Key events that shaped Nigeria's oil sector in 2022

In 2022, Nigeria’s oil sector was riddled with numerous challenges, most notably the fuel scarcity crises that hit the different parts of the nation and crippled businesses.

In the first half of the year, the country’s oil revenues fell drastically due to a decline in production occasioned by crude oil theft and pipeline vandalism. The situation, exacerbated by the rising crude oil theft, hindered the developmental aspirations of Nigeria, a country heavily dependent on oil revenues to meet its needs.

This year, due to its inability to refine oil locally, Nigeria also spent significant part of its oil revenues on importation of petroleum products and subsidy. The high prices of oil due to the Russia-Ukraine war also increased the landing cost of petrol, increasing subsidy payments.

PREMIUM TIMES presents a breakdown of the key events that shaped the outgoing year:

Off-spec petrol conundrum

At the beginning of the year, millions of Nigerians were thrown into chaos amid a scarcity of fuel in petroleum outlets across the country.

As the scarcity continued to bite harder, the government in February said the discovery of high amounts of methanol in imported fuel caused the shortage as authorities tried to replace the off-spec products across the country.

Consequently, the minister of state for petroleum, Timipre Sylva, said there would be a ‘major investigation’ into the circulation of the unsafe quantity of methanol in petrol imported into the country.

Following the investigation, the Nigerian National Petroleum Company (NNPC) Limited, which coordinates the government’s direct sale and direct purchase fuel policy, listed four oil marketers (MRS, Oando, Duke Oil and Emadeb/Hyde/AY Maikifi/Brittania-U Consortium) for the importation of the adulterated fuel.

However, MRS dismissed the claim by NNPC Limited, noting that NNPC Limited is the sole importer of the fuel.

President Muhammadu Buhari later directed that producers and providers of substandard fuel imported into the country must be held accountable. On its part, the House of Representatives asked the NNCPL to suspend companies involved in the importation of the contaminated fuel and also directed its Committee on Petroleum Resources (Downstream) to probe all imports of petroleum motor spirit and other petroleum products.

However, when the NNCPL, group managing director, Mele Kyari, appeared before the investigative panel on February 16, he said the marketers refused to bear the liability for importing the methanol-contaminated fuel.

Mr Kyari said the marketers claimed they imported the specification requested by the country, noting that Nigeria does not test for methanol.

Meanwhile, in April the House of Representatives exonerated the oil marketers accused of importing adulterated fuel into the country. The decision to exonerate the oil marketers followed the consideration of the report of the Committee on Petroleum (Downstream).

NNPC transit into a public liability company

In July, Mr Buhari unveiled the new Nigerian National Petroleum Company Limited, a landmark event that officially changed the oil firm from a wholly state-run entity to a commercial oil company, limited by shares.

“We are transforming our petroleum industry to strengthen the growth today July 19 2022. NNPC Limited now will operate as a commercial oil company with over 200 million shareholders with integrity and excellence,” Mr Buhari said at the event.

The official unveiling came weeks after the corporation transitioned into a company whose operations will be regulated by the Companies and Allied Matters Act (CAMA). The legal transition, based on the new Petroleum Industry Act, took effect on July 1.

The new entity became a commercially oriented and profit-driven national petroleum company independent of the government, although government bodies remain its shareholders. It will be audited annually.

Following its transition as a limited liability company, NNPC, on 4 October, announced it had posted a profit after tax in the sum of N674 billion for 2021.

Oil theft/pipeline vandalism

In April, the Group Managing Director of the NNPC Limited, Mele Kyari, disclosed that Nigeria lost $4 billion to oil theft at the rate of 200,000 barrels per day in 2021.

He added that the country already lost $1.5 billion so far in 2022 because pipeline vandalism has escalated. Mr Kyari said the country was losing 95 per cent of oil production to thieves at Bonny Terminal, Rivers State.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country lost over $1 billion directly to oil theft between January and March this year alone.

Also, in September, the NNPC said that the country loses 470,000 barrels of crude oil monthly amounting to $700 million to oil theft.

PREMIUM TIMES also reported how Nigeria, amid dwindling revenue, lost $10 billion to crude oil theft in seven months.

The federal government in its draft fiscal strategy paper for 2023 through 2025 said that oil revenue underperformed due to significant production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost due to higher landing costs of imported products.

In a bid to curb crude theft, the Nigerian government launched an application in August to monitor incidence. The NNPC also awarded a multi-billion naira pipeline surveillance procurement to a former leader of the Movement for the Emancipation of Niger Delta, Tompolo.

Despite the controversy that trailed the contract, the company reportedly discovered several illegal connections into major pipelines. In October, Mr Tompolo said he had discovered at least 58 illegal points in Delta and Bayelsa States where crude oil is being stolen. In less than one week, after its discovery, a private oil pipeline surveillance team, Tantita Security Services, led by Mr Tompolo announced that it uncovered another illegal pipeline attached to the Trans Forcados Export Trunk line. The vessel was subsequently destroyed.

In October, the NNPC also announced it had uncovered an illegal oil connection from Forcados Terminal that operated for nine years. Mr Kyari, who disclosed this at the Senate’s joint committees on Gas and Petroleum (Upstream and Downstream) said that 395 illegal refineries had been deactivated, 274 reservoirs destroyed, 1,561 metal tanks destroyed and 49 trucks seized so far.

“Oil theft in the country has been going on for over 22 years but the dimension and rate it assumed in recent times is unprecedented,” Mr Kyari said.

Low production

In February, Russia invaded Ukraine and the prices of crude oil soared. In March, the price of Brent crude hit $130 a barrel, the highest since July 2008, after the United States and its allies sanctioned Russia over the invasion of Ukraine.

