There is a fresh perspective to the often made case that all isn’t well with how Nigeria’s oil industry has been managed over the years by the government. Or more appropriately, about how the industry has been mismanaged by successive governments.
Forget for a moment the proverbial subsidy scam that is sinking the country. To see the new angle look beneath the unusual spat between longtime OPEC and Gulf allies Saudi Arabia and the UAE. Here lies the story of Nigeria’s monumental failure to enthrone a credible strategy for managing its oil industry against the backdrop of the global energy transition.
This strange spat was caused when the UAE – a federation of seven emirates of Abu Dhabi, Ajman, Dubai, Sharjah, Fujairah, Umn al-Quwain and Ras al-Khaimah – insisted that OPEC must take account of the growth in its oil production capacity in determining the cartel’s output quota. Meanwhile the silence of Nigeria, despite being the most fiscally vulnerable, is deafening. And here is the reason for Nigeria’s silence: it is at the bottom of all OPEC countries in terms of expansion of oil production capacity in a world where the window to sell crude oil is narrowing. Oil production has grown by one per cent since 2017.
How OPEC countries rank in production capacity growth
The latest agreement shows that the UAE has succeeded in persuading OPEC to raise its baseline or its capacity to produce oil to 3.7m, adding half a million to its previous capacity. The UAE, which has less need for oil revenues (Dubai’s non-oil sector accounts for 95% of the economy). Still, it leads the pack of those boosting oil production capacity with 21% and Kuwait follows with 13%. Please note that the Saudis are already OPEC’s top producer. In 2016, Saudi Arabia pumped and sold the equivalent of 1.7 per cent of its total proven reserves – 12.4m barrels per day.
Nigeria on the other hand is stuck with low production capacity of 1.5mb daily in 2021; eleven years after the target of 3.4mbpd recommended in the Vision 2010 report.
Beleaguered by failure to attract badly needed investment and gaping holes along its aging crude oil pipeline system that aid theft, the total capacity of Nigeria is unlikely to go above 2.3 compared with UAE’s 3.7mbpd.
Of its total production, Nigeria’s puts aside just under half for domestic consumption from which it earns no foreign exchange (the UAE consumes 780,000 barrels daily). Take out the share of the oil majors from the balance and you can see why the rise in oil price has made no real difference to the country’s exchange rate situation.
Nigeria could have made the same bold case for a rise in production quota as the UAE did. If its government had been strategic in boosting the country’s production capacity to produce and export oil to a world still willing to buy.
Instead, Nigeria is silent, hobbled by many missed opportunities even as it suffers from an acute shortage of revenue and foreign exchange in an economy that has recorded two debilitating contractions in five years.
Now that the leading consumers of its oil are saying goodbye to fossil fuels, Nigeria is just waking up to sink more holes in oil exploration frontiers. Last week the head of a big oil company said in Lagos that the much-celebrated PIB will not bring as much boost as the government will have Nigerians to believe. For Nigeria and its 200m people the PIB is a perfect example of arriving just after the train has left the station.
