Speeding up Nigeria’s economic recovery with Shettima

“The fourth aspect is on security of assets and infrastructure. We encourage the development of a robust strategy for host communities to be part owners of energy infrastructure, which will serve as motivation to cooperate more with government and other stakeholders on asset security”

The quote above by Matthieu Bouyer, Chairman of TotalEnergies Companies in Nigeria, at the recent 42nd Annual Conference and Exhibition of the Nigerian Association of Petroleum Explorationists (NAPE) on November 10, 2024, alongside another recommendation on regional maritime security, possibly represents a key headway to resolving Nigeria’s unprecedented cost-of-living crisis and pressing socioeconomic challenges, especially insufficient government revenue. Nigeria’s Finance Minister and Central Bank Governor had earlier stressed at the April 2024 Spring Meetings of the International Monetary Fund (IMF) and the World Bank (WB), that the country’s main economic recovery strategy rested on increasing petroleum production from 1.6 million barrels per day (bpd) to 2 million bpd – a level last reached when leading international oil companies (IOCs) still made major investments in the country.

Therefore, the recommendations by TotalEnergies, which is one of the leading IOCs collectively responsible for about 80 percent of petroleum production in Nigeria, advocating for community ownership of oil and gas assets as a sustainable business, not political, solution to Nigeria’s underperforming oil and gas production levels, require greater consideration. Given the somewhat sensitive nature of petroleum value chain ownership in Nigeria, it is also important to consider the role of Vice President Kashim Shettima, as a critical success factor in managing the political economy of the required robust strategy for petroleum sector reforms.

While a debt service-to-revenue ratio of 97 percent in May 2023 compelled the current administration to institute certain reforms, headlined by the simultaneous removal of petroleum subsidy and floating of the naira’s foreign exchange value, the outcomes of these reforms after 18 months, have led to concerns about their viability. With inflation rate rising to 34.60 percent, currency devaluation of over 300 percent since May 2023, plus energy price increase of over 500 percent within same period, 74 percent of revenue is still being spent on debt servicing- higher than the IMF threshold of 20 percent for debt sustainability/fiscal stress, accentuating the severe socioeconomic costs on Nigerians.

Food inflation rising to 39.93 percent has led to 62.14 percent of Nigerians going hungry, as an increasing number of children are unable to go to school due to inability to afford fees and transportation. The Guild of Medical Directors has also stated that 50 percent of private hospitals have shut down due to rising inflationary costs. For the Manufacturers Association of Nigeria (MAN), about N1.5 trillion worth of finished products were unsold in the first half of 2024, which is a 357.6 per cent increase from the first half of 2023, due to the swift decline of consumer purchasing power. The telecommunications sector, which is the third-largest sector of the economy at 13.94 percent have reported severe losses due to the reforms, with MTN Nigeria (51.09 percent) and Airtel Africa (34.61 percent), the two largest telecom operators with over 85.7 percent of market share, reporting N1.29 trillion in foreign exchange (FX) losses in 2023. The CEO of MTN Nigeria has indicated that the company could shut down operations, if regulators do not allow certain changes due to the effects of the economic reforms. The media has not been immune from these economic pressures, as the cost of newsprint has risen from N0.6 million in 2022 to over N2 million in 2024, leading to a drastic reduction in coverage and pagination, cancelled circulation in some cities, and closure of some city bureaus, with the attendant job losses and lower public information.

With Nigeria rising to third most indebted country of the World Bank’s International Development Association (IDA), the IMF in its October 2024 outlook report for Africa, highlighted the impact of debt burden on fiscal stability and sustainable reforms in the country, which further highlights the need for increased non-debt public revenue in the country- if the desired outcomes of the Tinubu administration’s reforms are to be achieved.

And it is within this pressing need for increased non-debt revenue, that the propositions by the CEO of TotalEnergies at the recent NAPE Conference 2024, which is among the IOCs responsible for production of about 80 percent of Nigeria’s oil and gas, can be better situated. As previously indicated, raising oil production to 2 million bpd remains at the core of the economic strategy of the government, alongside gas sales. However, while the recently federal government approved 2025-2027 Medium Term Expenditure Framework (MTEF)/ Fiscal Strategy Paper (FSP) estimates 2.06 million bdp for the 2025 budget, current production significantly lags at 1.48million bpd, excluding condensate.

