Concerns are now being raised as major buyers of Nigeria’s crude oil continue to cut demand, a development industry experts say is creating more burdens to an already stretched economy battling low revenue and facing recession.
Nigeria has relied so much on its rich oil resources with annual budget relying heavily on oil proceeds, but, it has also delayed in ensuring that the enabling law that could see it tap richly from the benefits of the oil resources is enacted.
As Covid-19 pandemic continues to bite harder on economies, the United States, one of Nigeria’s traditional oil buyers, recently reported a slash in its crude imports from Nigeria to 9.37 million barrels in the first five months of 2020. This is 11.67 million barrels lower than what it bought in the same period of 2019.
“If the global economy doesn’t start properly, we could see oil cuts more. As you can see, America cut its demand recently from Nigerian oil,” Henry Ademola Adigun, an oil sector governance expert, told BusinessDay.
Nigeria’s crude oil earning was again threatened after India, the largest buyer of the country’s crude, announced lowest oil imports in 10 years as at June 2020.
Experts observe that with the global oil demand trend, amid the coronavirus pandemic concerns, Nigeria needs to get ready for a gas revolution to support its dwindling economic fortunes.
According to Adigun, “Nigeria needs to start preparing to harvest the benefits of its gas resources. NNPC should start focusing on gas rather than focusing on oil alone, there must be focus on increasing production.
“By few years, our oil cannot fund our budgets sufficiently. The signs are already there, you can see we are borrowing to fund budget.”
Adigun recalled the government emphasis on “a year of gas” but, regrettably, the fiscals in the Petroleum Industry Bill (PIB) that should push that had not yet been worked on.
“The minister needs to do more with a policy and fiscals that would enable us drive gas revolution,” he further stressed.
Adeola Adenikinju, a professor of Energy Economics at the University of Ibadan, speaking on this development, said, “We owe it as a duty for a long term development to reduce our over reliance on crude oil,” noting that many developed countries were also sorting out ways to reduce its dependence on fossil fuel.
Adenikinju said, “Our oil is very good, we still have some relative advantage. We must have incentives that must help us drive markets. However, we need to also find a way to make our oil products competitive, even if it means making discounts for oil buyers and working towards developing new markets.”
According to Hakeem Ali, an oil sector governance expert, Nigeria without a better fiscal framework needs to ensure that the international oil companies go back fully into oil production.
“First step that must be taken by the government preparatory to this expected surge is to ensure that the international oil companies go back fully into production in deep offshore. This would help production rise and also in developing new markets.
“We are in competition with other OPEC countries, we must find a way to incentivise our oil production and get our fiscals right so that we can have capacity to develop new markets and diversify our economy with oil,” Ali told BusinessDay.
Monday Osasah, acting executive director of African Centre for Leadership, Strategy and Development, also informed BusinessDay that the government must hasten up with fiscals that would enable us attract investments to diversify our economy using oil resources.
“We are worried that we’ve been using opaque laws to run the oil and gas sector, and are being overtaken by our competitors in the oil and gas sector. This is what expedient passage of the PIB can do for the Nigerian oil and gas sector,” Osasah said.
“Research shows that Nigeria loses about $31 billion worth of investment in the oil and gas sector to neighbouring countries on the back of the clear rules governing the sector. This is the best time to take advantage of the market and use the oil sector to consolidate our economy,” he said.
Nigeria has current OPEC quota of 1.4 million barrel per day. The dwindling fortunes in oil resources analysts say could be addressed if government lays foundation for a stable domestic market and expand to other African frontier markets with the implementation of the African Continental Free Trade Area agreement.
“We must seek to have virile domestic refining capacity that does meet the local demands, but also can expand to other African countries in line with the African Continental Trade Area agreement,” Adenikinju also noted.
