OPEOLUWANI AKINTAYO examines energy sector in 2022 and its prospects in 2023
Although there were some wins recorded in the country’s energy sector in the year that is winding down, however, it was characterised by a lot of setbacks. Some of the happenings in the year would spill over and have a significant impact on 2023. For instance, the impact of the challenges witnessed in the oil and gas sector such as oil production which dropped to almost all-time low in 2022 would not end with the year. They would shape 2023.
In the power sector, although occurrences of system collapse have reduced, the seven times that the country’s power grid collapsed in 2022 had a significant impact. It almost threw the country to a state of comatose. For instance, the collapse of the power grid on September 25, 2022, crashed power generation from over 3,700MW to as low as 38MW.
This was despite the billions the Federal Government invested in the Transmission Company of Nigeria, with assurance from the sector’s regulator, the Nigerian Electricity Regulatory Commission, to ramp up generation and distribution to at least 5,000MW.
Also, phase 1 of the Federal Government’s eight million free metering programme billed to commence in August was also put on hold due to allegations of embezzlement and corruption levied against some of the meter providers.
Six out of the 11 electricity distribution companies- Abuja, Kano, Kaduna, Benin, Ibadan and Port Harcourt DisCos were also reformed because of failure to meet their financial obligations and handed over to banks to run them. The FG had recently ordered the sale of the DisCos’ shares by banks as a way of recovering their loans.
The government had injected N1.5tn into the power sector as intervention funds. The Federal Government, in a bid to address the challenge of epileptic power supply in the country, had undertaken a series of interventions in the power sector to boost its performance capacity. This was apart from its annual budgetary allocations to the Federal Ministry of Power.
A major event that shook the energy sector to its foundation was the organised oil theft and pipeline vandalism, which got to a crescendo this year. These nefarious activities have been ongoing for more than 10 years. It got so bad this year that the country was losing about 700, 000 barrels per day to oil theft. Nigeria recorded its lowest output of 900,000b/d in October. An occurrence that experts say could have contributed to the mass exit of international oil companies from the country.
The death of the Secretary General of Organization of the Petroleum Exporting Countries, Mohammed Barkindo, also shocked the sector. Barkindo, 63, reportedly died in July, hours after meeting President Buhari and giving the main speech at an energy summit in Abuja. The cause of his death was not made public.
Incessant hike in the prices of petroleum products- prices of gas, petrol, kerosene, diesel- was hallmark of the energy sector in 2022. Fuel scarcity has been perpetual in the last quarter of the year.
The average retail price for refilling a 12.5kg Cylinder of Liquefied Petroleum Gas increased by 1.3 per cent on a month-on-month basis from N10,050 in October 2022 to N10,180 in November 2022. On a year-on-year basis, it rose by 39 per cent from N7308.06 in November 2021.
Analysis by zone showed that the South-West had the highest average retail price for refilling a 12.5kg cylinder at N10,561, followed by the South-South with N10,495, while the North-East recorded the lowest price of N9,600.
Prices, however, rose to about N11, 000 per 12.5kg in independent marketers’ outlets.
The price increase was not peculiar to gas. The price of petrol has shot up from around N165/litre to N250/litre at independent marketers’ stations as Nigerians continue to grapple with fuel scarcity. Only a few are able to get petrol for N180/litre at major marketer’s outlets, and N169/litre at fuel stations belonging to NNPCL Retail.
The average price of kerosene currently goes for N1,041 per litre, while diesel sells for N808/litre. The diesel and kerosene market has been deregulated.
The country’s debt in the ongoing case against Process and Industrial Developments Limited for a failed gas contract rose to N5tn in 2022. The case is the fallout from a gas project contract awarded by the Federal Government in 2010 to P&ID. However, the gas processing facility never saw the light of the day due to irreconcilable differences between the parties involved in the contract. After years of legal battle, a London-based arbitration tribunal in 2017 ordered Nigeria to pay $6.6bn compensation to the country to pay P&ID for failing to keep to the terms of the contract.
The compensation to the country to pay P&ID, which has been accruing on a pre and post judgment interest of 7 per cent since 2013, grew from an initial $6.6bn to $11bn, about N5trn in 2022. It was about 30 per cent of the country’s foreign exchange reserves, which stood at $37bn at the end of November.
The contribution of the oil sector to the country’s Gross Domestic fell to 5.7 per cent in the third quarter of the year, according to data sourced from the National Bureau of Statistics.
NBS’s GDP Sector report indicated that the oil sector’s contribution of 5.7 per cent in Q3 2022, was a decline when compared to a 6.3 per cent real GDP contribution recorded in Q2-2022.
