Dizeani Allison Madueke, Petroleum Minister
By Obinna Chima
A report has warned that if Nigeria’s crude oil production remains at its current level due to insufficient investments in the upstream sector, the amount of barrels available for exports will shrink, thus putting further pressure on the budget as well as economic growth.
Renaissance Capital Limited (RenCap), a Lagos-based financial advisory and investment firm stated this in its latest report titled: “Crude Times- Thoughts from Nigeria,” made available to THISDAY.
According to the report, as a “mature producer” of conventional oil, Nigeria seems to be facing similar challenges other oil producing countries such as Indonesia and Venezuela were facing.
It pointed out that the biggest challenge for Nigeria currently is from the biggest energy consumer, which it identified as the United States, “where the shale revolution is transforming the global energy value chain.”
The International Energy Agency (IEA) expects the US to add another 2.8 million barrels per day of production by 2018 at a breakeven price of less than $70 per barrel, which is more than the whole of the Nigerian oil output in 2012 (estimated at 2.1 million barrels per day).
Crude oil theft and pipeline vandalism have continued to take a toll on the economy as the Nigerian National Petroleum Corporation (NNPC) recently announced a drop in crude oil revenue of about $1.23 billion (N191 billion) due to a drop in crude oil production for the first quarter of 2013.
Consequently, the report warned: “Such developments put traditional producers at risk and create the urgency to bring new technologies and capital to revive stagnating production.
“For Nigeria, the challenge is even bigger as it is competing with other emerging countries some of which have an advantage due to recent discoveries and often more favourable regulatory and security environments such as East Africa or Brazil.
“We are encouraged that these challenges are well recognised by many representatives of the oil industry whom we have met so far. Over the past decade, the US has cut its imports from Nigeria by half, which forces the latter to find new destinations for its crude. It is clear that with rising Asian demand companies from that region could be natural partners in future development.”
Furthermore, it noted that with the country’s Gross Domestic Product (GDP) around seven per cent per annum over the past 10 years and with a population of 160 million, the country's energy thirst is increasing (from the currently extremely low 300kb/d level).
“Apart from the obvious need to invest in future production by developing new areas such as deep offshore, as well as increasing recovery rates at old oil fields in the Delta, the biggest factor that could transform the Nigerian energy market would be the emergence of gas.
“With 5bcm of gas flared in Nigeria every year and many non-producing gas fields, it is only a matter of time before gas enters the Nigerian energy equation which should provide a major boost to the economy reducing the energy bill and increasing the amount of barrels available for exports.
“We were also encouraged by recent plans announced by Aliko Dangote to build a new local refinery with a 400kb/d capacity which should improve pricing terms for both local producers as well as consumers not to mention new jobs and the multiplier effect on the economy,” it added.