CERAWeek 2014 - Ministerial Address - Session Report

IHS Vice Chairman Daniel Yergin welcomed the Minister of Petroleum Resources for Nigeria and Alternate President of OPEC, Diezani Alison-Madueke, to IHS CERAWeek to give the Tuesday Ministerial Address. Minister Alison-Madueke outlined the global context for oil markets, highlighting that because demand for oil is correlated closely with macroeconomic growth rates, factors such as population growth, government austerity measures, currency rate fluctuations, and fiscal concerns (such as credit risk) are all uncertainties that the oil industry faces and that directly influence oil production, particularly in developing countries.

Minister Alison-Madueke said that she welcomes measures that underpin development, in particular the use of indigenous resources to develop key sectors such as industrial and power generation within developing countries. She expects that oil production from OPEC countries will be required to meet the needs of the global market, as tight oil production outside of North America will be limited. The instability in the Middle East and parts of Africa will therefore continue to influence world oil prices, she said.

She emphasized in her speech and again in the question and answer session that in some oil-producing countries, unrest, kidnapping, and pirate attacks are particularly problematic and are becoming commonplace in some areas. As an example, she said that in the past three years Nigeria has reported oil theft on the order of 100,000 to 300,000 barrels per day-larger than the production of some small countries.

She said that solving this problem will require international cooperation to track and recover illegal money from these activities. Internationally binding legal frameworks are essential to this approach, as is the involvement of international energy and financial communities.

Her final key message was the significance of reform in developing countries to ensure that the population as a whole can benefit from the country's resources. As an example, she highlighted the petroleum industry bill in Nigeria- now in the national parliament and out of ministerial control-which aims to make the industry more transparent and accountable and to create an independent regulator. The proposed legislation will give investors more clarity on expected returns, which is essential in an increasingly competitive environment, she said.

She noted that a key objective of the bill is to provide a major income stream for local communities. As international companies have moved offshore and divested more of their onshore assets, she said, this has given indigenous marketers and operators a good opportunity. When asked about the impact of US production on Nigeria's sales to the United States (historically a key market), she said that in response to lower demand from the United States, Nigeria has have created new partnerships with other countries, including China and India.

Minister Alison-Madueke said that Nigeria also intends to unlock significant gas reserves in order to diversify from overreliance on oil. She said this would also help grow the local economy by allowing the development of facilities such as chemical plants and the associated supply chains to help money reach Nigeria's population of 167 million and improve their standard of living. The local content act has promoted indigenous industry, and as a result major knowledge transfer is taking place (for example in fabrication and manufacturing), a trend that the Nigerian government strongly supports.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.