The worst may not be over yet for the oil industry as production shortfall which President Umaru Yar�Adua put at 30 percent last week looks set to decline further with international oil companies in the country cancelling all capital expenditure for 2009.
The scaling down was forced by the twin problem of inadequate funds to carry out their operational activities as well as the Niger Delta crisis, some senior management staff of the companies told Business Day.
There is also the apparent impatience among the companies with government�s seeming inability to offer the required leadership via clear cut policies governing investment in the sector, prompting them to move their funds to Angola and other more attractive markets
In addition to drop in production level, stakeholders are concerned that more Nigerians may loose their jobs while the local content drive of the government risk being scuttled.
In the last one year, about 2,500 workers of Shell Petroleum Development company SPDC lost their jobs.
A number of service companies have sent their workers home because of the massive decline in fresh investment in the sector.
They said apart from the Niger Delta crisis, the greatest obstacle to the development programme of the industry is lack of funds. And even if the crisis is resolved and the level of funding does not improve, production would remain stagnant.
The reduction of the joint venture budget from $10 billion to $5 billion by the Federal Government, industry officials said, has dealt a big blow to the industry.
“We have to scale down our activities so that we can take care of the ones that are considered very vital and suspend those we think we can keep on till such a time when we have enough fund,” one of the industry officials said.
The parent companies of the Joint Venture partners are already moving strategic investments to other countries such as Angola and Libya and even Sao Tome and Principe where the operational environment is more clement.
Already Angola has overtaken Nigeria as Africa�s top oil production and it has drawn up an ambitious expansion in production capacity to maintain the lead. Angola plans to invest more than $100 billion in its oil and gas industry during the next five to six years, an executive of the Angola state petroleum company has said.
The country pumped 1.94 million barrels of oil per day in May 2008, as against Nigeria�s 1.9 million barrels.
The waning interest by oil majors to invest in Nigeria was very glaring at the just concluded World Petroleum Congress held in Madrid, Spain. While the oil majors are talking of developing projects in places such as Saudi Arabia and other Middle East countries and other parts of the world, Nigeria was never named.
What the companies engage in are just routine maintenance work just to keep the already existing projects going. The over $4 billion funding arrangement entered into recently between the Nigerian National Petroleum Corporation (NNPC), and Shell, Elf and Mobil is meant for maintenance works which are long overdue.
An analyst said that lack of funds for companies to boost operation is not good for the country as it would have long term serious implications for the economy and the oil and gas industry.
On the short term, they said the situation will have serious implications on job security for Nigerians. Also, the local content development drive of the government may also be jeopardised as the local servicing companies would be denied job opportunities.
Some officials of the companies that spoke to Business Day said their organisations are doing just to what they think their budgets can take care of in terms of operations.
Business Day investigations revealed that none of the companies has made any new investment this year as most the expansion projects earlier slated for 2008 have been put on hold on till 2009 with the hope that the government could improve on the budgetary allocations for the industry.
An industry operator told Business Day that if the government wants to make any appreciable progress in shoring up its reserve base, it must make enough funds available as its own counterpart funding for infrastructural development for gas and oil field development.
Reacting to the situation, the oil producing trade sector of the Lagos Chamber of Commerce and Industry said although it is committed to resource benefits through continuing programme of investments, issues such as security and funding which are beyond its control would make the development of the industry difficult if they are not resolved.
However, Ayo Teriba, a Lagos-based economist is of the view that the scaling down of operations by the oil majors will not have serious effects on the economy.
“First, Nigeria is not losing much money because of the closure of oil wells in the Niger-Delta region of the country. This is because the drop in production is being made up for by the rise in international oil prices.
“And it is natural that when oil wells are closed, money meant for the maintenance of such wells will not be spent, and so the scaling down of budget may not have anything to do with the Nigerian economy,” Teriba said.
Bashir Kurfi, head, department of economics, Ahmadu Bello University (ABU), Zaria, said the scaling down of operational capital in Nigeria and transfer to other regions of the world will impact on the Nigerian economy. To him, both skilled and unskilled workers will lose their jobs.