For some context on how this synergy in aspiration between the economic goals of government, the recommendation of IOC executive and the possible role of Vice President Shettima, a summary of industry trends is appropriate. While Nigeria is endowed with oil and gas reserves of over 37 billion barrels of proven crude oil reserves, over 207 trillion cubic feet (tcf), and 600 tcf of proven and contingent gas reserves, average oil production in the last 20 to 30 years had averaged 2.6million bpd, largely through joint ventures between the NNPCL and IOCs as joint venture partners. However, when the IOCs, which include Shell, ConocoPhillips, TotalEnergies, ExxonMobil, Chevron and Eni, decided in 2012 to largely divest from Nigeria’s onshore assets and focus more on offshore assets, capital spending in the country’s petroleum industry significantly reduced by 70 percent year-on-year, from $20 billion to $6 billion per annum as of 2022, leading to the current decline to 1.48million bpd.

While the decision to divest from onshore assets was largely driven by recurring energy infrastructure security concerns, the thirteen-year delay from 2008 when the Petroleum Industry Bill was first introduced, to 2021 when it became law as Petroleum Industry Act (PIA) with comprehensive legal provisions for the sector, led to Nigeria losing $15 billion annually during the period, as operators required legal clarity before making investments. Also, the November 2024 Monthly Oil Market Report of the Organisation of Petroleum Exporting Countries (OPEC) shows that the number of functional oil and gas drilling rigs across the country declined to 11 in October 2024, which represents a 27 percent year-to-date drop in active oil rigs, from the average of 17, 17 and 14 oil rigs in the first, second, and third quarters of 2024, respectively. As rig count reveals the level of exploration, development, and production activities in a country’s oil and gas sector, it demonstrates the need for speedy reforms that will incentivize more investors, who now prefer Namibia, Ivory Coast, Angola, and the Republic of Congo, if the government’s economic aspirations are to be met.

In the gas sector, Liquefied Natural Gas (LNG) production, sales and revenue have also been on the decline, dropping by 13 percent from 15.1 million tonnes in 2022 to 13 million tonnes in 2023, according to the 2024 World LNG Report of the International Gas Union (IGU). This decline by 1.55 metric tonnes due largely pipeline vandalism that disrupts gas transportation, has made Nigeria decline to eight place in global rankings from sixth, as well as a 43 percent decline in governments earnings from the Nigera LNG ltd. MNCs have also not been investing in major gas projects. This decline in the country’s gas sector, threatens the actualization of the strategic ‘Decade of Gas’ policy, as Nigeria is more of a gas endowed country that crude oil. Essentially, what Nigeria requires for short term economic stability is to speedily implement reforms that will increase oil and gas production, to the levels prior to IOCs divestment.

And it is within this need for speedy but politically effective approach for petroleum reforms in infrastructure ownership and regional maritime security, that Vice President Kashim Shettima can be best situated. Constitutionally, Shettima heads the economy, according to the Third Schedule Part 1.H of Nigeria’s 1999 Constitution, which makes the Vice President the Chairman of the National Economic Council (NEC). NEC comprises the 36 state governors, Governor of the Central Bank of Nigeria governor and other coopted officials, tasked with providing comprehensive economic advisory for government. Shettima comes with the academic, private sector and political experience that makes him best situated to the economic and political heavy-lifting required for such reforms in a sensitive sector like petroleum in Nigeria. Prior to his election as Vice President in 2023, he was elected Senator in 2019, after serving as State Governor for two terms. Before his political career began as a state government commissioner in 2007, he was a senior banking official in a leading commercial bank, after earning degrees in economics and working briefly in the academia.

Shettima is therefore equipped with the economic, political, legislative, private sector and academic skills required to speedily deliver on reforms for increased production and revenue in Nigeria’s petroleum sector. With his Chairmanship of NEC providing a conceptual framework to situate the reforms as economic, not political- thereby desensitizing the proposition, his banking skills ensures crunching the numbers of what this proposition means to stakeholders, in a way and manner that secures the necessary economic, political and legislative support.

