Investment decision on 700,000bpd crude oil production projects suffers set back

Final Investment Decision (FID) on seven deepwater projects, which is expected to add over 700,000 barrels per day to country’s crude oil production in the next five years, has been delayed due to regulatory uncertainties in the country.

The Energy Information Administration (EIA), which disclosed this in its 2016 country analysis on Nigeria’s oil and gas sector, released recently, listed the deepwater projects to include 225,000 barrels per day Bonga Southwest and Aparo project; 100,000 bpd Bonga North deepwater project; 120,000bpd Zabazaba-Etan project; 140,000bpd Bosi project; 80,000 bpd Satellite Field Development phase 2; 110,000bpd Uge project and 100,000bpd Nsiko deepwater project.

All these projects, with expected start off year put at 2020 and above, would have added over 700,000 bpd to the country’s current crude oil production in the next five years.

According to EIA, as a result of the uncertainty, International Oil Companies (IOCs) have reached a final investment decision on only one of eight planned deepwater oil projects.

It noted that both sanctioned and unsanctioned deepwater oil projects have the potential to bring online almost 1.1 million bpd of new production over the next five or more years. “However, only 200,000 bpd has reached the critical development milestone. If global crude oil prices remain low, this will also exacerbate project delays in Nigeria”, it added.

EIA said that some draft versions of the Petroleum Industry Bill (PIB) have prompted questions about the commercial viability of deepwater projects under the proposed changes to fiscal terms.

According to the U.S. energy agency, deepwater projects have typically included more favourable fiscal terms than onshore/shallow water projects, but the PIB, if passed into law, is expected to increase the government’s share of production revenue coming from deepwater projects.

It stated: “Another major factor that contributed to the upward trend in oil output was production growth from new deepwater oil fields. The government took measures to attract investment in deepwater acreage in the 1990s to boost production capacity and to diversify the location of the country’s oil fields. To encourage investments in deepwater areas, which involve higher capital and operating costs, the government offered PSCs in which IOCs received a greater share of revenue as the water depth increased.

“In 2015, Nigeria produced 2.3 million bpd of petroleum and other liquids, of which 1.9 million b/d was crude oil and the remainder was condensate, natural gas plant liquids, and refinery processing gains.

Nigeria’s 2015 production was slightly lower than the previous year because of natural field decline. The 125,000-bpd Usan deepwater field was the last major oil field to start production in Nigeria, which was in February 2012. Since then, there have been smaller start-ups that are extensions of Nigeria’s Bonga and
Erha deepwater fields.

“The 40,000 bpd Bonga North West field came online in August 2014, and the
Bonga Phase 3 project started production in September 2015, which will eventually add 50,000 bpd. The Erha North Phase 2 project came online in October 2015 and will eventually add 65,000 bpd. The projects have helped to partially offset production declines”.

The EIA also attributed the delay in the commencement of the Trans-Sahara Gas Pipeline to security concerns along the entire pipeline route, increasing costs, and ongoing regulatory and political uncertainty in Nigeria have continued to delay this project.Nigeria and Algeria have proposed plans to construct the Trans-Saharan Gas Pipeline (TSGP).

The 2,500-mile pipeline would carry natural gas from oil fields in Nigeria’s Delta region to Algeria’s Beni Safexport terminal on the Mediterranean Sea and eventually supply natural gas to Europe. In 2009, NNPC 18 signed a memorandum of understanding (MOU) with Sonatrach, the Algerian national oil company, to proceed with plans to develop the pipeline. Some national and international companies have shown interest in the project in the past, including Total and Gazprom