Oil firms fail to invest despite strong profits – NESG

Nigeria’s petroleum sector recorded a sharp slowdown in economic growth in the first half of 2026 despite maintaining relatively stable crude oil production, as inadequate electricity supply and economic uncertainty emerged as major constraints to businesses operating in the industry.

The development highlights the growing disconnect between production performance and the wider economic contribution of the oil and gas sector, with businesses reporting strong profitability, healthy cash flows and improved access to credit but failing to translate the favourable conditions into fresh investments.

The findings are contained in an energy sector report released by the Nigerian Economic Summit Group titled, “From Crude Extraction to Value-Added Petroleum, which examined the industry’s performance, business conditions, investment outlook and emerging opportunities.

Our correspondent obtained the report on Friday. According to the report, real growth in the crude petroleum and natural gas sector slowed to 2.6 per cent in the first half of 2026, compared with 10.7 per cent recorded in the corresponding period of 2025.

The slowdown came despite crude oil production averaging 1.63 million barrels per day in the first half of 2026, slightly below the 1.68 million barrels per day recorded in the corresponding period of 2025 but above the 1.53 million barrels per day recorded in 2024.

The report indicated that the moderation in economic growth was not simply a reflection of declining crude production but was also associated with a changing composition of Nigeria’s petroleum exports.

It noted that the country’s petroleum export structure was gradually shifting away from crude oil towards non-crude petroleum products, a development that coincided with the Dangote Petroleum Refinery’s transition to full operations.

Crude oil’s share of Nigeria’s total exports declined from 71.4 per cent in 2024 to 55.7 per cent in 2025 and further to 52.9 per cent in the first half of 2026.

In contrast, the share of non-crude oil exports increased from 16.9 per cent in 2024 to 29.8 per cent in 2025 and 32 per cent in the first half of 2026.

The report identified the full operation of the Dangote refinery as an important factor behind the changing export structure, although it cautioned that the available figures did not establish how much of the shift represented additional domestic value addition as against changes in export composition.

The changing pattern signals a gradual departure from Nigeria’s longstanding dependence on exporting crude oil while importing much of its refined petroleum requirements.

However, the report stressed that the transition must be supported by increased investments in refining, gas processing and other supporting infrastructure if the country is to retain more economic value from its petroleum resources.

The report said, “Nigeria’s petroleum exports are shifting from crude towards refined products, consistent with the Dangote refinery reaching full operation. Sector growth has slowed sharply even though crude production has held steady. Firms are in the sector profitable, liquid and have good access to credit, but they are not investing. That weakness stands out in such a capital-intensive sector. Inadequate power supply has become the leading constraint, which is striking for the energy sector itself. Economic uncertainty follows closely.

“Despite the moderation in macroeconomic sector growth, energy-sector businesses continue to report expansionary operating conditions. The Overall Business Conditions Index increased from 93.5 in 2024 to 113.2 in 2025 and remained at 108.6 in H1-2026.

The strongest current indicators are profitability, cash flow and access to credit: the Operating Profit Index reached 119.3, Cash Flow remained strongly expansionary at 130.5, and Access to Credit stood at 120.9. Investment, however, remains a significant weakness. The Investment Index declined from 95.7 in H1-2025 to 92.7 in H1-2026, remaining below the 100 benchmark, particularly notable given the sector’s capital intensity.”

Beyond the changing export structure, the report raised concerns about the industry’s investment performance despite improvements in the financial position of businesses.

The Overall Business Conditions Index for the energy sector stood at 108.6 in the first half of 2026, above the benchmark of 100, which separates expansion from contraction.

The index had risen from 93.5 in 2024 to 113.2 in 2025 before moderating in the first half of 2026.

Several indicators showed that businesses were operating in relatively favourable financial conditions. The Operating Profit Index stood at 119.3, while the Cash Flow Index reached 130.5. Access to Credit also remained strong at 120.9.

These figures indicated that companies were generally profitable, had sufficient cash flow and could access financing.

However, investment remained a major weakness, with the Investment Index declining from 95.7 in the first half of 2025 to 92.7 in the first half of 2026, remaining below the neutral benchmark of 100.