The Minister of State for Petroleum Resources, Timipre Sylva, yesterday, said the increase in prices of crude oil was not in the best interest of Nigeria.
Reacting to the rising prices of crude, including Brent, which rose to $103.33 from $96 per barrel in the global market, the minister said Nigeria would be comfortable with prices ranging between $70 and $80 per barrel.
Specifically in an interview with Bloomberg Television, monitored by Vanguard, he said: “I’m hopeful the prices will move around, maybe $80, maybe $70. We are hoping it will come down to somewhere around $70 to $80, which will be sustainable for us to the end of the year.”
In 2021, the nation had agreed to voluntarily cut its daily crude oil production by 939,000 barrels between January and March, after a meeting with the crucial meeting of the Organisation of Petroleum Exporting Countries, OPEC, and its allies.
According to him, the inability of Nigeria to activate the oil wells it shut down when OPEC instructed producing countries to cut production as well as the lack of investment in the upstream sector are affecting the nation.
He said: “We are working hard on that (production increase). What happened to us was the fact that we had to cut back at the time, and, of course, in such a way you can’t cut back mathematically.
“So, you want to cut back 100,000 barrels that you shut out, maybe we’ll shut down about 200,000 to 300,000 barrels. So, at the end of the day, we over-complied because we just couldn’t achieve it mathematically.
“In trying to cut down, we cut down too much. And now to come back, it’s not been easy for us to get the wells back to production.”
He said, a lot of additional investments would be needed to ramp up production, but lamented that foreign funding was drying out for the industry.
Experts react
Reacting to the development, Energy Partner at Bloomfield Law Practice, Ayodele Oni, explained that the rising crude oil prices had positive and negative implications for Nigeria.
He said: “The positive aspect is that our revenue increases. Looking at the crude oil benchmark in Nigeria’s budget, it is obvious that we will earn much more than we expected but the setback is that we are not refining crude in-country at the moment, as the four refineries are still under rehabilitation.
“With this situation, we will spend more on importation of refined products and the subsidy payment will also increase substantially which is a big problem for us. This development will affect our income, revenue and also increase our expenditure.
“This rising crude oil price is more disadvantageous than advantageous to Nigeria because we do not refine locally. If we are refining sufficiently locally it will be a blessing to us.”
Concerning the pricing, Oni stated that he foresaw crude oil price rising further to $115 per barrel, but noted that it would still drop to $80 or below.
On his part, a consultant at BL&C Limited, Bode Longe, said: “This is positive for us as a country, considering the oil benchmark figure, and the actual price of crude in the international market. This is supposed to increase the Excess Crude Account, ECA, savings account.
“The ECA operates in a way that, if the actual oil revenue is greater than the budgeted oil revenue, we save to the ECA, but if the actual oil revenue is less than the budgeted oil revenue, we withdraw from the ECA.
“The slight challenge is, rather than follow through the deregulation of the PMS market from February 1, 2022, the government seems to have backed and pushed the implementation of the petroleum industry Act, PIA, for another 18 months.
“The real challenge is that the savings which we would have gotten from the higher price of crude will be frittered away in terms of subsidy payment, since NNPC has proposed N3 trillion for subsidy support.
“While the better thing to have done is to bite the bullet and deal with this subsidy issue once, so we can actual create foreign reserve to support us when oil price drops again, but as usual the government doing things the way it does, we are going to fritter it away into subsidy payment and when the oil price plunges, we are back again to where we are.”
Shell explains drop in output
In its briefing notes obtained by Vanguard, Shell Companies in Nigeria, SCiN, attributed the nation’s dwindling output to two major factors – Coronavirus pandemic and the restriction of OPEC.
Specifically, it stated: “Production in Nigeria was hit by the pandemic and OPEC quota reductions imposed in response to the global economic slowdown.
“Output from the SPDC JV and SNEPCo in 2020 fell from record highs of 2019 but, at around 620,000 barrels of oil equivalent per day, remained close to the 5-year average of 625,000.”
Source: Vanguard
