The Trinity Spirit, a floating oil production and storage vessel, exploded and sank off the coast of Nigeria on Thursday. Ten crew were on board, their fate so far unknown. The disaster is emblematic of the country’s struggling oil and gas industry. Yet Nigerians’ own entrepreneurial energies could offer a way out.
The Trinity Spirit was operated by local company Shebah Exploration and Production. Its processing capacity of 22,000 barrels per day seems to have been unused in the last two years, and it is unclear how much of the ship’s two million barrels of storage was actually filled at the time of the accident. Shebah is in receivership owing to inability to discharge its debts, and the production licence appears to have been in the process of revocation.
Nigeria matters. Its 213 million people is by far the largest population in Africa. The continent’s leading economy, it has diplomatic, military and cultural heft throughout west Africa. It is also Africa’s biggest producer of oil, and the largest in Opec outside the Middle East, the sixth-largest overall.
The core Nigerian problems are manifold and long-running. Corruption and lopsided reliance on oil has stymied broader economic development. Petroleum accounts for a moderate 5.8 per cent of gross domestic product, but makes up 80 per cent of budget revenues and 95 per cent of export earnings.
Output has slipped jerkily since 2010. Now Nigeria and Angola are the countries struggling the most to reach their Opec+ production targets. Although Lagos' allocation rose last year, Nigeria's production fell to less than 1.5 million bpd in December, well below the 1.7 million bpd it would now be allowed.
Conflicts with local communities, sabotage, pollution and attacks from armed gangs hurt onshore operations – 150,000 bpd of oil, worth almost $5 billion annually at current prices, are siphoned off. The government vacillates between violent oppression and pay-offs, which keep things quiet but are expensive and fill the militias’ coffers.
The 16-gigawatt electricity capacity nationwide is barely more than the emirate of Abu Dhabi, and less than half is operational because of a lack of gas fuel. Perversely, flaring of unwanted gas remains a massive problem: Nigeria is the seventh-largest offender globally. Even this represents a major improvement, down 70 per cent on levels early this century.
Along with pollution, corruption, insecurity and legal and fiscal uncertainty, the high carbon footprint because of flaring will be a growing burden on the competitiveness of Nigerian oil. African rivals such as Ghana, Senegal, Mozambique and Uganda have attracted far more foreign petroleum investment since 2015.
International companies have been leaving the onshore and shallow-water. Shell Petroleum Development Company (Nigeria) was for long one of the company's core global assets, where generations of local and foreign staff won their spurs. Production began even before independence in 1960.
Now the UK super-major is selling its 30 per cent stake, potentially worth $4bn, the culmination of a decade-long process of shedding most of its Nigerian presence. Four local companies, including the largest indigenous producer Seplat, are likely bidders. Seplat has also said it is in discussions to buy ExxonMobil’s shallow-water assets. In May, 57 marginal fields were auctioned by the government, with 161 locally-based bidders.
The transfer of ownership is a mixed blessing. On one hand, some buyers are financially or technically incapable. Shebah’s accident followed a blowout in November from a well owned by Aiteo Eastern, another indigenous producer, which spilled oil and gas for five weeks. As in jurisdictions such as Ecuador, claims for pollution clean-up and decommissioning costs may haunt the departing super-majors for decades.
On the other hand, local companies may invest more intensely in new production, handle community relations better and develop more Nigerian skills and employment.
International companies are not leaving entirely: Shell, TotalEnergies and Eni retain their stakes in Nigerian Liquefied Natural Gas, which started construction on a seventh export unit in June, crucial for a hungry global market. The country met 10 per cent of Europe’s LNG imports in 2020.
And Shell, ExxonMobil and others are still important players in deepwater fields, whose distance from the coast protects them to a degree from the sabotage and militancy onshore.
After a two-decade saga, the Petroleum Industry Act (PIA) finally passed last year. It contains a mix of good and bad provisions. It regularises payments to host communities, while requiring that they protect oil infrastructure in their territory. Companies will be penalised for pollution and flaring.
The loss-making Nigerian National Petroleum Corporation (NNPC) is restructured, turned into a commercial entity, which can raise its own financing, and mandated to explore the country’s frontier areas.
The streamlined taxation system should finally give certainty to restart deepwater exploration and development. This is still among the most promising areas in the world and crucial to any hopes of reaching Nigeria’s targeted three million bpd capacity.
In May, Shell approved the long-delayed Bonga South-West field, which would yield 150,000 bpd. But it has just emerged that tenders for a production vessel are on hold and may not proceed until 2024.
Mohammad Barkindo, a former leader of NNPC, is now just bowing out after six years as Opec secretary general. Nigeria has long been a crucial player and the leading African voice within Opec. Now, it is one of the countries most exposed to a potential decline in oil demand and to stricter global climate policy. Production will keep declining for some time before any turnaround.
The process of the PIA and the NNPC restructuring has been messy and remains unclear. The development of a truly capable indigenous sector onshore is also tangled and incomplete, as the Trinity Spirit disaster illustrates. But there are some signs for optimism that the country can finally build on its great natural and human resources.
Robin Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis
COMPANY%20PROFILE
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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MATCH INFO
Champions League quarter-final, first leg
Manchester United v Barcelona, Wednesday, 11pm (UAE)
Match on BeIN Sports
Tour de France
When: July 7-29
UAE Team Emirates:
Dan Martin, Alexander Kristoff, Darwin Atapuma, Marco Marcato, Kristijan Durasek, Oliviero Troia, Roberto Ferrari and Rory Sutherland
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Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Spain drain
CONVICTED
Lionel Messi Found guilty in 2016 of of using companies in Belize, Britain, Switzerland and Uruguay to avoid paying €4.1m in taxes on income earned from image rights. Sentenced to 21 months in jail and fined more than €2m. But prison sentence has since been replaced by another fine of €252,000.
Javier Mascherano Accepted one-year suspended sentence in January 2016 for tax fraud after found guilty of failing to pay €1.5m in taxes for 2011 and 2012. Unlike Messi he avoided trial by admitting to tax evasion.
Angel di Maria Argentina and Paris Saint-Germain star Angel di Maria was fined and given a 16-month prison sentence for tax fraud during his time at Real Madrid. But he is unlikely to go to prison as is normal in Spain for first offences for non-violent crimes carrying sentence of less than two years.
SUSPECTED
Cristiano Ronaldo Real Madrid's star striker, accused of evading €14.7m in taxes, appears in court on Monday. Portuguese star faces four charges of fraud through offshore companies.
Jose Mourinho Manchester United manager accused of evading €3.3m in tax in 2011 and 2012, during time in charge at Real Madrid. But Gestifute, which represents him, says he has already settled matter with Spanish tax authorities.
Samuel Eto'o In November 2016, Spanish prosecutors sought jail sentence of 10 years and fines totalling €18m for Cameroonian, accused of failing to pay €3.9m in taxes during time at Barcelona from 2004 to 2009.
Radamel Falcao Colombian striker Falcao suspected of failing to correctly declare €7.4m of income earned from image rights between 2012 and 2013 while at Atletico Madrid. He has since paid €8.2m to Spanish tax authorities, a sum that includes interest on the original amount.
Jorge Mendes Portuguese super-agent put under official investigation last month by Spanish court investigating alleged tax evasion by Falcao, a client of his. He defended himself, telling closed-door hearing he "never" advised players in tax matters.
Details
Through Her Lens: The stories behind the photography of Eva Sereny
Forewords by Jacqueline Bisset and Charlotte Rampling, ACC Art Books
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
