US oil production gains contrast Nigeria government-induced stagnation

The United States of America’s spectacular oil production gains that have seen the country emerge as the world’s biggest oil producer is in sharp contrast to Nigeria’s government induced stagnation in its oil exploration and production sector.

The USA will remain the world’s biggest oil producer this year after overtaking Saudi Arabia and Russia, as extraction of energy from shale rock formations surge, Bank of America Corp. said over the weekend.

The International Energy Agency (IEA) said

in June that the U.S. was the biggest producer of oil and natural gas liquids.

U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries this year, with daily output exceeding 11 million barrels in the first quarter.

That compares with Nigerian production of 2.15 million barrels a day in June.

U.S crude production has grown 46 percent since 2010, while Nigeria’s has remained flat over the period.

This is largely because the USA has let the markets work to unlock hitherto hidden/ unprofitable oil from shale fields, while the Nigerian government’s interference in the sector has thwarted its development.

“Private capital, which is increasingly flowing into unconventional North American plays, seems to be willing to chase the lower financial returns available there, since they come with almost no political risk,” said Ildar Davletshin, an oil and gas analyst at Renaissance Capital.

Annual investment in oil and gas in the U.S.A is at a record $200 billion, reaching 20 percent of the country’s total private fixed-structure spending for the first time, according to Bank of America.

Nigeria may have lost at least $28 billion since 2010 in scrapped or deferred investments in the oil sector, due to a lack of movement of key reforms by the Government.

The country ranks number-one in Sub-Saharan Africa by the US Geological Survey, in terms of size of undiscovered oil and gas resources.

The oil and gas industry which accounts for 75 percent of the government revenue and up to 95 percent of dollar earnings makes up only 14.4 percent of gross domestic product (GDP), according to data from the National Bureau of Statistics (NBS).

“There’s a very strong linkage between oil production growth, economic growth and wage growth across a range of U.S. states,” said Francisco Blanch, head of commodities research at Bank of America.

In Nigeria lack of movement on reforms by the Goodluck Jonathan administration and legislators on passing the Petroleum Industry Bill (PIB), scrapping fuel subsidies, as well as improving security and the rule of law, is stymieing efforts to get the oil sector to soar.

Rising American production is also impacting Nigeria by putting pressure on prices, while Nigerian exports to the USA fall sharply.

Brent for August settlement fell 2.4 percent last week Friday to $110.62 a barrel on the London-based ICE Futures Europe exchange.

Oil exports to the USA from Nigeria fell 66 percent to 400,000 barrels a day at the end of 2013 from 1.2 million in 2005, according to the USA government’s Energy Information Administration (EIA).

Nigeria could achieve a production capacity of 4-5Mb/d in the medium term with movement on reforms, according to Davletshin.

“Nigeria and other traditional producers cannot influence the development of US shale oil, they can nevertheless change conditions in their own sectors to gain an edge in the competition with tight oil projects,” said Davletshin.

BusinessDay