Crude oil prices have fallen significantly since the beginning of 2020, largely driven by the economic contraction caused by the 2019 novel coronavirus disease (COVID-19) and a sudden increase in crude oil supply following the suspension of agreed production cuts among the Organization of the Petroleum Exporting Countries (OPEC) and partner countries.
With falling demand and increasing supply, daily price changes for the U.S. benchmark crude oil West Texas Intermediate (WTI) have been extremely volatile.
The volatility has come with its attendant low prices which is affecting countries like Nigeria that depend on oil for economic growth.
The crash in crude oil prices means volume is especially important for oil-dependent Nigeria, and as there will be no Opec output limits to adhere to after March, the country can pump at will.
The recent drop in oil prices is hitting the country hard, making a big dent in government revenues and threatening the viability of upstream projects
Experts are however of the view that even if every country decides to produce at will it may not be able to produce beyond 2.3million barrels per day given the fact that the country has been too lackadaisical about exploration activities. To achieve this may take a few years. They also said even at this volume of production she would have to sell her commodity at a highly discounted rate to be able to create a market for it and the revenue from it may not make so much impact on the economy
According to Petroleum Economist, the country is bracing to take a big hit from the collapse in oil prices resulting from the end of the Opec+ agreement and the Covid-19 pandemic. She is particularly vulnerable as it has yet to fully recover from the previous crash in 2014. Nigeria’s 2020 budget is based on an anticipated oil price of $57/bl, but the decline in the price of the Brent benchmark crude has forced the government to revise this to $30/bl while maintaining proposed production volumes at 2.18mn bl/d, condensate inclusive.
Diran Fawibe, chairman and chief executive of IESL/Doris Joint Venture said presently Nigeria can hardly produce up to 2.6 million barrels per day which she did just for a few times in the past. He, however, stated that if the country is able to improve national production through exploration she might be able to produce above two million barrels per day.
He said producing above 2 million barrels would have to depend on market availability. To get markets for the commodity would also depend on if she can give a discount to the tune of about $3 per barrel at the international market.
Seye Fadunsi former executive director of Pillar Oil said the country currently does not have the capacity to ramp up beyond 2 million barrels per day because she does not have the capacity.
He said even if the Petroleum Industry Bill (PIB) is passed today and investors come into the industry for them to start drilling, development of fields and production it will take about two to three years to start seeing the result.
Abiodun Adesanya, managing director of Degeconek said that without the price war between Saudi Arabia and Russia Nigeria had never been able to sustain it 2.2 million quota allocation given to her by OPEC though it has always tried to move closer to it.
He attributed this situation to constant infractions on the pipeline infrastructure by militants in the Niger Delta. He said the strategy for Nigeria should be to appeal both Russia and Saudi Arabia because it will not pay her even if she was able to ramp up a few volumes because of market availability.
