December 6, 2018by Tope Fasua0

On a whim the other day, I decided to determine what the price per liter of crude oil is. Of course I had been worried sick that this crude oil thing is a big myth. This crude oil upon which every calculation is based in Nigeria is a big mirage. I just spoke with a monetary policy person at the apex bank who also expressed worry that some of their core calculations are based on crude oil, and crude oil only. The only assumption that drives our national budget is also crude oil. The first item on all our plans is crude oil – how much of it we want to produce in a given year, and at what assumed price we hope to sell. It is as if the government even budgets for the entire 2million barrels we drill as per OPEC quota on a daily basis, as if the whole thing belongs to Nigeria and is not shared with international oil companies. If this is so, we are living a lie; a big illusion. I also do not see where the cost of producing crude oil is considered in the calculations. Most Nigerians also assume that Nigeria sells 2million barrels a day, at the prevailing price, and pockets all the money. Nothing could be further from the truth.

I don’t know why and how our illusion happened but it needs to be stated that;

– Crude oil is not so valuable

– Crude oil is not valuable enough to hinge the very existence of this country upon

– According to NEITI, Nigeria gets effectively 36% of all the revenue from what we produce.

The reason why we may have elevated crude oil to the status of be-all-and-end all must be that a certain laziness of thought overwhelmed our leaders at some point, after all we have absolutely no input in the production of that resource. I mean that Nigeria does not own any aspect of the technology in the production process. We only try to keep the books and we even fail woefully in accounting for this resource. So what exactly are we selling? I believe this laziness is borne out of the fact that this is one resource where even though we add no input, we can set up some huge monstrosities called parastatals like NNPC and run rings around the people while waiting for millions of dollars that will come from abroad. We do not only have any input in the technology and processes around crude oil, we have no input in the pricing as well. 40% of the current price of crude oil is determined by traders in the spot, forward and futures market for the product. A lot of that price depends on their whims; what they think will happen in the future. They also sometimes play the market by making the prices work in their favour. Is this the kind of product we should base a whole economy on? A product that also has huge repercussions on the environment? In a country where we do not even have scientists who are patriotic enough to help us identify fake drugs, or fake vaccines, or to even recommend to us what is healthy to eat and what is not, who is to tell us if there are serious long-term effects of all the drilling that is going on beneath the earth crust in Nigeria? To cap it all, there has been no accounting from that sector for almost 3 decades! Yet a president sits as the minister there.

Let us do some basic calculation:

– One barrel of crude oil today sells for about N18,300 (this is $60 multiplied by N305)

-One barrel contains 159 liters

-So one liter of crude oil today, sells for N115

Even at its peak in 2007/8 when crude oil sold for $140++, a barrel of crude oil in Naira terms then, was around N21,000 as Dollar sold for around N150 as at then.

This does not look like a very valuable product. It is certainly not the black gold that we say it is – except the proceeds from its sale is meticulously managed, and painstakingly aggregated. Those who will enjoy the proceed of crude oil must defer their gratification, ensure crude oil proceeds power other industries. This resource is not what you spend in advance.

Our leaders over time bought a dud. Any reasonable human being should know this right from get go. But this refusal to think goes into our ‘we are blessed’ rhetoric. Our leaders over time and till date don’t see anything wrong in sitting in office and expecting billions of dollars to drop on their laps.


Check this. At N18,300 per barrel we need to sell 3,300 barrels to buy a single luxury ‘status’ vehicle for some big Oga in some parastatal. Imagine how many thousands of those we buy every year? An average phone that some small girl in one of our universities will reject as a birthday gift from a sugar daddy, will cost at least 15 barrels of crude oil. Imagine how many phones are used in Nigeria where we buy the latest and the best that they don’t buy in the countries where phones are manufactured? The new headquarters of EFCC, which Mr Magu boasted was built at a bargain cost of N24billion, cost Nigeria a tidy 1,312,000 barrels of crude, even before we start to consider the cost of drilling. In Nigeria today, it still costs over $30 to drill a barrel of crude (I hear Kachikwu is trying to see how they can crash the cost to $20 but in spite of his faults I have seen how the man has been frustrated by Buhari at every step). The crude oil trade in this country is what Yorubas call ‘agbana’ (a cursed trade where you hemorrhage money faster than you make it). Only a totally irresponsible person will spend the proceeds of crude oil the way we spend it, or build such a life of Byzantine grandiosity the way we have – among politicians and top government functionaries. Anyone reading this is free at this point to calculate everything we use and buy in terms of crude oil. Note that if we want to actually get the impact properly, we need to only consider our PROFIT on crude oil, not the gross sale value. The closest estimate of our profitability that I came across is from NEITI, whose report early this year showed that out of every one Naira we get from our crude oil, we have to pay the international oil companies 64Kobo in terms of cost and other agreements. Pathetic!

