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Nigeria Signs MoU with Saudi Arabia for Oil Sector Boost

 


In 2020, following the onset of COVID-19, Nigeria saw the lowest average daily oil production in almost a decade as demand for oil decreased. Since then, it has been an upheaval task to regain stability in the oil sector as the government tries to make significant growth in production.

However, as 2023 comes to an end, there might be some hope for the oil sector. This can be majorly attributed to the newly signed memorandum of understanding (MoU) between Nigeria and Saudi Arabia. This partnership seeks to advance the mutual benefits and interests of the two countries into the future. It also comes after Afrexim Bank approached oil traders to fund the oil-backed loan to NNPC LTD, the country’s oil company, as the government tries to clear foreign exchange obligations.

Expected Benefits from the MoU

Nigeria currently has the largest oil reserves in Africa, while Saudi Arabia has the second largest in the world. This MoU was signed by Nigeria’s minister for State Petroleum Resources, Senator Heineken Lokpobiri, and Saudi’s Energy Minister, Prince Abdulaziz bin Salman. It comes at a time when Nigeria is looking to greatly improve production and technology in its energy sector.

The MoU will see Nigeria benefit from Saudi’s advanced technological knowledge in oil exploration and production, which should boost the country’s efficiency in energy operations.  Senator Heineken Lokpobiri is confident that this partnership will see Nigeria increase its crude oil production levels, improving its position in the competitive global energy market.

Another expected major benefit of this MoU to Nigeria is increased foreign investment in Nigeria’s oil industry. These foreign investments could either be directly from Saudi Arabia or from other global players whom Saudi Arabia has influenced.

As of this writing, the country has secured about $13 billion in investment commitments for next year. These investment commitments were pursued by Olu Verheijen, the Special Adviser on Energy to the President, and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) — they recently met up with representatives of the 15 oil and gas companies that operate in Nigeria.

Some of the major companies that have already committed to boosting their investments in Nigeria’s oil industry include TotalEnergies, Shell, and ExxonMobil. This bid is President Bola Tinubu's latest attempt to remedy the country’s ongoing revenue and forex crisis and stabilize the economy.

Current Performance of Nigeria’s Oil Sector

With the country facing a revenue crisis, the youth has been mostly impacted. While some have tried their luck in online casino games or on sports betting platforms, a significant numberof youth have resorted to oil theft in the Niger Delta region for sustenance. However, Defence Minister Bello Matawalle has sounded a warning to those involved, stating that the military has made significant progress in making arrests and destroying illegal panels.

Defence Minister Matawalle also reiterates the optimism that Nigeria's oil sector will keep performing better with high production targets for the end of the year. He expects that the country will be producing an average of 1.9 million barrels a day by the end of the year. Hitting this target is critical as it will ensure Nigeria’s ability to meet the new crude oil production quota for January 2024, which is 2.2 million barrels a day.

As of the end of October 2023, the statistics from the Nigerian Upstream Petroleum Regulatory Commission showed the country’s crude oil production was at 1.5 million barrels a day.

President Bola under Pressure to Deliver

This oil production trajectory needs to be maintained to fulfill President Bola Tinubu’s campaign promise to revive the economy and expand it by at least 6% every year. President Tinubu’s few months of leadership have been under heavy scrutiny by Nigerians as he began by making ‘necessary sacrifices’ such as putting an end to fuel subsidies.

Nigerians have been heavily impacted by the subsequent rise in the cost of living after the fuel subsidies that have been in place for nearly 50 years were scrapped under the new administration. Even worse, the Naira has been on an all-time low recently when it hit the 1,000 mark against the dollar in the black market.

President Tinubu’s government cited that keeping fuel prices extremely low through subsidiaries has forced the country into debt and cost the state billions of euros.

For the past five months, Nigerians have had to relook at their spending habits and realign their budgets due to the soaring costs of petrol, food, and transport. However, as the year comes to an end, the strides made by the government in the oil sector have revived hopes for the better days promised by the president.

The signed MoU with Saudi Arabia is a green light that the country is headed in the right direction, and possibly sooner rather than later, this economic crisis will be a thing of the past. This will be especially good news for the almost 40% of Nigerians who live below the poverty line.

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