Following the rising international prices of crude oil, the Nigerian government in February, expressed concern, saying the increase was not good for the nation.

Nigeria, one of the largest producers of crude oil in the world, could not exploit the rising oil prices to generate more revenue for the country due to its inability to refine locally and meet the oil production quota set by the Organisation of Petroleum Exporting Countries (OPEC).

According to data from OPEC, Nigerian production fell in the first seven months of the year to about 1.1 million barrels a day of crude equivalent in July from over 1.4 million barrels in January.

With an average of 1,083,899 barrels per day in July, Nigeria’s crude oil production plunged below one million barrels per day (972, 394 bpd) in August, the lowest ever in several years.

In October, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, lamented how the Nigerian National Petroleum Company (NNPC) Limited has not been remitting proceeds from the crude oil sales to the nation’s foreign exchange reserves.

“The official foreign exchange receipt from crude oil sales into our official reserves has dried up steadily from above $3.0 billion monthly in 2014 to an absolute zero dollar today,” Mr Emefiele said.

Fuel subsidy

The debate on subsidy is also one of the country’s most polarising public discussions in 2022. The Nigerian government has for decades subsidised fuel and fixed retail prices of petroleum products.

But in November 2021, the federal government announced its plan to remove the fuel subsidy and replace it with a monthly N5,000 transport grant for poor Nigerians. Later in the month, the government suspended its planned removal of subsidy after the Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) threatened to embark on mass protests.

Following the reversal of the subsidy removal plan by the government, the NLC on 26 January announced it had suspended its proposed nationwide protest action. The government said it will retain fuel subsidy indefinitely and will work on amending the 2022 budget to provide funds for that purpose.

The government added that it would spend N3 trillion on subsidies in 2022. In April, President Muhammadu Buhari wrote to the National Assembly to make adjustments to the 2022 budget to raise the amount to N4 trillion after oil prices rose in the international market.

Fuel scarcity

In 2022, Nigeria’s fuel scarcity worsened in Abuja and several other cities across the country.

Although the crisis in Abuja began in 2021 after the government announced plans to remove fuel subsidy, fuel scarcity spread to other parts of the country, crippling businesses across Nigeria.

First, in February, a major scarcity hit major cities including Lagos, causing queues at filling stations and leaving millions unable to fuel their cars and generators.

The scarcity persisted despite the government’s repeated claims it had enough petroleum products in stock. In many parts of Nigeria, operators of filling stations where petroleum products were available sold at prices higher than the government’s pump price.

After several weeks, normalcy returned in parts of the country. But the scarcity, however, persisted in Abuja and black-market sales thrived with hawkers lining busy roads with jerry cans filled with petrol.

In the middle of the year, Nigerians across the country were yet again thrown into chaos as scarcity returned in filling stations nationwide.

At the time, marketers then listed the high cost of buying petrol at the depots and the high cost of diesel to truck them as the major factors responsible for the queue.

Again in October, fuel scarcity hit major Nigerian cities including Abuja and Lagos. At the time, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) blamed the shortage on flooding in Lokoja, the Kogi State capital, that stopped fuel truckers from dispensing.

However, weeks after the flood receded, queues remained at filling stations. In November, the Nigerian government and fuel marketers, however, offered varying explanations for the fuel scarcity that had affected states across the country for weeks.

While the NNPC said the queues in Lagos and Abuja are largely due to ongoing “road infrastructure projects” around Apapa and access road challenges in some parts of Lagos depots, major marketing group IPMAN said it was caused by high prices imposed by fuel depot owners who store the product for the NNPC.

In a bid to help alleviate the stress faced by Nigerians daily, the State Security Service in December issued a 48-hour ultimatum to the Nigerian National Petroleum Company Limited and fuel marketers to resolve the ongoing petroleum scarcity in the country.

The secret police said it would “commence operations” around the country if the problem persisted after two days.

The threats notwithstanding, fuel scarcity persisted as motorists and other end-users continue to lament scarcity of petroleum products even during festive periods.

OPEC’s decision/Russian invasion of Ukraine

The Russian invasion of Ukraine is easily the most significant event that affected the global oil market in 2022.

In February, when Russia invaded Ukraine, crude oil prices hit $130 a barrel, the highest since July 2008.

Brent crude futures jumped $12.61, or 10.6 per cent, to $130.72 a barrel by 0449 GMT, on 7 March, while U.S. West Texas Intermediate (WTI) crude climbed $10.41, or 9 per cent, to $126.09.

The concerns about the invasion, however, spurred fear among oil investors that global supplies could be affected.

Following the invasion, the International Energy Agency on 1st March announced that its member countries had agreed to release 60 million barrels of oil from their emergency reserves to ease any supply shortfall caused by the Russia-Ukraine conflict.

In May, the EU announced it has agreed to ban 90 per cent of Russian oil imports by the end of the year as part of sanctions for Russia’s invasion of Ukraine. The price of Russian crude fell, although it sold more of its crude to countries that had not imposed sanctions on Moscow.

In October, OPEC and its allies agreed to cut oil output by 2 million barrels per day in November, the deepest cut by OPEC+ since the 2020 COVID pandemic.

OPEC said it took the decision “in light of the uncertainty that surrounds the global economy and oil market outlooks, and the need to enhance the long-term for the oil market.”

The United States government strongly criticised the decision, saying the cut would negatively impact lower and middle-income countries the most.

Meanwhile, global oil prices fell despite OPEC+ slashing production by 2 million barrels per day, a development that impacted the revenues of oil-producing nation like Nigeria and others.