As oil prices reach record highs, many Nigerians would expect their country to be raking in billions of dollars and accumulating external reserves, as has been the case in the past, particularly during the Gulf War and other international emergencies. Regrettably, this is not the case.
The price of crude oil hit $139 per barrel on Monday, but Chief Timipre Sylva, Minister of State for Petroleum Resources, recently stated that the country would be content with a price range of $70 to $80 per barrel.
According to analysts, the reason for this unusual wish is the country’s large fuel subsidy payment and complete reliance on imported petrol to meet domestic consumption.
Furthermore, there is the issue of waning investment in the oil sector, as well as massive oil theft, which has gone unabated in recent years and drastically reduced Nigeria’s crude oil export, resulting in the country’s inability to meet its OPEC quota. These factors have conspired to ensure that the country does not benefit from the current surge in crude oil prices, which has been boosted by the Russia-Ukraine conflict.
According to OPEC data, Nigeria’s rig count has fallen from 11 in September to nine in October 2021 in terms of growth. This deteriorated after Nigeria began shutting down many of its offshore platforms as oil prices fell and the producers’ group implemented production cuts to stabilize the market.
In the oil industry, the rig count is a key indicator for measuring upstream activity.
According to a recent THISDAY review, Nigeria was producing far less oil than it did 25 years ago, when the estimated population was lower than it is today and government spending was far lower than it is in 2022.
A comparison of the country’s average oil production per day in 1997, as reported in the NNPC’s annual statistical bulletin, revealed that while Nigeria pumped 2.344 million barrels per day, plus condensates, over two and a half decades ago, it can only produce 1.4 million this year.
Furthermore, while 26 rigs were in operation on both onshore and offshore terrains in 1997, Nigeria had only about 12 active oilrigs as of January this year, with roughly half of them not in use.
To emphasize the gravity of the situation, Mrs. Zainab Ahmed, Minister of Finance, Budget, and National Planning, recently lamented that the rise in crude oil prices had widened the country’s budget deficit even further.
Yesterday, the price of Brent crude stood at $112.43 per barrel, while the price of West Texas Intermediate (WTI) crude in the United States rose 63 cents to $109.33 per barrel.
However, President Muhammadu Buhari recently requested that the National Assembly approve a total of N2.557 trillion for the federal government to fund fuel subsidies in 2022, following the suspension of the current administration’s plan to eliminate monthly under-recovery. With international crude prices skyrocketing, this could be exceeded.
Due to a lack of funding for major upstream infrastructure, existing assets are constantly failing. As a result of maintenance and force majeure declarations at the Forcados terminal and others in January, this has resulted in the highest single-month crude oil loss in a long time.
Shubham Chaudhuri, Country Director of the World Bank, recently stated that Nigeria’s decision to postpone full deregulation of the downstream sector of the petroleum industry by 18 months may cost the country more than N4 trillion in petrol subsidy payments in 2022. Chaudhuri contended that for a purely economic phenomenon, Nigeria was not meant to make a political decision, and that deferring the subsidy removal will cost the country financially.
With the current surge in crude oil prices, Nigeria could be paying as much as N300 as a subsidy per litre of petrol sold at the pumps.
NNPC Limited recently disclosed that it spent N173.488 billion more than the N36.893 billion budgeted for petrol subsidies in January.
