Why Nigeria’s oil is losing relevance
One of the most common platitudes held by Nigerians is Nigeria is a major competitor in the international oil markets. The seat at the Organization of Petroleum Exporting Countries meetings and the fact that it is the country’s largest revenue-generating natural resource usually compensate for this belief.
But in essence, recent events have shown that Nigerian oil in the global oil market is the equivalent of a bench player in a star-studded team.
Physical oil traders would tell you how sellers of Nigerian crude find it difficult to compete in a crowded light sweet crude market. Little wonder, when the oil market was oversupplied, Nigerian cargoes were floating looking for buyers in Europe as Asian buyers shunned the product.
Paper traders or oil speculators would tell you how events that affect Nigerian oil rarely spike oil prices. Militancy in the oil regions and pipeline leakages in Nigeria does not influence oil prices like an attack on Saudi oil facilities.
A more recent damning evidence of Nigeria’s oil position is how they have failed to meet up to their production quota for months now. Interestingly, when few Nigerian economic experts advise Nigeria to leave the OPEC cartel so they can have the carte blanche to produce more for her economic interests, it is yet to contemplate exiting the organization like Ecuador, Qatar and Indonesia did.
But could it be because Nigeria cannot produce optimally?
Given the impasse between Russia and the Western world, Nigeria might have been approached like Venezuela by the United States to contribute more to the oil market to cover the gaps in oil supply.
But is Nigeria capable? Venezuela has over 300 billion barrels in oil reserves, Nigeria has 37 billion barrels worth and the United States has 36 billion barrels worth in reserves. But in terms of production capacity, the United States produces over 4 to 5 times more than both countries combined, highlighting how investment in drilling technology and infrastructure helps in revenue-generating output.
Moving further, Nigeria produced 1.5 million barrels per day in February – a hundred thousand of barrels below their daily production quota of over 1.8 million barrels per day.
In comparison, Saudi Arabia produced 10.1 million barrels per day, Russia produced 10.05 million barrels per day, Iraq produced 4.25 million barrels per day, Iran 2.54 million barrels per day, and UAE 2.95 million barrels per day. All significantly double or higher than Nigeria.
Policymakers need to drive new investment into Nigeria’s oil reserves. Nigeria has an abundance of oil reserves – the tenth-largest in the world. The objective should be how to maximize these reserves to improve her daily production capacity and compete.
The 4 million per day target set for the year 2025 now looks unrealistic with current planning and developments. In 2010, they also targeted producing 4 million barrels per day at a time when output peaked at 2.5 million barrels per day making it over 10 years since Nigeria produced 2 million barrels per day.
The production capacity trajectory has steadily declined with International oil companies leaving the oil environment berating a lot of issues stretching to recurring oil theft and spiking production costs.
The truth is that what really has affected Nigeria’s oil can be pointed to theft, dwindling spare capacity, underinvestment, and infrastructure restraints. All this has affected the country’s competitiveness as production costs have now soared per barrel.
In 2019, Nigeria had one of the highest production costs with break-even prices for major projects hovering at $48/bbl, higher than Angola’s $45 and Uganda at $44/bbl. The target for $10 a barrel cost is now literally a pipeline dream as crude oil theft has created a loss of 91% meaning the cost of production is above the price of the barrel
Recent expose has revealed that Nigeria has lost $3.2 billion in crude oil theft between January 2021 and February 2022 according to stakeholders in the industry.
Oil Mogul, Tony Elumelu’s social media outburst was an attempt to raise awareness of what now seems is a national heist of the country’s resources. There are indications that security agencies are colluding with these economic saboteurs in aiding and abetting the stealing of “95 percent of Nigeria’s oil production” at the Bonny terminal network, Forcados Terminal network, and Brass terminal network.
The government needs to do better in fixing these issues to remain relevant in the international oil market. More investment, more security, and more implementation of the legislative framework guiding the Petroleum industry would be critical to the sector that finances the largest nation in Africa.