First time for Nigeria, $100 oil price means nothing

A hundred dollar oil price is good news for any oil-producing nation, but for the first time in Nigeria’s history, it won’t be enough to save the country’s ailing economy that faces a record seventh straight year of falling real income or per capita GDP.

On Monday, prices of Brent crude hit their highest level of $94 in more than seven years, as some in the market think it is now a question of when — not if — oil hits triple digits above $100, somewhere it has not been since 2014.

While a $100 oil price means a boom for oil-dependent countries like Saudi Arabia, for the first time in Nigeria’s history it means nothing as an opaque subsidy scheme and struggling oil fields meant the flight of badly needed investment resulting from the failure to produce more oil to take advantage of soaring crude prices.

Based on Organisation of Petroleum Exporting Countries’ (OPEC) data, the only time in history when average crude oil price reached $100 was in 2011 ($107), 2012 ($109.45) and 2013 ($105.87).

This period translated to improved economic activities as Nigeria recorded an average oil production of 2011 (2.5 million bpd), 2012(1.9 million bpd) and 2013 (2.2 million bpd).

“With the current system in place, Nigeria needs more than a miracle to have an oil boom at N150,” Joe Nwakwue, a former chair of the Society of Petroleum Engineers (SPE), says.

OPEC data also show the highest price ever paid for crude oil was between June and July 2008, when a barrel of crude oil was sold around $130 to $147, although the average crude oil price in 2008 ended up being $94.45 per barrel.

“Nigeria’s oil assets are facing rising existential risks which are compounded by wasteful expenditure,” Nwakwue says.

The highest price ever paid for crude oil was between June and July 2008, when a barrel of crude oil was sold around $130 to $147, although the average crude oil price in 2008 ended up being $94.45 per barrel.

“Despite rising oil prices, Nigeria’s oil production is currently struggling at levels never seen before, but the regulators are ignoring the problem and disguising under OPEC’s quota,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital, notes.

BusinessDay analysis shows an oil price increase from $14 per barrel in 1979 to $35 per barrel in 1981 could mean an oil boom for Nigeria’s 1981 population of 75.4 million people, because an oil export revenue of $24.9 billion led to an oil revenue per capita of $330. However, $35 means little or nothing for Nigeria’s current population of over 200 million people.

Also, a higher oil price from $10 per barrel to $147 per barrel in 2008 may be enough for a population of 150.3 million because of $54.9 million oil revenue, which leads to an oil revenue per capita of $0.365, but certainly not in 2021.

In the face of dwindling incomes, the government has held on against the call for full deregulation.

“Nigeria is like a man who is dying from dehydration despite being in the midst of a ferocious rainfall,” notes economist Festus Ogbobine.

The struggle against subsidy has a strong historical socio-political context, in which organised labour is central. Occupy Nigeria, which has become a reference in civil unrest, shut down the country for almost two weeks in 2012 following the government’s first bold step at ending petrol subsidy, which the Goodluck Jonathan administration said claimed $18 billion in 2011.

Recent attempts at ending the age-long social scheme with the petrol consumption figures from the authorities ranging from between 50 million litres per day to around 103 million litres, have been similarly stalled by endless negotiations between the government and labour unions.

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Speaking on the dynamics of rising consumption figures and increasing subsidy payment, Timipre Sylva, the minister of petroleum resources, explained that although there was something fishy about the data, there’s nothing that hadn’t been done in the past to muscle those bleeding the country without success.

“And sometimes, the figures you hear are crazy. I mean, when they tell you 90 million litres a day, I mean, they’re crazy figures. For me what is the sum total of all this? We’ve been interrogating these numbers for 20 years,” Sylva said.

If the government bites the bullet and deregulates the downstream sector, the challenges in oil and gas may not end. It will, however, free some resources for other timely infrastructure interventions, experts have noted.

Findings by BusinessDay show Nigeria spent N270.83 billion to cater for the cost of petroleum shortfall in December 2021. This was the highest cost for the petrol shortfall in the year.

In November and October, petrol subsidy payments stood at N131.4 billion and N163 billion, respectively, according to the findings.

In September, it was 149.28 billion. In August, the under-recovery cost of petrol was N173.13 billion. For July and June, it was N103.28 billion and N164.33 billion, respectively. In May, the cost of subsidy amounted to N126.29 billion.

Also, in April, March, and February, the under-recovery amounted to N61.96 billion, N60.39 billion, and N25.37 billion, respectively. In January, there was no record for under-recovery.

Experts say perhaps, there is no better time to end the scourge than now. The national debt stocks had hit N32.9 trillion in December. While the government regrets mounting debts and declining financial capacity, the cost of governance, which subsidy is just a part of, has continued to rise.