With the proposed national fiscal policy for the oil and gas sector coupled with other cost reduction initiatives, Nigeria plans to further cut down its present high unit technical cost of producing oil production to $15 per barrel, Ibe Kachikwu, Minister of State for Petroleum said on Wednesday.
Although Nigeria has been able to cut down on production cost which has long plagued the much needed sector investments to $27 per barrel, the country is also said to have the world’s third highest average cash cost.
As part of efforts towards reforming the oil and gas industry, the Ministry of Petroleum Resources (MPR) has formulated a Draft National Petroleum Fiscal Policy which seeks to provide a fiscal framework that will guide the planning and development of petroleum activities in an efficient manner and ultimately lead to the socioeconomic development of Nigeria.
Government is also interested in increasing revenue generated from this sector of the economy.
In a key note address at the 6th Sustainability in the Extractive Industries (SITEI) Conference, in Abuja, Building Local for Global, Kachikwu said Nigeria’s perception as a high – risk investment destination in some quarters is partly because the process of structuring a project financing deal with financing institutions is usually complicated and daunting; hence policies must be consistently directed at improving confidence in the investment environment.
“Our costs of production is also a key focus. Nigeria, with our vast resources, can get to draw in more revenues if our cost of production is considerably reduced to the neighbourhood of $15/ barrel. This will be achieved through our cost reduction initiatives in conjunction with implementation of the New National Fiscal policy,” he said.
Apart from high production costs and low oil prices, Nigeria’s oil industry and economy have also suffering greatly from persisting militant attacks on oil infrastructure that have, till recently crippled crude production.
The attacks saw oil output from more than 2 million bpd at its highest point in 2015 to 1.4 million bpd mid 2016, but has jumped back to 2.2mbp following peace talks between the Aso Rock and the militants. On Wednesday, Kachikwu announced after the weekly cabinet meeting that Nigeria’s government is targeting crude production of 2.5million to 3million barrels per day in the next two years if the Organisation of Petroleum Exporter Countries (OPEC) environment rules permit.
Kachikwu admitted that the country is now in a phase of development where the issue of infrastructural framework has become critical. “Our downstream infrastructure deficit alone requires us to invest around 10 billion dollars in the next three decades,” he told the audience.
And according to him, Nigeria can never be an economic powerhouse without a vibrant local economy and defined industrial base. A nation without a solid manufacturing base, is a sure way to maintaining dependency and waste of resources
“The need to ensure a conducive business atmosphere devoid of infrastructure gaps is paramount to ensuring stability and high productivity and a better framework for globalizing our local economy,” he added, speaking on the theme, “Establishing the Framework for globalizing our Local Economy”.
Maikanti Baru, Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) who also spoke at the event also noted that it would be necessary for Nigeria to drive down production costs and build needed infrastructure.
“Also some of the challenges we have include high cost of investments coupled with high cost of production, unit cost of production is one cost that we have to bring down in order to sustain what we are doing in terms of production of oil and gas.
“All these have led to inadequate investments in the entire value chain of the oil and gas,” said Baru who was represented at the event by Saheed Mohammed, Chief operating officer of gas and power business unit of the NNPC.
He also said building globally competitive oil and gas sector is therefore imperative for the sustainability of Nigeria oil and gas sector.
“It behooves on us to address some mitigating factors such as infrastructure deficit which include the process facilities which could be used to produce the oil and gas, the pipe lines for the transportation, the refineries for processing the crude and of course one big sector that we can never ignore; the power plants.
“We have seen systematic vandalism and in most cases non-existence of pipe lines which have hindered the effective movement of both oil and gas within the country.
So that’s why infrastructure is key, without rebuilding the infrastructure we cannot go where we are aiming to go.
He said the infrastructure issues also include not just the pipelines but that the liquid lines have also been critical.
“We have been coming out of situation where even crude oil cannot get the refinery let alone products distributed to the depots, but slowly we are reclaiming that. We have reclaimed three main pipelines that supply crude oil to the refineries, we have reclaimed some of the product lines, the Port Harcourt/aba is an example, and for their first time in the last five years we have been pumping products from Kaduna to Kano, all in an effort to reclaim this inland distribution and storage capacity that NNPC have built over the years.”
Bekeme Masade, the Chief Executive Officer of CSR.in.Action, and the convener of the programme notes said Sustainability should be the basic strategy of every institution in managing Extractive industry.
“If we are talking about managing our resources as such that it does not have any negative effects on the future generations, it is crucial we keep up discussions on sustainability in Extractive industry,” she stated.
This year – with the theme, Building Local for Global – the conference is delving into the roadmaps for both the oil & gas and mining sectors proposed by the two ministries, to stimulate meaningful exchange of ideas and best practices, and fashion out actionable solutions to the immediate needs of the industries.
She said, “A lot of global firm are looking for responsible nations that have sustainable track on transparency to deal with, we must sustain discussion around the sustainability, and pride ourselves on transparency basis, in order to attract such global firms. This is why we must sustain discussions on transparency in transparency industry at all levels”
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