Nigeria in trouble as oil prices plummet to $45 on limited buying interest

The falling oil prices, which plummeted to $45 per barrel coupled with constant decrease in the value of Nigeria’s crude oil, may lead the economy to further run into crisis of a larger magnitude in the nearest future.

The economic situation of Nigeria has been in a terrible state that the Federal Government had to organise bailout for about 30 states of the Federation so that they can pay their workers salaries. The N4 trillion budgetary projection for 2015 is far from being realised because of the dwindling crude oil prices.

Industry watchers have said that except pro-active measure is taken, even the 2016 budget may run into problems, especially now that the value of our crude oil is going down. They are also of the view that as long as OPEC is insisting on the market share there would continue to be problems.

Duiran Fawibe, chairman/CEO, International Energy, said unless   OPEC soft pedal on its position about the market share, it members countries would continue to face the problem of dwindling crude oil prices.

According to him, when demand is low and you continue to push your commodity to the market, unless you want to make your product attractive by reducing your price, you will continue to lose value and your price will come down.

He said the only way out was for Nigeria to discount to the price of commodity, saying “our refineries that were suppose to take the crudes were not in good shape and because of this we would continue to be on the losing side until such a time when the price of crude oil goes up again. We are in a terrible situation.”

Already, the Federal Government is proposing a budget of about N8 trillion for 2016, and it is not however clear what crude oil price has been used as the benchmark.

But an oil industry operator that does not want his name mentioned tells BusinessDay that the government must be realistic about whatever decisions it takes.

Ali Moshiri, president, Chevron Africa and Latin America Exploration and Production, has said that the global meltdown in the price of crude oil has led to Nigeria losing about 20 percent of the $20 billion investments that flew into the industry in 2014.

Ali Moshiri, who spoke Wednesday in Lagos at the annual conference of the Nigerian Association of Petroleum Explorationists (NAPE), said Nigeria accounted for $20 billion out of the $600 billion investment in the global oil and gas industry in 2014. He added that an annual investment of about $20 billion would be required in the industry for the nation to make appreciable incremental production level to replace what was being produced currently.

Nigeria, he said, has tremendous capacity and resources to produce far above 2 million barrels of crude oil per day, but added that much investment would be required.

The Chevron boss, who pointed out that in 2015, investment in Nigeria’s oil and gas industry has dropped by 20 percent, said if there was proper investment in oil and gas industry, the country could be the leading gas producer in Africa.

He said: “In Africa, Nigeria was the top producer of liquid hydrocarbon and number three in gas production, stressing however, that the country’s number three position in gas is because of lack of gas infrastructure and not because of gas resources.”

According to him, Nigeria has much more gas resources to the extent that the country could be number three or four around the globe, but the problem is lack of gas infrastructure.

He said: “When you talk about investment, total industry investment in 2014 was about $600 billion, and Nigeria had around $20 billion. After the price crash, there is tremendous reduction in global investment. Now, the question you may ask: is that reduction because of cost efficiency or is that reduction because of investment? They are not doing the same thing they did before and it is cheaper. As you can see, investment in Nigeria has significantly dropped by 20 percent,” Moshiri said.

Currently, Nigerian crude oil market remains under pressure – many grades have lost around $1/b in value since the start of October – as an abundance of sweet crude and high freight rates have failed to excite interest from refinery buyers.

With traders also say Nigerian grades account for the bulk of the estimated 65 million barrels or so still unsold from November and December West African crude programmes, flagship Qua Iboe hit a 10-month low Wednesday with smaller grade Escravos at a 6-1/2 year trough, Platts data showed.

Olusola Bello with agency report