In addition to the country-wide economic impact of COVID-19, crude producers are faced with a decline in both price and demand for crude, resulting in an oil glut. In its industry circular as of 30 March 2020, the Department of Petroleum Resources (DPR), stated that it considers the situation occasioned by the COVID-19 pandemic a force majeure, and has directed all operators to limit the number of personnel at project sites. This has the potential of leading to a breach of specific contract terms. However, some of the major factors driving the market include increasing investments in the upstream sector, development of large-scale and modular refineries in the country. Oil and gas production had been hampered in Nigeria in the past few years, due to the attack on oil and gas infrastructure by militants. Further, oil theft has been one of the major issues faced by the oil & gas market in Nigeria, which resulted in huge losses to operating companies in the country. Such factors are expected to have a negative impact on the market growth during the forecast period.

Nigeria's offshore oil and gas industry continues to expand, albeit not very fast, opening more market opportunities. The growth of Nigeria's offshore exploration and production activities has been mainly driven by the efforts of the government to improve the country's hydrocarbon industry.

Lack of infrastructure, uncertainties in regulations, and security concerns have led Nigeria to underutilize its refining capacities, thereby pushing the country to become a net importer of refined petroleum products. However, Nigeria is on the edge of altering refined products’ supply dynamics in the region with the help of the upcoming Dangote Refinery and is expected to become the regional refining hub in the coming years. Once completed, the country is planning to be come the refinery hub in Africa. This, in turn, is expected to attract foreing players to tap into the country's downstream market in the near future.

Given the country’s huge gas reserves and its advantage as a clean fuel, gas has already witnessed a massive surge in its domestic consumption in the recent years. Further, the country is steadily moving away from oil and exploring different ways to replace the oil consumption with gas in power as well as the transportation sector. The shift to gas is also supported by the fact that major oil reserves are likely to get dry in coming three to four decades. Hence, the oil market is considered to be one of the most vulnerable markets where natural gas has the highest potential to penetrate. Moreover, gas production has become a major focus for the oil & gas companies, in response to strong investment in gas-to-power projects, across the region.

Key Market Trends

Offshore Oil & Gas Segment to Witness Significant Growth

Nigeria's offshore oil and gas industry continues to expand, albeit not very fast, opening up more market opportunities. The growth of Nigeria's offshore exploration and production activities has been mainly driven by the efforts of governments in their region, such as providing key incentives and supporting policies to unlock the investment opportunity, as well as a growing list of international oil and gas companies interested in exploring alternative fields to replace the maturing offshore producing sites.

The China National Offshore Oil Corporation has mobilized a USD 3 billion investment, in addition to the USD 14 billion already spent on its existing oil and gas operations in the West African country. A large share of this investment goes into the operations in Nigeria. One of the most ambitious ultra-deep offshore projects is the Egina oil field in water depths of between 1,400 and 1,700 meters. Total projected that the oil field is expected to peak at 200,000 barrels/day.

Further, since 2008, the Nigerian government has been trying to pass the Petroleum Industry Bill (PIB). The country lost billion dollars of investments due to the failure to pass the bill. One section of the bill was finally passed in 2018, as the Petroleum Industry Governance Bill (PIGB). Under this, the oil sector will be restructured, including the national oil company, the oil and gas regulator, the Department of Petroleum Resources (DPR), and the Nigerian National Petroleum Corporation (NNPC), which will become the National Petroleum Company (NPC), a fully commercial integrated entity. This reform is expected to drive the Nigerian offshore oil and gas upstream market.

Therefore, due to above mentioned factors the offshore segment is expected to be the fastest growing segment.

Increasing Investments to Maintain the Country’s Production

Nigeria is one of the largest and oldest oil producers in Africa. The oil and gas sector is one of the most important sectors in the country’s economy, accounting for more than 90% of the country’s exports and 80% of the Federal Government’s revenue as of 2019.

The country is the ninth-largest in terms of global gas reserves with over 200 Tcf but it has not started up any new gas projects recently.

As of 2019, Nigeria has the largest oil and gas reserves in the African region, with around 37 billion barrels of oil and 5.4 trillion cubic meters (bcm) of gas. With a production of 2.11 million barrels per day in 2019, which is approximately 25% of the total production in Africa, Nigeria continues to dominate African oil production.

The country's economy was hit hard by the global commodity price downswing in 2014. Investment in the Nigerian upstream oil and gas sector declined by 13% annually, during 2015-2017, due to the downturn in the crude oil price. The decline in spending was largest in 2016, driven by severe disruptions on major oilfields. Oil and condensate production recovered in 2017, and was returned to remain at the level of more than 2 million bbl/d in 2018.

The drilling activity in the country is ramping up, and is expected to continue on account of current and upcoming projects. However, production is not expected to ramp up in the coming years, as the new projects that are expected to come online may be able to offset the declining volume from brownfields, keeping the oil supply stable, provided the political situation does not exacerbate, leading to renewed supply disruption.

Development of ultra-deepwater Egina oilfield by Total is one of the key projects, which started production in the first week of 2019. The Egina field may significantly boost the production and cash flow, in 2019, and continue onward. Further, NNPC (Nigeria National Petroleum Corporation) has signed an agreement for seven Critical Gas Development Projects, to deliver around 3.4 bcf of gas per day, in order to bridge the medium-term supply gap, by 2020, on an accelerated basis.

Competitive Landscape

The Nigeria oil & gas market is moderately consolidated. Some of the major players operating in the market include Nigerian National Petroleum Corporation (NNPC), Royal Dutch Shell PLC, Total SA, Chevron Corporation, and Exxon Mobil Corporation.

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