How Nigeria can take advantage of 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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