Earlier this year Nigerian President Muhammadu Buhari signed the Petroleum Industry Act (PIA) 2021, bringing to a close a 20-year effort to reform Nigeria’s oil and gas sector, with the aim of creating an environment more conducive for growth of the sector and addressing legitimate grievances of communities most impacted by extractive industries.
A lot has changed in the sector domestically and globally since the reform efforts began. The number of indigenous oil and gas firms has grown, but so has the number of oil-producing countries in the region. Militancy in oil-rich communities, while remaining, has diminished. Concerns over climate change have fueled aggressive efforts to reduce global consumption of fossil fuels—driving divestment from oil and gas by companies, institutions, and countries.
The PIA represents an effort by Africa’s leading oil-producing country to respond to this changing environment. In 2019, the oil and gas sector accounted for about 5.8 percent of Nigeria’s real GDP and was responsible for 95 percent of Nigeria’s foreign exchange earnings and 80 percent of its budget revenues. In addition, because the law is far-reaching in its remit, it is complex and not easy to summarize.
Power-generating wind turbines are seen at the Lake Turkana Wind Power project (LTWP) in Loiyangalani district, Marsabit County, northern Kenya, September 4, 2018. Picture taken September 4, 2018. REUTERS/Thomas Mukoya
The global oil and gas industry had an underwhelming year in 2020 as the twin shocks of the oil price crash and the COVID-19 pandemic adversely influenced demand and supply of crude oil in an unprecedented manner; thus leading Nigeria into its second recession in six (6) years. Nigeria, a country heavily dependent on proceeds of crude oil sales, was forced into reactive strategies, such as palliative measures and several fiscal initiatives, to charge the economy into recovery.
Hopefully, 2021 will be the year of recovery as countries make strategic plans to open up their economies with the supply of vaccines being ramped up and pharmaceuticals striving to meet global demand. We also expect that 2021 will see a rise in demand for crude oil and its derivatives.
We have highlighted some of the recent developments in the industry in Nigeria, how these developments impacted on businesses operating in the sector and what to expect in the coming months of 2021.