And this ability of bankers to coldly crunch numbers, will also be required in his extensive deliberations for technical details and actual expected volumes of crude oil and gas that the IOCs are expected to produce, if oil and gas bearing communities are given part ownership of oil and gas pipelines and other infrastructure. Given that the CEO of Shell Nigeria shared comments on energy infrastructure security for increased oil production at the same NAPE 2024 Conference, it can be assumed that it is a business cum technical proposition, which all the IOCs in Nigeria can subscribe to.

With details of this briefing from TotalEnergies, Shettima can then invite the IOCs to perhaps the 148th NEC meeting, where they will make presentations with business and technical details on how the recommendations for community ownership in energy infrastructure will increase production volume, and by how much. For example, if communities or state governments are granted 30 percent infrastructure ownership, will it translate to 3 million bpd and correspondent increase in tonnes of gas, and how? Modelled business propositions prorating the percentage of state or community infrastructure ownership, and what the expected increase in oil and gas production for revenue will lead to, from 20 percent to 50 percent can be presented, with details that enables each state government and NEC know the projected revenue accruals. That way, informed and speedy decisions can be made, as the state governments and federal government are well informed of the proposition’s merits, as well as lawmakers that may need to make laws to support this proposition.

The IOCs have been operating in Nigeria for decades, with a resultant long history and knowledge of the operating environment, plus ownership of finance and technology for production. Therefore, their recommendation would have taken into consideration, the Host Community Trust Fund for communities under the PIA of 2021, and the pipeline protection contracts given to companies from the area, and concluded that such provisions, though positive, are not sufficient to sustainably address the community issues that have led to a significant decline in oil and gas production levels.

For speedy implementation of the communal infrastructure ownership propositions, the utilization of existing Oil Producing Area Development Commission across the oil and gas producing states, such as DESOPADEC and ISOPADEC, provides an available and efficient governance framework to efficient and speedy implementation of community infrastructure ownership.

The need for speedy consideration is also influenced by some external factors that may possibly affect Nigeria. The swearing-in of Donald Trump as U.S President on January 20, 2025, will probably lead to an increase in global production, reduction of product prices and less attraction for high-risk countries such as Nigeria. His ‘drill baby drill’ policy for more domestic U.S. petroleum production potentially diverts attention from Nigeria, while the appreciation in the value of the dollar after his election makes it more expensive for Nigeria to service its external debt. Also, the global Energy Transition 2050 target, and the rise of new oil and gas fields across other parts of Africa, Asia and the Caribbean are other external factors that require speed on the part of Nigeria to mitigate.

Aside the small governance window before campaigns commence for 2027 elections in 2026, the economic cost of propositions not speedily implemented was highlighted by Patrick Pouyanne, the global CEO of TotalEnergies at the Africa CEO Forum of May 16-17 2024, where he identified the long drawn nature of policy debates in Nigeria as responsible for the company’s decision not to invest in any exploration in Nigeria for 12 years, but rather invest $6 billion in energy projects in Angola, despite Nigeria’s oil-bearing delta region being the most prolific part of West Africa.

While initiatives such as the ‘Project 1 MMBOPD’ launched in October 2024 and led by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) the country’s upstream regulator to increase the country’s oil production by a million bpd in the next 12 to 24 months; and the mandate by President Tinubu to Defence Chief, Gen. C.G. Musa to reduce oil theft and infrastructure vandalism as announced by Mele Kyari of NNPCL on July 16, 2024 are commendable, such initiatives are hardly novel, and may not be as feasible as the propositions by the IOCs who have the more extensive field experience in oil and gas production and management, and therefore will know what works better for increased output.

The other TotalEnergies recommendation of interest at the NAPE 2024 Conference is on maritime security in West Africa, where Nigeria was encouraged to work with other nations in West Africa towards a regional synergy for combating the threats to the sub-region’s maritime assets. An extrapolation of what this could mean for Nigeria could be seen within the location of petroleum assets, with onshore; shallow-water; and deep-water sectors accounting for 45 percent, 25 percent and 35 percent of the total oil production respectively. Therefore, maritime security threats potentially pose a risk to about 60 percent of oil and gas production in Nigeria, which needs to be urgently addressed. Given that IOCs largely divested from onshore assets in 2012 in favour of deepwater assets, deepwater output peaked at over 820,000 million bpd in 2016, and has since been declining, while no greenfield deepwater project has been approved in over ten years, according to industry reports.

