Unbelievable! Why will Nigeria not benefit from $150 crude?

March 4, 2022by Tope Fasua0

“I challenge anybody to check from Europe, America, and Asia; between 1999-2014, Nigeria was producing 2.1 million barrels of crude oil per day at an average cost of 100 USD per barrel and it went up to 143 USD. When we came, it collapsed to $37 – $38 and later was oscillating between $40 and $50” – Buhari (2018).

“We should remind ourselves of the recent journey from 1999-2015 when our country happily returned to democratic rule. However, in spite of oil prices being an average of $100 per barrel and about 2.1 million barrels a day, that great piece of luck was squandered and the country’s social and physical infrastructure neglected” – Buhari (October 1, 2017).

“For 16 years and eight consecutive governments of the other party, you know that there was unprecedented revenue realised. The oil projection which can be verified was 2.1 million barrels per day. 1999-2015, the average cost of each Nigerian barrel of oil was $100 per barrel. When we came it fell to less than $30 per barrel and is now oscillating between $40 and $50” – Buhari (2016).

In almost all his speeches since he became president in 2015 – and that is several times a year – President Buhari has always reminded Nigerians that his government was unlucky to have come at a time when crude oil prices are at a slump. He also overinflates the numbers to make others look bad and himself look good. My concern though is why rather than rejoice that crude oil prices, which has averaged $80 in the past few months and has now surpassed $106 with prospects of reaching $150 if the Ukrainian war continues, is expected to bring a ‘serious economic crisis’, in the words of Timipre Sylva, Buhari’s junior minister in the petroleum ministry which Buhari heads. What does Buhari want from Nigerians? Why is it heads you lose, tails you suffer with Muhammadu Buhari? This is what he said was the main problem behind his non-performance and the throwing of millions of Nigerians under the poverty bus. Now, the same issue is being expected to throw Nigerians into even more poverty. I am challenging Buhari and Osinbajo on behalf of every Nigerian. We are tired.

Hear Timi Silva: “We hope (the price of crude oil) will move around, maybe $80, maybe $70. We are hoping it will come down to somewhere around $70 to $80, which will be sustainable for us to the end of the year… We are working hard on that (production increase). What happened to us was the fact that we had to cut back at the time, and, of course, in such a way you can’t really cut back mathematically. So, you want to cut back 100,000 barrels that you shut out, maybe we’ll shut down about 200,000 to 300,000 barrels. So, at the end of the day, we over-complied because we just couldn’t achieve it mathematically. In trying to cut down, we cut down too much. And now to come back, it’s not been easy for us to get the wells back to production… It’s not very easy these days to get the investments in. We really are not able to meet up our quota now. But I believe that we’re working so very hard to ensure that because we are not happy at all… I mean, with the kind of prices we are seeing. We are obviously not happy about it. So we would like to definitely be back on track by later this year. It’s not been very easy to get investments. A lot of people can’t get investments into the sector”.

Sylva’s tone is surprising and shocking. I have never seen any seller of any commodity, who falls sad as his margins increase. Even Nigeria has never experienced this. Check this out: We started producing crude in 1956 on a small scale. We hit the big league in 1973 in the Yom Kippur (Egypt/Israel) War. We joined OPEC (Organization of Petroleum Exporting Countries) and the price of crude moved for the first time ever, from $3.00 per barrel to an equivalent of $50. We cashed out. Gowon allegedly said our problem was not about money but how to spend it. He was correct. We could have planned better but we started flexing.

The market went into a slump, and we started borrowing. Circa 1978 to 1980, there were issues between Iran and the USA, and then the Iran/Iraq War, leading to cutbacks. That was probably when we started importing Akinloye champagne as Shagari’s ministers went crazy. Under General Babangida’s government around 1990, the Gulf War happened. Iraq invaded Kuwait, and the USA had to bomb Iraq. Prices shot up to a mere $40 and all the journalists in Nigeria will not allow Babangida to rest from the clamor for the ‘Gulf oil windfall’. In 2006, stagnating production in Saudi Arabia coincided with large demands from Asia (China Rising), and crude prices shot up to $148. That was when we got our reserves up to $62 billion – the highest ever. Honest man Umaru Yar’Adua was president then.

Again, there was a brief spike in 2011 as a result of the Arab Spring and the bombing of Libya. By then Yar’Adua was down, Goodluck was in, and was the first African leader that signed the agreement for the westerners, with which Gaddafi was eventually slaughtered on the streets. That windfall missed us. But this is the first time in history that we are being asked to go into mourning over the rise in crude oil prices. Note that without crisis, crude prices will hover around $9 to $11 as they did under Abacha, who was able to employ General Buhari as chair of PTF and they built quite a few infrastructures.

Even foreigners expect us to smile to the bank. On BBC, I found an analysis about the effect of this Ukrainian War on African nations. This is what they had to say: “The budgets of oil-producing countries like Nigeria and Angola might get a boost from the rising prices, but the cost of transport is likely to rise for people across the continent. This will have a knock-on effect on the prices of nearly all other products”.

The editor of the UK-based Africa Confidential publication, Patrick Smith, said: “Europe has to rapidly find alternatives to Russian gas, and the most reliable alternatives are in Africa. It’s a great opportunity for African states to move in, and get new deals done quickly,” he added.

I get some sense out of Sylva’s rather convoluted explanations. The concerns are that there are no new investments in upstream production, and they (his ministry) miscalculated when they cut down earlier at OPEC’s request. This is incompetence admixed with corruption. The key challenge is that the government will come under pressure with subsidies on local sales of PMS and aviation fuel. Diesel, kerosene which have since been deregulated will get more expensive. But the margins on the normal production of at least 1 million barrels of crude oil daily (after we back out local consumption which is swapped) will increase significantly. The minister says rather than produce 1.65 million barrels a day, Nigeria cannot do more than 1.4 million. Nigeria claims to use $30 to extract one barrel of crude (incredibly high as it should not be more than $4).

My knowledge of petroleum economics says that there are more investments when prices rise – all of the time. So, as Patrick Smith recommended above, this is the time to look for the investments – given that we are so dependent on foreigners and never invest our own gains in our own country. The minister also expressed fear that shale producers will come on stream (you see, higher prices only spur higher production, which then depresses prices at a point in the future). But what is our own with shale producers? It’s a free market, and prices are going to go crazy. Another thing that is obvious is how we are so helpless without foreign investment and technical know-how. Yet, we are the loudest and lousiest of all oil-producing nations.

By all means, Buhari, Osinbajo, and Sylva, you owe Nigerians. You have to declare the dividends of our good luck. And I am not talking of the unfortunate bombing of Ukraine and the loss of innocent lives there, please. The price of crude had been on the upwards trajectory for quite some months now. The average price of crude oil this year is $86. Last year, the average price was close to $70.

So, Buhari, where is your excuse this time? This is simply incredible and totally annoying.

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