On August 16, 2021, the president signed the Petroleum Industry Act, 2021 (PIA) into law, 13 years after it was introduced as a bill. Previous attempts failed to reach agreement on terms that satisfied various industry stakeholders. The PIA replaces several outdated oil laws and targets improved governance, transparency, and efficiency in the sector—Nigeria’s main source of export earnings. It aims to reverse a longstanding decline in oil and gas investment and production. The PIA’s key provisions include replacing the state-owned oil firm with a profit-driven company and creating two regulators for the upstream sector and the midstream and downstream sectors.

Our View

The Petroleum Industry Act is a step in the right direction for oil and gas and the wider economy. However, during next six months, as changes are made in the background, oil developments will remain led by global prices and local production. Beyond that, a more profit-driven national oil firm should help eliminate the organization’s costly fuel-import subsidies that drain fiscal resources, and the separation of operations and regulation will help counteract corruption, increasing efficiency. However, Nigeria’s weak institutional capacity means the PIA is unlikely to fully deliver on its aims. Additionally, a new global shift toward greener energy production means Nigeria’s sluggishness to adopt the PIA may have cost it the chance to transform the sector in time to benefit substantially from a functional oil market. Also, it is likely that grievances around compensation deemed to be too low will trigger a resurgence in unrest in the oil-producing Niger Delta—leading the government to address this through protracted negotiation. Nonetheless, our base case is that the PIA will modestly but noticeably boost the sector and broader demand growth in 2023 and onward.

Business Implications

While most companies are unlikely to see a meaningful change in opportunities, firms should track oil and gas-related investments that may be announced as a result of the Petroleum Industry Act and, where possible, assess scope to supply industry players. Still, monitor sentiment in the Niger Delta, with particular focus on the threat of militancy that may stifle oil output and government revenues or create ad hoc route-to-market risks.

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