The report stated that Nigeria’s average crude oil production in Q3-2022 was 1.2 million barrels per day (including condensates), lower than Q3-2021’s 1.6 million barrels per day, a 23.6 per cent decline.
Eko Electricity Distribution Company said it lost over N1.2bn of its assets and electrical installations to vandalism in 2022 alone. General Manager, Corporate Communications, EKEDC, Godwin Idemudia, had said the vandalism was posing a serious threat to its distribution infrastructure, especially electricity cables.
There were, however, silver linings in the dark cloud of the energy sector in 2022. One of the positives recorded in the year was the power sector’s annual capacity payment losses which were reduced to N88bn from N160bn in 2021.
The crescendo in the oil and gas sector this year was the signing of the Petroleum Industry Act into law.
In 2018, after the National Assembly passed a harmonised version of the bill — the petroleum industry governance bill, President Muhammadu Buhari refused to sign it into law due to “legal and constitutional reasons”. However, in August, President Buhari assented to the bill.
The passage of the PIB had proved to be a real nightmare for successive administrations since the need for the bill was first mooted by the former President, Olusegun Obasanjo’s administration.
The PIB contains five chapters, including governance and institutions, administration, host communities development, petroleum industry fiscal framework and miscellaneous provisions in 319 clauses and eight schedules.
More Nigerian oil and gas firms during the year bought over assets once occupied by the international oil companies in their bids for divestment and pursuits of their respective energy transition agendas.
The state oil company, NNPCL also increased the list of major oil marketers from seven to 27. NNPCL did this as part of measures to tackle fuel scarcity in the country.
Expectations for 2023
Some of the activities that happened this year are expected to spill over into 2023. For instance, the $1.3bn Zungeru hydropower is projected to begin operations around the second quarter of the New Year. The Federal Government allocated 91 per cent of the total capital expenditure in the Federal Ministry of Power to the construction of Zungeru Hydro and other Power Sector Recovery Operation, PSRO, in the proposed 2023 budget.
Figures from the government showed that of the about N162bn budgeted for the capital project in the Ministry of Power, Zungeru Hydro would receive N76bn, while multilateral/bilateral project tied loans for the PSRO would gulp about N71bn. The 700 Megawatts Zungeru Hydro power plant is estimated to cost $1.3bn with 25 per cent of the cost coming from the Nigerian government and 75 per cent as loan from the Chinese government. The contract for the project was awarded by the Federal Government in 2013 to Chinese firm, Messrs CNEEC-Sinohydro Consortium.
The Federal Government is also currently seeking N4tn to drive the gas expansion plan for the next 10 years. A document on ‘Nigeria’s Cretaceous Basins: The Potentials for Gas’ by the Nigeria Upstream Petroleum Regulatory Commission obtained by The PUNCH stated that the money would be needed for incremental investments from 2021-60 to reach net zero by 2060.
The use of solar energy in the country would increase in 2023. A report by Power for All, a global coalition advocating renewable energy solutions to end blackouts , had stated that increased demand for solar power will drive a more than two-fold jump in the number of Nigerians working in the renewable energy sector by 2023.
The sector could “create more than 76,000 new jobs by 2023” in solar services — including home solutions, commercial and industrial appliances — from 32,000 workers in 2019. Workers in the Nigerian renewable industry will exceed oil and gas employees totaling 65,000, the report said.
Also, the African Energy Chamber projected Nigeria to increase oil production from 1.65 million barrels per day in 2022 to about 1.75 million bpd in 2023. The study states that drilling activity across Africa would increase marginally from about 895 wells in 2022 to 915 wells in 2023 and further to just over 1,000 wells in 2025.
Professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Ogun State, Sheriffdeen Tella, said petrochemical industrial concerns would start springing up with ancillary service jobs.
He, however, said this would depend on the position of a new government as the present government is likely thinking about how to round up with the existing policies of petroleum subsidy, increasing taxes on citizens and businesses; and mopping up the remaining foreign exchange through frivolous travels and over invoicing of imports and contracts.
“The global outlook for oil and gas next year would not be much different from this year. For Nigeria, it may remain gloomy in terms of revenue unless we are able to improve on production and sustain it, prevent revenue leakages, crude oil thefts and seek new markets for oil and gas. It will become beneficial to citizens, if domestic production is encouraged through Dangote Refinery and other smaller refineries kick off. This will reduce rising prices of the products and cost of transportation apart from employment generation and more revenue to government and workers,” he said.
