Under-pressure Tinubu seeks upturn by reviving projects from Nigeria’s hydrocarbons past

30 Sep 2024 - By Jon Marks

Mounting efforts by the Presidency to place President Bola Ahmed Tinubu at the centre of accelerated momentum for Nigerian hydrocarbons developments highlight the extent Abuja needs to build confidence in the sector’s ability to grow once more, given its status as the key source of revenues for potentially decades more to come. In this context, statements by Aso Rock and parastatal Nigerian National Petroleum Company (NNPC) highlights the beleaguered Tinubu administration’s need to persuade Nigerians that the pain of (still only partially implemented) economic reforms can be replaced by growth and wider prosperity.

Recent newsflow points to efforts to reboot long-stalled projects. NNPC on 20 September announced moves to revive two long-stalled liquefied natural gas (LNG) projects, Brass and Olokola (OK LNG) – with chief financial officer Umar Ajiya pointing the Gastech event in Houston, Texas to Tinubu’s “support in driving new projects in the industry through the presidential executive orders on oil and gas reforms”.

Only days before, NNPC highlighted presidential special adviser Olu Verheijen’s announcement at the US-Nigeria Strategic Energy Dialogue in Washington DC of “take-off” for the $550m Ubeta gas project, which being developed by TotalEnergies north-west of Port Harcourt in Rivers state.

And on 26 September, Presidential spokesman Stanley Nkwocha issued a statement after (widely unpopular) Vice President Kashim Shettima had a senior ExxonMobil executive in New York saying the United States-based supermajor had proposed a $10bn investment in deep offshore oil operations. The US investment would revive development plans for ExxonMobil’s Owowo discovery, after little has been heard of the apparently huge find after it provoked considerable interest on its announcement in 2016 (AE 334).

All these projects would present what NNPC said of Brass LNG and OK LNG “the potential of manifold economic benefits for the country which include job creation, power generation, revenue generation and economic diversification”. NNPC added that the multi-billion dollar LNG projects had “stalled due to unfavourable market dynamics and slow decision-making by the political class in the past.” According to Ajiya, “in the past, gas prices went down, the economics of the projects meant a high capital expenditure and this was a disincentive for investors and partners. Also, there was slow decision-making by the political class.”

To discuss ‘slow decision-making’ over Brass and OK LNG is, of course, a major understatement. Both schemes were promoted during Olusegun Obasanjo’s elected presidency (1999-2007) – OK LNG in his home state – during a period when hopes of Nigeria benefitting from an ‘African renaissance’ were higher than they are over two decades on.

Bechtel Corporation was awarded a front-end engineering and design contract in 2004 for the 10m t/yr capacity Brass LNG project, which was backed by Eni, ConocoPhillips and Total. The 22m t/yr OK LNG scheme was backed by Chevron Corporation, Shell and BG International (AE 249, 147). But neither made it to a final investment decision.

Long-stalled Nigerian LNG projects are back on the agenda

Liquefied natural gas (LNG) is back in Nigerian National Petroleum Company (NNPC)’s sightlines, after the state giant in early September greenlit development of the country’s first floating LNG (FLNG) plant, after a lengthy delay.? NNPC has also announced that it has held talks with investors to revive the long-delayed Brass Liquefied Natural Gas and Olokola Liquefied Natural Gas (OK LNG) projects. Read the full article

Tinubu could do with a boost having made some big – and essential – macroeconomic decisions in his first year that have triggered a major popular backlash at subsidy cuts and liberalisation of the naira exchange rate (AE 507, 501). This summer’s ‘Days of Rage’ pointed to national disaffection, including robust protests in northern cities such as Kaduna, Kano and Katsina, as well as in the usually more turbulent Lagos, Abuja and Port Harcourt. Some northern demonstrators are calling for a coup to oust Tinubu; there was alarm when Russian flags were spotted, as in the Sahel putsches Tinubu has done so much to oppose.

Borno South senator Ali Ndume highlighted alarm in the troubled north and concern that Tinubu is an out-of-touch billionaire marooned on Aso Rock when in early July he said: “Mr President is not in the picture of what is happening outside the [Presidential] Villa. He has been fenced off and caged. So many of us won’t go through the backdoor to engage him.” This reflected deep concern in the ruling establishment over unrest: as well as representing a state nicknamed the ‘Home of Peace’, Ndume is chief whip of the Senate, controlling the upper house for the ruling All Progressives Congress (APC).

African Energy asked in July 2023 if incoming president Tinubu would prove to be ‘a Nigerian revolutionary’, or could more of the same timid policies as offered by his predecessor, Muhammadu Buhari, be expected? (AE 488). Tinubu answered by announcing radical measures that were lauded by markets but which added to pressures of Nigerians.

Many agreed with another establishment big man, ex-president Obasanjo (now aged 87), who told a conference as Tinubu celebrated his first year that his “government has taken three decisions, two of which are necessary but wrongly implemented and have led to impoverishment of the economy and of Nigerians. These are removal of subsidy, closing the gap between black market and official rates of exchange.” (The third was dealing with coup in Niger.) Investment and productivity would boom with “belief and trust in government leadership”, but the administration had “not found the right way to handle the economy to engender confidence and trust for investors to start trooping in”.

Obasanjo subsequently told National Assembly members visiting his residence in Abeokuta that the government should listen to the ‘concerns of youth’ that had been expressed through nationwide protests, because what they were seeking was “legitimate”. “They make demands and we’re not listening to them. Many of them are frustrated, desperate, angry and unemployed. What do we expect?”, Obasanjo was quoted as saying.

Aso Rock confronts a hard place

Tinubu is caught between a rock and a hard place, with the choice of carrying on to the full with essential macroeconomic reforms, which means he will likely face the further wrath of an angry, youthful population that could seriously destabilise his presidency. While much of this summer’s talk of a potential coup d’etat was ruled out, not least due to Tinubu’s apparently canny reshuffles of the top brass, there remains considerable unease about the direction of travel inside, as well as beyond, the Aso Rock walls.

One way back would be to soften reforms – but that would add to Nigeria’s daunting economic problems. Given the central role of fuel subsidies to his predicament, a softening of price rises would ease pressure, but any return to the unsustainable former subsidies regime is untenable.

The ramping up of production at the new oil refinery built by Tinubu’s fellow billionaire and regular sparring partner Aliko Dangote would help ease some pressures (although petrol prices would remain higher than before given that Dangote can charge market rates). Dangote has argued that official blockages have undermined his efforts, but were a deal agreed with Tinubu to be implemented for NNPC to provide feedstock in return for payment in naira – rather than the dollars Dangote is paying for his crude liftings now – the market, rather than the government, could considerably ease the supply situation.

That presupposes there is the will in government and NNPC to forsake dollar revenues and, indeed, that NNPC has sufficient available crude (a hefty 445,000 b/d) to meet the naira-denominated commitment.

The situation would ease were NNPC to reach its 2m b/d production target for December 2024, but Nigerian crude output remains far below that level – indeed, it remains even below its revised Organisation of the Petroleum Exporting Countries (Opec) quota of 1.5m b/d (reduced from the 1.74m b/d allocate for 2023, given Nigeria’s long-term failure to meet its previously agreed targets). Nigerian Upstream Petroleum Regulatory Commission figures for the first seven months show a 1.43m b/d high for crude output in January, a 1.23m b/d low in March and 1.3m b/d in July. Tinubu needs those production hikes urgently.

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