Why Nigeria is missing out on $100 crude price

An oil price of $100 per barrel is wonderful news for any oil-producing country, but Nigeria, Africa’s biggest top producer, is not making the most of the rally.

Some of the world’s biggest investment and energy intelligence firms have turned more bullish on oil in the medium to long term as analysts bet crude supplies would not keep pace with the fast-rising global demand.

The price of Brent, the benchmark for Nigeria’s crude oil, has stood at $100 in the past few weeks amid supply concerns triggered by a tighter supply outlook after sanctions against Russia – the world’s second-largest oil exporter and a key European supplier – over its invasion of Ukraine, which Moscow calls a “special operation”.

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 little or nothing owing to an opaque subsidy scheme and the failure to produce more oil to take advantage of soaring crude prices.

Based on data from the Organization of Petroleum Exporting Countries’ (OPEC), the other years in history when average crude oil price reached $100 were 2011 ($107), 2012 ($109.45) and 2013 ($105.87).

The oil rally in those years translated to improved economic activities as Nigeria recorded an average oil production of 2.5 million barrels per day (bpd) in 2011; 1.9 million bpd in 2012 and 2.2 million bpd in 2013.

“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, said.

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 for 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.

“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, said.

Read also: Nigeria’s oil output fell by 15% to 1.24million bpd in March – OPEC

BusinessDay analysis shows an oil price increase from $14 per barrel in 1979 to $35 per barrel in 1981 was 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.

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 to petrol subsidy 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,” said 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.

“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,” Timipre Sylva, the minister of state petroleum resources, said recently.

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

Findings by BusinessDay show Nigeria spent N758.1 billion to cater for the cost of petroleum shortfall in the first quarter of 2022.

According to the document, Nigeria incurred a subsidy cost of N210.3 billion in January 2022, N219.783 billion in February, and N328.004 billion in March.

Analysts have long said the subsidy cost is denying the country value that could have accrued from higher oil prices.