Deepwater gains traction as multibillion-dollar projects stall — Energy — The Guardian Nigeria News – Nigeria and World News

Despite the global resurgence in deepwater oil exploration and production, Nigeria’s oil sector faces a paradox as multibillion-dollar projects, which hold vast potential for the country, remain stalled years after being proposed.

While exiting the shallow water in Nigeria, most International Oil Companies (IOC) are investing heavily in deepwater exploration, particularly in other African countries to secure future resources but they continue to overlook Nigeria.

A new report by Wood Mackenzie on the outlook of deepwater exploration spotlighted Africa as a major gainer in the sub-sector. Wood Mackenzie indicated that exploration remains more cost-effective than mergers and acquisitions, with breakeven prices averaging $45 per barrel compared to $65 for acquisitions. High-impact exploration since 2015 has generated over $160 billion in value after costs, with yearly returns averaging 15 per cent.

In Nigeria, Shell, ExxonMobil, Eni, and other major players have substantial investments planned, but progress has been hindered by delays in final investment decisions (FIDs), bureaucratic bottlenecks, and challenges in Nigeria’s energy sector.

Shell Nigeria’s Chairman, OsagieOkunbor, recently reaffirmed the company’s commitment to resolving the impasse on the Bonga North deepwater field and the HI and HA gas fields, with FIDs anticipated in 2024 but the decision may be elusive.

These projects, which could yield 350 million barrels of oil, symbolise broader industry challenges in Nigeria. For instance, the Zabazaba oil field, slated for an FID in 2017, remained in limbo. Other projects, such as ExxonMobil’s Bosi and Owowo West fields, Shell’s Bonga Southwest Aparo, and Eni’sEtan-Zabazaba, have seen their timelines pushed to the late 2020s or early 2030s.

Amidst the struggle for oil production in Nigeria and the import of crude oil by local refiners, these projects represent billions of barrels of oil equivalent and critical opportunities for Nigeria’s economy, especially the crisis faced with a shortage of foreign exchange.

Globally, WoodMac noted that oil exploration is transforming, with high-impact deepwater projects emerging as the focus for major companies. Advancements in technology have enabled successful drilling in ultra-deepwater basins previously considered geologically challenging. Breakthroughs in locations such as Guyana, Namibia, and Uruguay demonstrate the viability of finding low-cost, low-carbon oil and gas reserves in water depths exceeding 2,000 meters.

ExxonMobil’s discovery in Guyana in 2015 and subsequent finds in Namibia’s Orange Basin by Shell and TotalEnergies in 2022 have created significant momentum.

These successes are reshaping exploration strategies, with companies targeting basins along the southern Atlantic margin, including areas in Namibia, Angola, Cote d’Ivoire, and Liberia.

WoodMac noted that discoveries are essential to meet global demand and ensure energy security during the slow transition to renewables. It added that deepwater exploration offers the potential for low-carbon barrels that align with economic and environmental goals, making it an attractive investment despite public scepticism about oil exploration.

With the time it takes for exploration and production efforts to yield results, Nigeria may continue to count missed opportunities in the coming years as most oil fields are stranded and major investments in deepwater are also slow.

With this, Nigeria risks falling behind global progress due to project stagnation, among others. ExxonMobil’s Bosi project, holding 795 million barrels of oil equivalent, now has an FID planned for 2028, with operations to begin by 2032.

Similarly, the Bonga Southwest Aparo project by Shell, with a capacity of 630 million barrels, will see its FID delayed to 2026. Eni’sEtan-Zabazaba and ExxonMobil’s Owowo West projects face similar setbacks, leaving Nigeria unable to capitalize on these lucrative opportunities.

Recently, oil output from the Production Sharing Contracts (PSCs) fell to a record low of 34 per cent within 12 months.Oil and Gas Report by the Nigeria Extractive Industries Transparency Initiative (NEITI) for 2021, showed that only 12 of the PSC blocks recorded production, while 23 other blocks, representing 66 per cent of the total number of PSC blocks, were without output.

Experts pointed to multiple barriers, including regulatory uncertainty, lack of infrastructure, and delayed reforms in the Petroleum Industry Act (PIA). These hurdles, coupled with security concerns in the Niger Delta, have deterred investments and prolonged project timelines. With more borrowing, rising inflation and unemployment, developing these projects could bolster the country’s energy sector, attract foreign investments, and create jobs, but delays mean Nigeria risks losing competitiveness in a rapidly evolving global energy landscape.

WoodMac noted that profitability is driving the interest of major oil companies and national oil corporations, which dominate exploration activities.

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