Beset by problems in its upstream and downstream operations and hampered by subsidy scams, regulatory issues (including the PIB outlined above) and short-sighted policies, investor confidence is waning in Nigeria's energy sector.
In a brief summary of the downstream issues the Nigerian oil industry has been facing recently:
- At the end of 2012, the Nigerian state oil firm, the Nigerian National Petroleum Corporation ("NNPC"), secured a syndicated loan in an attempt to raise medium-term financing; however, there have been a number of issues with drawing that loan and, at this time, it remains questionable whether it will be able to be drawn.
- NNPC also has a number of exposures to major commodities houses which, if NNPC defaults on them, could have adverse credit implications for NNPC and for the Nigerian economy.
- There have been accusations that NNPC, amongst others, has been violating Nigeria's fuel subsidy programme.
The dilemmas of Nigeria's energy sector are not limited to its downstream operations, however, with the upstream side facing severe uncertainty from a regulatory perspective. The PIB is still delayed, prompting increasing anxiety and impatience from industry insiders and further delaying potential investments.
Until the legislation is made law, international firms will be less eager to develop any of the offshore or onshore assets, and the bill's postponement is seen as responsible for holding up numerous oil and gas projects in the country. For example:
- The trans-Sahara gas pipeline project, which plans to transport natural gas from Nigeria to Europe through Algeria, has experienced major delays.
- It is believed that approximately US$28 billion worth of investment has been lost or deferred since 2010 as a result of the non-passage on the PIB.
- Oil giant ConocoPhillips announced its plans to exit the country and sell both its onshore and offshore operations in Nigeria to Oando, while in January Exxon Mobil bypassed Nigeria in its investment decisions when it chose to develop a US$14 billion underwater oil field in Canada.
- More recently, Chevron announced that it is selling its 40 percent stake in two offshore licences which are currently operated under a joint venture arrangement with the NNPC.
Insiders are concerned that the longer the government's decision is delayed, the more questions will be asked and that international investors will grow increasingly wary of conducting business in the country. Compounding this is the country's local content law, designed to increase the level of Nigerian participation in the oil and gas industry (at which it has had success—anecdotal evidence suggests the level of Nigerian participation in that sector's contracts has increased to 87 percent). The law has had some adverse impact both on the appeal of Nigeria to international investors and, when combined with the increased instability in the north of the country, to international companies looking to place expats in employment in Nigeria.