed the
pump price of premium motor spirit downward from N145 to N125 per litre effective from March 19, 2020 44.
As the price of oil continued to slump at the global oil market, a further reduction was made to N123 per litre effective from April 1, 2020 45.
Bearing in
mind the plummeting condition of oil, the PPRA also informed Nigerians of its
plan to start a new pricing
modulation that would reflect global oil markets fundamentals. Thus, the public expected that the pump price of petrol may
further reduce depending on the fluctuation of global oil price. Given this price fall situation
coupled with declining demand and excess supply, Nigeria entered a more crisis situation of huge fiscal deficits,
inflation, exchange rate instability and foreign reserve depletion amongst other economic uncertainties. The
government was left with the choice of revising
the 2019 budget to reflect the current economic reality since the budget was
priced at a higher oil price from 2019. Expectedly, the 2020 reconsidered budget had a capital expenditure cut
![]() |
42
Nigeria National Petroleum
Corporation (2020), Nigeria
Loses N1.06trn Oil Revenue Target
To Covid -19.
Vanguard News, 20 October.
43
Central Bank of Nigeria (2020), Policy measures in
response to covid-19 outbreaks and spillovers. Available online
at https://www.cbn.gov.ng/Out/2020/FPRD/CBN%20POLICY% Accessed /08/2021
44
Central Bank of Nigeria (2020), Policy measures in
response to covid-19 outbreaks and spillovers. Available online
at https://www.cbn.gov.ng/Out/2020/FPRD/CBN%20POLICY% Accessed 10/08/2021
45
Guardian Newspaper, (2021),
NNPC to reduce cost of crude oil production from $17. Available
online at https://guardian.ng/business-services/nnpc-to-reduce-cost-of-crude-oil-productionAccessed 11/7/2021
down by 20%
and recurrent expenditure by 25%. The expediency of this budget scale down is understandable especially with the crude
oil benchmark crash, in which of 57 dollars per barrel was being revised to as low as 30 dollars per
barrel at the global market. The impact of the covid-19 continued to hit hard on the oil dependent economy
of Nigeria, falling
oil prices continued
to rob the country of a
major chunk of her revenues.
Consequently,
the government was forced to abandon in part, and says that it can no longer
afford to continue with the
existing but controversial petrol subsidy system as the corona virus pandemic crunches on the national budget and
battered the economy. Thus, the cost of fuel at the pump was reviewed upward with a phenomenal rise by
about 15% hitting as high as 162 naira per litre. President Muhammadu Buhari while defending the increase in a
statement asserted that the pump price
of fuel was a "crucial decision because of dwindling revenues…there is no
provision for fuel subsidy in the
revised 2020 budget, simply because we are not able to afford it, if reasonable provisions must be made for health,
education and other social services," As the global oil business environment continued to experience and
respond to the Covid-19 oil market shifts, there were indications that the
Nigerian government would finally attempt to remove the petrol subsidy in order to
absorb funds to sustain the economy.
The public
outcry that followed the fuel pump price increment was an obvious indication
that the action had only exacerbated
the ongoing high level of hardship in the country. The Nigeria Labour Congress (NLC) warned the government
against the abysmal increases in the price of refined petroleum products and other essential
goods and services
in the country, adding that that there was a limit to what the citizens could
tolerate if the situation persist unabated. In response, the Federal Government through the Minister of State
for Petroleum Resources, Timipre Sylva, explained that, apart from the need of garnering fund to service
the budget and the economy,
there was a reactionary
increment in the price of crude oil at the international market which was
triggered by the announcement by an American
pharmaceutical company, Pfizer,
of its breakthrough in the discovery of a vaccine
against Covid-1946. Since petrol is a derivative
of crude oil, the pump price of petrol instantly reflected the increment. This was in tandem with the argument
that the pump price of petrol is directly proportional to the price of crude oil in the global market.
Mitigating the Impacts of the
Covid-19 Pandemic on the Nigerian Oil Industry
The covid-19
pandemic could be likened to nothing less than an economic war with
multi-faceted implications. Hence,
Nigeria like the rest of the world was in a war with an unseen but a common enemy. This establishes that Nigeria was
equally in a race with the rest of the world to undo the impacts of the novel corona virus pandemic. What therefore were
the feasible mitigating options of oil
stakeholders to bail out the oil sector? Indeed, there were some immediate and
long terms strategies that the
Nigerian state may pursue to protect the oil industry against the ravaging
impacts of the covid-19 pandemic, and
to enable the sector still maintain its contributions to the country‘s economic
development.
