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The global oil community has reason to cheer as rise in oil price signifies increased revenue for oil producing countries. Regrettably, Nigeria may not benefit from this largesse.
International Brent crude oil futures moved close to its highest in 2019, at $66.15 per barrel by 3pm Nigerian time on Tuesday, indicating $6.25 in excess of Nigeria’s 2019 budget benchmark.
While this might be good news for other Organisation of Petroleum Exporting Countries (OPEC), the reverse seems to be the case for Nigeria.
“The oil and gas industry seems to be under a new threat. There is a renewed dislike and global war against fossil fuels and the quest for renewable and cleaner energy,” Luqman Agboola, head of infrastructure at Sofidam Capital Limited, told BusinessDay.
“As sweet as Nigeria’s crudes are renowned to be globally, we have recently lost our most-valued customers and our gas buyers are themselves now competing with us in the same market space as suppliers,” Agboola said.
Vessel-tracking data compiled from the Bloomberg terminal observed crude exports from Nigeria fell for a second month in January, led by a drop in shipments of grades including Bonny Light, Brass and Bonga.
Nigeria’s crude export fell to 1.69 million bpd in January compared to 1.77 million bpd in December, while Akpo condensate flows fell to 92,000 bpd in January compared to 97,000 recorded in the previous month.
Data from the Bloomberg terminal also showed that combined crude and condensate shipments dropped to 1.78 million bpd in January, against 1.87 million bpd recorded in December 2018.
On Tuesday, one of the single largest buyers of Nigerian crude since 2013, India Oil Corporation, signed its first annual deal to buy US oil, paying about $1.5 billion for 60,000 barrels a day in the year to March 2020 to diversify its crude sources, a move that could threaten Nigeria’s crude oil export.
On Monday, spokesman of Nigeria’s Ministry of Petroleum Resources told Bloomberg by phone that Nigeria’s total crude output slipped to 1.66 million bpd in January 2019 compared to 1.78 million bpd recorded in December 2018.
The spokesman for the ministry told Bloomberg that the country’s crude condensate output slipped to 2 million bpd in January 2019 compared to 2.08 million bpd recorded in December 2018.
Nigeria relies heavily on earning from oil exports, and the recent output disruptions came as an additional headache for an economy that already suffers from the sharp drop in 2014.
The news of rallying oil prices is even cheerier for OPEC members who have had to bear the brunt of oil production cut in the past in a bid to rally up prices.
But, while countries with higher refining capacity may reap the gains of increased oil prices, same could not be said of Nigeria as the country is heavily dependent on imported petroleum products due to the poor state of the its refineries.
With such level of dependence on imported petroleum products, the gain that ought to have accrued to Nigeria is subsequently ploughed back into the payment of subsidies or what government has recently termed under-recovery.
For Nigeria, a spike in oil prices would naturally translate to higher landing cost for refined products because once refiners buy crude oil at higher price, the cost of refining would equally rise, thereby eroding the gain for countries with little or low refining capacity.
The Nigerian National Petroleum Corporation (NNPC), in its latest operations and financial report for November 2018, said with oil price averaging $79, 1.6 million litres of petrol were supplied into the country through the Direct Sale Direct Purchase (DSDP) arrangements as against the 1.7 million litres of premium motor spirit (PMS) supplied in the month of October 2018.
On the other hand, the petroleum products (petrol and kerosene only) production by the domestic refineries in November 2018 amounted to 13.94 million litres compared to null production in October 2018.
Though the exact volume of petrol consumed daily in the country has remained controversial in the past years, figures from NNPC put it at 50 million litres per day.
At 50 million litres per day, it could be deduced that the country would certainly not reap from the gains of higher oil prices as such would have been eroded by the 8.5 million litres of petrol that would be imported on a monthly basis.
NNPC also claims to be making under-recovery due to the amount it spends in subsidising petrol, a development that is faulted by the state governors due to its negative impact on the Federation Account.
BusinessDay analysis of the latest financial records of NNPC showed that in the month of November alone, the state-owned enterprise incurred an under-recovery cost of N65.8 billion.
STEPHEN ONYEKWELU & DIPO OLADEHINDE
