18 Aug Investment in hydrocarbon value chain to deepen foreign exchange prospects
Nigeria’s over reliance on foreign exchange earnings from crude oil in the past few decades appear threatened with dwindling oil price and revenue crash, investment in Nigeria’s oil and gas sector seems fragile. Industry experts observe that the current realities in the global oil environment have further affected the nation’s economic environment due to declining oil price at the international market and the corresponding impact on government revenue and foreign reserve.
Despite Nigeria’s abundance of crude oil deposits, several challenges have over the years continued to stifle the translation of the benefits of this huge oil potential into improved standard of living for the citizens.
Statistics reveal the inefficiencies in the downstream resulting largely from the state of the refineries, operating at an average of 20 percent over the past ten years; absence of rail system for the haulage of petroleum products; state of the roads, low draft at the jetties and the ports, high demurrage paid in foreign exchange or naira equivalent at parallel market rate.
Analysts are of the views that high level of inefficiency, corruption, abuse of natural monopoly powers, bureaucratic and existence of a distorting subsidy regime have over the years bedeviled the petroleum downstream sector in Nigeria and have in turn stifled investor’s interest in the sector.
The hydrocarbon value chain
Industry players and operators in the oil and gas industry are optimistic that an increased downstream investment in petrochemical is a potential foreign exchange earner for Nigeria as the country grapple with the effect of the slump in oil price which have significantly affected government earning from crude sale.
They maintain that with the right government incentive and an enabling environment, there is great opportunity for further downstream investment in petrochemicals, carbon black, bitumen and other byproducts of petroleum refining as this would fetch the government huge foreign exchange.
The expectation is that once government through a sustainable framework encourage private sector is willing to invest to exploit the huge gas resources, build fertiliser plants that will utilise gas to fill huge domestic demand and generate foreign exchange from export.
Additional processing will yield alkyl benzene, propylene and polyethylene which is needed in paints, plastic and textile industries. Further development of the Aromatic phase of the petrochemical chain will yield other solvents and pharmaceutical grade chemicals.
Today all these are imported at great pressure on our foreign reserves. The country can reverse the flow and earn plenty of Forex for the country. There is the possibility of earning more from these processed hydrocarbon substrates than what we have ever earned from crude oil.
It is possible to get the private sector to create more income for Nigeria than we ever earned from oil but it will require the government to do something revolutionary and strategic, Sam Ohuabunwa, Chairman, African Center for Business Development Strategy and Innovation said.
According to him, “there is the possibility of earning more from processed hydrocarbon substrates than what we have ever earned from crude oil”.
Ohuabunwa in a recent presentation observed that development of the aromatic phase of the petrochemical chain will yield other solvents and pharmaceutical grade chemicals saying that all these are imported at great pressure on Nigeria foreign reserves.
“We can reverse the flow and earn plenty of Forex for the nation”, he added.
PPP approach a step in the right direction
Nigeria failed to take appropriate actions to reduce the risk of excessive dependence on crude oil as its main source of National Revenue and foreign exchange, despite several warnings over many cycles of oil boom and burst.
“The benefits of unleashing the private sector on the economy will ensure diversification and focusing on areas of comparative and competitive advantages. Sustainable wealth will be created, jobs will be created and tax revenues from corporations and individuals will rise”, Ohuabunwa said.
Analysts insist that the government should provide a bouquet of irresistible incentives to attract the private sector to invest in any area of its needs, no matter the risks. As long as the incentive is competitively attractive, the private sector and private capital will migrate to such project.
Ken Abazie, Chairman of the Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry in an interview with BusinessDay revealed that statistics has shown that proceeds from crude oil sales contributes about 88 percent of the total revenue accruable to the Federal government of Nigeria. This trend has remained so in the last 50 years without any significant infrastructural development in the downstream.
Abazie opines that government as a matter of urgency must declare emergency on the refining of petroleum products in Nigeria. “It is a big shame that after over 55 years of the commencement of drilling of crude oil in Nigeria, we do not have a functional refinery. Government should go out of its way to get investors to invest in refinery in the country. Nigeria should be able to refine all its 45 million litres daily requirement and even export”.
Tunji Oyebanji, Managing Director, Mobil Oil Nigeria Plc noted that easing of regulatory environment would boost investor considerations and hence bring about a competitive environment which would in turn bring about self-sufficiency in local refining.
Oyebanji observed that the supply challenges the country was experiencing would not go away until government reviewed its import allocation system. He disclosed that the sector had not progressed due to the pervading participation of government in the affairs of the industry, and until that was cleared, “we will not see the benefits that accrue to the consumers and the economy at large”, he said.