But I have good news for us; PALM OIL IS A MUCH MORE PROFITABLE PRODUCT. That’s right!

Take a walk with me on this;

– A metric tonne of palm oil sells currently around $500 in the international market

– A tonne of palm oil is almost like a tonne of water, which is 1,000 litters (Palm oil density is 0.93 compared to water – almost the same)

– Therefore one liter of palm oil in the global markets sells for about $0.50

– $0.50 is equal to at least N150 – higher than one liter of crude oil at N115, and costs far less to produce (certainly not $30 per barrel)

– Our ancestors have been producing palm oil on their own and trading globally since at least the year 1300. We need little foreign assistance if we can think ourselves

– It takes very little technology, but we can scale up like the Indonesians and Malaysians who got most of their palm seeds from here in Africa and each individually produce at least 25 times what Nigeria does today

– The Malaysians and Indonesians have gone ahead to build sophisticated markets and even developed advanced financial instruments based on palm oil

– Nigeria imports palm oil from Malaysia/Indonesia

– Palm oil market is equally elastic (and also a little less volatile compared to crude oil), because it is a product useful for many industries

– Palm oil grows in the wild in Nigeria and is naturally sub-optimized

– The last time I bought palm oil around Owo, Ondo State, I recall it sold for something like N2500 for a 4 liter jerry can. That is like N625 per litre.

– At peak, palm oil sold in global markets for up to $1500 a tonne, or $1.50 (N450) a liter. The highest price of crude oil is approximately N280 per liter (in 2008 crude oil sold for $145 per barrel. Even at today’s exchange rate of N305, a barrel was worth N44,225. A barrel contains 159 litres)

So perhaps we are better off propping up palm oil as our chief export product? What is happening to research on palm oil from NIFOR and elsewhere? Is it lack of patriotism that is wrong with Nigerians or do we have a breed of Nigerians sworn never to allow Nigeria make progress? We have land mass and a weather that is very amenable to the grow the produce en masse. Our locals will benefit more from such a drive. We would not need to depend so much on foreign ‘investors’ or technology. It will be less injurious for our environment. Indonesia and Malaysia have made so much progress on palm oil, that some western activists are even trying to slow down the cultivation of palm oil. They said orangutans are suffering because more land is being taken for palm oil cultivation. Look at us here!

Anyway, I don’t intend to start a palm oil plantation. There are probably many more products that will give us less stress on which we can also focus here. We certainly shouldn’t be putting our people through this suffering. Of recent, this terrible government of ours is trying to justify their hopeless budget under the pretext of declining crude oil prices. But I have done enough research to show that the tethering of our economic fortune to crude is totally unnecessary. Another research says that indeed we did not suffer from dutch disease because more money was spent on agriculture after we had discovered crude oil. We suffered instead from the speed with which people looted whatever was budgeted – in every industry. If one considers it appropriately it will be hard to have respect for so many of the old people who have run Nigeria at any level. They simply laid this land to waste.

I wonder who cursed this country. But we can un-curse her. What is happening now is that this current scenario is totally unacceptable. Can we have new thinking please somebody?

by Tope Fasua

Tope Kolade Fasua is a Nigerian ex-banker, entrepreneur, economist and writer with 28 years of work, business and policy analysis experience. He is the founder and CEO of Global Analytics Consulting Limited, an international consulting firm with its headquarters in Abuja, Nigeria, and footprints in the United Kingdom, USA and United Arab Emirates. Fasua has authored numerous columns on newspapers and six books. He currently keeps regular columns on policy analysis issues with Premium Times and Daily Trust newspapers.

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