declining crude oil value – Nigeria
being a crude oil-export dependent
economy is subjected to volatility
within the crude oil industry as well as
the existing downward trends in the
industry continues to have an impact
on Nigerian economy badly.
The National Assembly has reviewed downward twice
the crude oil benchmark in the 2015 price range.
Nigeria initially pegged the crude oil benchmark at $ 78
per barrel, but when the crude price fell beneath $ 100
per barrel in November from a record high of 4130 per
barrel in June 2014, the crude oil benchmark was
reviewed to $ 65 per barrel.
Nevertheless, further decline to significantly less than $
50 per barrel in January resulted into debate on whether
or not to lessen it once more to between $ 40-$ 45 per
barrel.
Challenges confronting the oil and gas market in
Nigeria: Unprecedented crude oil theft
In 2013, the Minister of Finance and Coordinating
Minister of the Economy, Dr. Ngozi Okonj0-Iweala,
stated that the nation was losing 400000 barrels per day
to crude theft. But in 2014, this is at present place at
150000 barrel per day in spite of efforts by the Nigerian
military to arrest the situation. Lately, the Amnesty
International also decreased pipeline vandalism,
specifically on Trans Forcados line, compared to when it
was at the peak in till 2014.
Poor policy formulation and implementation
Petroleum policy has not been coherent due in
component to frequent alter of important officials.
Given that the Nigerian National Petroleum Corporation
(NNPC) was established 38 years ago, it has had 16
Group Managing Directors (GMDs). In 30 years, from
1977-2007, there were nine GMDs. Amongst 2010 till
date, there were 5 GMDs.
The Directorate of Petroleum Sources (DPR) has had
equivalent higher personnel turn-over. Six DPR Directors
in seven years. This surely is not a recipe for coherent
policy producing or implementation.
Ageing assets and poor funding are one more set of
challenges confronting the oil market. Lack of
investment primarily based on Joint Venture (JV)
structure and the inability of the NNPC, constrained by
price range limitation, to usually meet its monetary
obligations to the JV for replacement of ageing and
dilapidated assets, especially pipelines and depots a lot
of of which have lengthy passed their 'shelf-life'.
What Nigeria can benefit despite the challenges
Despite the challenges of crude cost volatility, Nigeria, if
the right policy can be formulated, can nonetheless take
benefit of the situation.
Speaking for the duration of a symposium organised by
oil and gas stakeholders for the 80th Birthday of the 1st
Managing Director, NNPC, Chief Francis Marinho, the
Chief Executive Officer, Seplat Plc, Mr. Austin Avuru,
argued that the Federal Government ought to appear
inward to take advantage of the situation.
According to him, "We must try and look inwards and
accept the truth. Federal Government and its agencies
should withdraw from the sector. They need to restrict
themselves to correct revenue collection.
"Management of revenue for the interest of this and
future generations and hand over the management and
operation of the industry to the private sector
fortunately now being led by indigenous sector."
Deregulation and privatisation of the refineries
Avuru posited that it has been predicted that by 2020,
Nigeria will accomplish one million barrels per day
(bpd) refining capacity.
"The prediction to have a single million barrels per day
refining capacity will be achieved by the indigenous
sector. Dangote is starting with 500000bpd refinery.
"When the NNPC has the courage to sell the refineries,
these that will purchase them will expand the capacity
and will almost certainly have the 1 million bpd
production all led by the private sector by 2020.
"The upstream if we are refining half of our production,
we are very best capable to absorb the subsequent
shock from low oil costs when the next cycle comes. It is
always in cycle and we will soon get out of this a single.
The downstream handed more than, the midstream we
are investing heavily in gas distribution for power.
"When the NNPC finishes the enterprise of offering gas
infrastructure, they must be handed more than to the
private sector otherwise we will endure the fate of
current crude oil distribution infrastructure which does
not function today," he stated.
He tasked the Federal Government on successful
management of resources. "The NNPC need to turn out
to be an effective income collector for government and
government itself should have the courage to handle the
resources efficiently.
"Recognising that the oil and gas business and revenue
from it are catalyst for re-improvement and not the lead
to of improvement itself. If we do this, then we can save
component of these income for the rainy day and
strategy well. We can see this in the manufacturing
sector where Dangote has shown with cement that it is
not a rocket science. We are now steadily beginning to
show that indigenous participation in the upstream
coupled with indigenous driver in the downstream will
be the future catalyst for our industry so that we hold
the income here hold the investment right here and we
will have a healthier nation post 2020," he concluded.
Saving for the rainy day
On his component, Prof. Pat Utomi argued that the
Federal Government ought to commence to save for the
rainy by bench-producing the crude price in the annual
spending budget at $ 40 per barrel.
He stated that anything above the $ 40 per barrel ought
to be saved into Sovereign Wealth Fund (SWF) which is
presently place at $ 500million when evaluate to that of
Norway which has a GDP of $ 512billion with a SWF of $
893billion Qatar with GDP of $ 203billion has SWF of $
256billion and Saudi Arabia with GDP $ 748billion has
SWF of $ 762billion.
Moreover, he mentioned if this can carried out, the
Government will be compelled to explore option sectors
for income generation as an alternative of sole reliant on
crude export for foreign exchange earnings.
To summarize all that was stated by stakeholders above,
it will favour the nation in the long run if Nigeria can be
self-reliant by ensuring that only processed petroleum
goods is exported from the nation.
This can be achieved if the oil market is completely
deregulated, far more refineries come on stream and
further value is developed along the worth-chain.
The Managing Director, Nigeria NLG, Babs Omatowa,
stated in his remarks at the above symposium that the
oil business could have carried out a lot far better if it
has had a bill (PIB) which it could not even agree in one
particular word. "To have submitted a bill for ten years
and nothing at all is forthcoming is not a issue we all
should be proud of. We have lost the trust in between
the IOCs and the NOCs and this does not augur properly
for financial development," he remarked.
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