It is
important to recall that as it stands today, the contribution of oil to
Nigeria‘s Gross Domestic Product
(GDP) is abysmally as low as 10% for many reasons. Majorly, is the export
nature of Nigeria‘s oil business in which only 15-20% is traded and used locally thereby leading to
![]() |
46
Agbakwuru, J. (2020), FG links Petrol Price increase to Pfizer‘s Discovery of COVID-19 vaccine. Vanguard News,
17 November.
overbearing external
influence on the domestic utility
of oil resource. In addition, majority of the top
oil producers in Nigeria such as Shell, Chevron, Agip and others, are all
International Oil Companies (IOCs)
hence an average of 40% of the revenues and proceeds from the oil business is externally based. In this context, the government through its appropriate agencies
must push the drive towards increased
domestic oil and gas market expansion and utilization by strengthening the enforcement of regulatory provisions such as the Local Content
Act of 2010 that encourages domestication of some oil services. More critically however,
it is important for the Nigerian state in the
current economic environment created by the Covid-19 pandemic, to vigorously
pursue and put in proper perspective
the priorities of the present regime on the expansion and diversification of
the economy. By this, the country could move away from almost total dependence on crude oil production
and sales, and would focus on alternative sectors such as agriculture, solid
minerals, manufacturing and service
sectors for revenue generation to the state. The challenge of economic diversification has remained seemingly
intractable for successive political regimes in Nigeria. A lot have been said about Nigeria
without or beyond
crude oil, yet lots more are being done to ensure that
achieving the country‘s survival outside oil would not follow.
It is
instructive to note that with the present realities, economic diversification
is imperative as a pragmatic and
viable way to mitigate the shocks, uncertainties and negative impacts on the
Nigeria economy occasioned by the
corona virus pandemic. With economic diversification, future risks and pending economic breakdown could be
averted, which will restore confidence in the system through promotion and sustenance of economic
security and stability. In doing
this, the oil and gas sector can still
be the catalyst for the growth of other sectors.
Hence, the government should place premium
on utilizing the rent from the sale of oil on industrial manufacturing particularly petrochemical industries, agro-allied
industries and power generation in order to absorb the long term shock
of the Covid-19 pandemic.
A critical
review of the cost of oil production in Nigeria is essential to tackling the
impacts of the Covid-19 crisis on the
industry. Putting actions in place to bring down the production costs that will have oil export advantage is an immediate
challenge for the Nigerian state. Over the years, huge security expenditure and unclear taxation structure at various
stages and levels have all greatly contributed
toward increased cost of oil production in Nigeria. Although some of these
issues that would remove uncertainties and encourage investment in the oil sector are expectedly to be addressed
by the Petroleum Industry Governance Act (PIGA), critical
oil business stakeholders must avoid hasty decisions that could plunge the sector into
further crisis. Rather, taking practical steps
to addressing the Niger Delta environmental and developmental issues is
critical at this time in order to
mitigate the threat to oil field security often experienced in the region
thereby reducing the huge security
expenditure of the oil industry.
Production cost reduction
is also possible by reviewing existing contracts including
service contracts, and joint venture agreements among others, with a view to terminating, suspending
or renegotiating such contracts where necessary. In addition, there is need for tactical and technical
selection of projects for execution. Avoidable errors, leakages and wastes must indeed be avoided.
Again, oil fields that require minimal intervention and cost to operate should be targeted at this
critical period with the use of highly competent skills and tight oil industry governance system.
Given the
challenges and changes in oil field operating fundamentals due to the Covid-19
crisis, oil company operators,
especially the indigenous operators who are highly geared, are facing
increasing burn in servicing debt obligation. The directives by the Central Bank of Nigeria to financial
institutions
and the public to consider the restructuring of the tenor and loan terms for
businesses mostly impacted by the
pandemic, with particular reference to the oil and gas sector is a welcomed development. Howbeit temporary, oil companies in Nigeria should
in the meantime, leverage on this
opportunity provided by the CBN, to initiate meaningful engagement with lenders
to explore debt restructuring alternatives favourable to their oil business sustainability.
Conclusion
Going by its
antecedent, the Nigerian oil industry has been plagued over the years by
uncompetitive production costs, market price instability, corruption, vandalism and sabotage
among other challenges. This paper has revealed that
these challenges that have militated against the industry‘s functionality, have been exacerbated by
the new challenges of decline in demand and sharp falling prices of oil due to economic slowdown
occasioned by the measures taken to curb the spread of the Covid-19 at the global and local levels.
Expectedly, the economic aftermath of the Covid-19 is inevitable as a necessary effect of market forces interplay. It is only sad that the Nigerian
oil industry has been forced
to transit into deeper state of crises thereby making the oil revenue- dependent
country one of the worst hit by the global pandemic.
The extents of impacts reveal the inherent weaknesses in Nigerian oil and gas industry operations. With Nigeria‘s crude oil exports accounting for over 80%of the nation‘s total exports and foreign exchange revenue, the Covid-19 challenges reflected poorly on strategic savings from oil revenue of pre-Covid-19 years, which has inevitably led to large borrowings that threatens the sustainability of the industry and by extension, the Nigerian economy. This provides sufficient cause for concern. Hence, it is imperative that the Nigerian oil industry exercises pragmatism, consistency and transparency in order to build public trust in addition to being creative and strategic in planning in order to weather the storm and aftermath of Covid-19 pandemic.
No comments:
Post a Comment
ENGLISH: You are warmly invited to share your comments or ask questions regarding this post or related topics of interest. Your feedback serves as evidence of your appreciation for our hard work and ongoing efforts to sustain this extensive and informative blog. We value your input and engagement.
HAUSA: Kuna iya rubuto mana tsokaci ko tambayoyi a ƙasa. Tsokacinku game da abubuwan da muke ɗorawa shi zai tabbatar mana cewa mutane suna amfana da wannan ƙoƙari da muke yi na tattaro muku ɗimbin ilimummuka a wannan kafar intanet.