Shettima therefore has responsibilities that are also multilateral in nature, if the economic aspirations of the NEC that he chairs are to be met. While the Economic Community of West African States (ECOWAS) provides the most feasible multilateral framework for combating threats to the sub-region’s maritime assets, the decision of Niger Republic, Mali and Burkina Faso to exit from ECOWAS effective January 2025, after invoking Article 91 of ECOWAS Revised Treaty of 1993, poses threats to the sustainability of the sub-regional organization. While it may be argued that the three Sahelian countries who have established the Alliance for Sahel States (AES) as an alternate organization, do not have direct impact on West Africa’s maritime coast, the effect of their exit from ECOWAS is unknown, especially what it could mean for the level of cooperation from other countries within the organization. Shettima, with the mandate of President Tinubu as ECOWAS Chairman, can work with former President Olusegun Obasanjo in making another attempt at resolving the potential exit of AES countries. Obasanjo as a former military general, former president, former ECOWAS chairman, and Co-Chair of InterAction Council of former Heads of State and Government, has the persona and experience to effectively communicate and reach a rapprochement with the military juntas of the AES countries.

Also, that coastal ECOWAS countries such as Cote d’Ivoire and Ghana are developing individual military relationships with the U.S., after the U.S. made to shut its military base in Niger Republic, provides both a threat and opportunity to rally sub-regional security efforts. Threat if they decide not to collaborate with Nigeria, but an opportunity, going by the recently launched ‘USAFRICOM Theater Strategy 2024-2033’, which is expected to be Africa Partner Led, with enablement from the U.S. This new strategy by the U.S. Africa Command (AFRICOM) provides a strategic opportunity for Nigeria to collaborate with the U.S. in speedily deploying the necessary but expensive naval security presence in the Gulf of Guinea.

Shettima can work with ECOWAS and AFRICOM to ensure that succeeding exercises to AFRICOM’s ‘Exercise Obangame Express’ and ‘Exercise Flintlock 24’, are done as collaborative ECOWAS/AFRICOM events, to address the maritime security concerns of IOCs. ‘Exercise Obangame Express’ is a maritime exercise around West Africa’s maritime coast conducted by U.S. Naval Forces Africa, the last of which took place on May 6, 2024, in Ghana; while ‘Exercise Flintlock 24’ is the Command’s premier and largest annual special operations forces exercise, that aims to strengthen combined partner force collaboration in Africa alongside international and NATO international special operations forces. The last exercise was from May 13 – 24, 2024, consisting of forces from U.S. Special Operations Command Africa, or SocAfrica, working with about 30 nations and 1,300 personnel from five different continents, in locations hosted by Ghana and Côte d’Ivoire. This will be where the mandate given to Nigeria’s Defence Chief for security in the petroleum sector, will be more effective.

Nigeria lost about $15billion annually in oil and gas investments, due to legislative delays from 2008, till what became Petroleum Industry Act 2021, while production has declined from 2.6 million bpd to 1.48 million bpd, with significant economic implications for the country.  As TotalEnergies and some other IOCs are now providing feasible business propositions on how to increase oil and gas production for increased government revenue, there is need for Nigeria to urgently seize the opportunity. The propositions for having oil and gas bearing communities have joint ownership of the petroleum infrastructure in their communities as a sustainable means of ensuring energy security, should be speedily adopted. Nigeria should also as Chairman of ECOWAS, make the deft moves required to ensure regional cooperation for enhanced maritime security with neighbouring countries and U.S., under the AFRICOM new ‘Africa Partner Led’ strategy. And Vice President Kashim Shettima, is expected to utilize his experience as an economist, senior banker, former state governor, former Senator, and Chairman of National Economic Council to desensitize and address political economy issues around Nigeria’s petroleum sector, for speedy adoption of these proposed economic reforms by IOCs towards addressing Nigeria’s worst cost-of-living crisis. The return of Donald Trump as U.S President in January 2025, plus the global Energy Transition plan, means that the window for Nigeria’s petroleum sector growth is narrowing, hence the need to speed up reforms.

Dr. Uwanaka writes from African University of Science and Technology, Abuja. [email protected].