As the international oil market’s volatility continues unabated following the lingering COVID-19 pandemic, Nigeria and other oil producing countries in Africa have been advised to develop fiscal regimes that ensure fair treatment for the state without burdening companies with unreasonable obligations on top of their project risks, local content requirements, and the expenses associated with exploration and production such as rig and labor costs in order to grow.
Executive Chairman, African Energy Chamber, NJ Ayuk, in his Opinion Article distributed by African Press Organisation (APO) Group on Wednesday, prescribed the move as the preparatory panacea to the current economic crisis the oil producing countries are contending with as the future of the oil and gas industry becomes increasingly unpredictable.
Specifically, the industry expert listed some of the key fiscal options open to such African countries with oil and gas reserves as including the need to take a close look at the systems they have in place to determine how extractives revenues are shared among companies and the government.
He pointed out that these could include royalty requirements (money paid to governments for the right to extract and sell their resources), taxes, production-sharing agreements (which determine how extracted resources are split between governments and oil companies), bonuses, and similar mechanisms.
According to him, unless the oil producing countries give local and international companies a fair chance to profit, production activity will decline.
Ayuk noted that in recent decades, the future of the global oil and gas industry had been a subject of great fascination and debate, adding that since COVID-19 surfaced, there has been even more conjecture on this topic and, in particular, the most likely timing for “peak oil,” when crude production reaches its maximum rate before going into permanent decline.
He explained: “Predictions run the gamut: OPEC’s latest World Oil Outlook, for example, forecasts increasing oil demand for two more decades. But the International Energy Agency stated in its 2020 World Energy Outlook report that demand for oil probably will plateau after 2030. And the 2020 energy outlook from BP states that the world has already passed peak oil and predicts even greater drops in demand as countries comply with carbon dioxide abatement measures.
“While no one can pinpoint exactly how the energy industry will evolve, or when major changes will unfold, it makes sense to assume that decreased demand will occur at some point — and to prepare for the new era that follows”, the AEC boss added.
Ayuk recalled that as the Chamber’s recently released 2021 Energy Outlook notes, “African nations with petroleum resources will most likely have to adapt their fiscal regimes similar to how other nations have adapted them in light of the new era with more supply and less demand. Failing to do so can lead to stranded resources and outcompeted resources.”
The African Energy Chamber has said since it was founded that African countries with petroleum reserves must adopt competitive fiscal regimes to promote thriving oil and gas operations.
He canvassed that in the COVID-19 era and the years that follow, a wise approach to fiscal regimes will be even more important.
Without them, indigenous companies will struggle to launch new projects, and international oil companies (IOCs) will choose other, less financially onerous locations for their upstream activities.
“If that happens, African countries miss out on invaluable opportunities to harness oil and gas to grow and diversify their economies, to minimize energy poverty, and to create a better future for Africans. That’s why countries that haven’t fine-tuned their fiscal regimes must start now. They have plenty of strong examples to look to”, the industry expert added.