First time for Nigeria, $100 oil price means nothing. See why

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Crude oil

For the first time in Nigerian history, a $100 oil price will be meaningless.

 

For the first time in Nigeria’s history, a $100 oil price will not be enough to preserve the country’s struggling economy, which is facing a record seventh consecutive year of dropping real income or per capita GDP.

Brent crude prices hit their highest level of $94 in more than seven years on Monday, as some market participants believe it is now a matter of when, not if, oil reaches triple digits over $100, a level not seen since 2014.

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While a $100 oil price is a boon for oil-dependent countries like Saudi Arabia, it means nothing for Nigeria for the first time in its history, as an opaque subsidy scheme and struggling oil fields have resulted in a flight of badly needed investment due to the failure to increase oil production to take advantage of soaring crude prices.

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Nigerian oil output averaged 2.5 million barrels per day in 2011, 1.9 million barrels per day in 2012, and 2.4 million barrels per day in 2013. (2.2 million bpd).

“With the current system in place, an oil boom at N150 would require more than a miracle,” argues Joe Nwakwue, former chair of the Society of Petroleum Engineers (SPE).

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According to OPEC data, the highest price ever paid for was roughly $130 to $147 per barrel between June and July 2008, despite the fact that the average throughout 2008 was $94.45 per barrel.

“Nigeria’s oil assets are facing increasing existential threats, which are exacerbated by excessive spending,” adds Nwakwue.

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Although the average crude oil price in 2008 was $94.45 per barrel, the highest price ever paid for crude oil occurred between June and July 2008, when a barrel of crude oil was sold for roughly $130 to $147.

“Despite higher oil prices, Nigeria’s oil output is currently straining at levels never seen before,” says Charles Akinbobola, an energy expert at Lagos-based Sofidam Capital.

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According to a BusinessDay estimate, a spike in oil prices from $14 per barrel in 1979 to $35 per barrel in 1981 could result in an oil boom for Nigeria’s 75.4 million people, as $24.9 billion in oil export earnings translated into $330 in oil revenue per capita. For Nigeria’s present population of more than 200 million people, however, $35 means little or nothing.

Furthermore, a rise in oil prices from $10 per barrel to $147 per barrel in 2008 may have been sufficient for a population of 150.3 million, resulting in $54.9 million in oil revenue, or $0.365 per capita, but not in 2021.

 

Faced with declining earnings, the government has resisted calls for complete deregulation.

“Nigeria is like a man dying of dehydration in the middle of a torrential downpour,” says Festus Ogbobine, an economist.

The fight against subsidies has a long and tumultuous socio-political history, with organized labor playing a key role. Occupy Nigeria, which has become a symbol of civic unrest, shut down the country for over two weeks in 2012 after the government took the first dramatic move toward eliminating petrol subsidies, which the Goodluck Jonathan administration claimed cost the country $18 billion in 2011.

Recent attempts to dismantle the age-old social plan have been similarly stymied by interminable discussions between the government and labor unions, with official petrol consumption statistics ranging from 50 million litres per day to roughly 103 million litres per day.

 

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Timipre Sylva, the minister of petroleum resources, commented on the dynamics of rising consumption figures and increasing subsidy payments, saying that while the data was suspect, there was nothing that hadn’t been tried in the past to force those who were bleeding the government without success.

“And the figures you hear from time to time are ludicrous.” I mean, 90 million litres a day is insane. What does all of this add up to for me? “We’ve been looking at these figures for 20 years,” Sylva explained.

The issues in oil and gas may not end if the government bites the bullet and deregulation the downstream sector. However, experts have pointed out that it will free up some money for other critical infrastructure improvements.

Nigeria paid N270.83 billion in December 2021 to cover the expense of the petroleum deficit, according to BusinessDay’s findings. This was the most expensive month of the year for the petrol shortage.

According to the findings, gasoline subsidy payments were N131.4 billion in November and N163 billion in October.

149.28 billion was the figure in September. The cost of petrol under-recovery was N173.13 billion in August. N103.28 billion in July and N164.33 billion in June, respectively. Subsidies cost N126.29 billion in May.

Under-recovery was also N61.96 billion, N60.39 billion, and N25.37 billion in April, March, and February, respectively. There were no under-recovery cases in January.

Experts believe that now is the best time to put an end to the epidemic. In December, the value of the national debt reached N32.9 trillion.

While the government laments mounting debts and dwindling financial resources, the cost of governance, of which subsidies is only one component, has continued to rise.

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