Sylva: With Rising Oil Price, High Petrol Cost Inevitable
•FG launches programme to reduce crude production cost
By Emmanuel Addeh
The Minister of State for Petroleum Resources, Mr. Timipre Sylva, yesterday prepared the minds of Nigerians for a higher regime of the pump price of petrol, given the new fortune of crude oil in the international market.
With the price of Brent crude oil still hovering around $60 per barrel yesterday, Sylva said a high cost of petrol will be inevitable and urged Nigerians to be ready to bear the pains of the impending new price regime.
Besides, the federal government yesterday ramped up its plan to achieve the $10 per barrel crude oil production target with the official inauguration of the Nigerian Upstream Cost Optimisation Programme (NUCOP).
Sylva, at the NUCOP inauguration in Abuja, said the Nigerian National Petroleum Corporation (NNPC) cannot continue to bear the cost of under-recovery or subsidy, adding that while government revenue has improved following the rise in crude oil price, the gains cannot be frittered on subsidy payment.
According to the pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA), the landing cost of petrol is over N179 per litre, while the expected Open Market Price (OMP) is about N202 per litre.
However, the product is still being sold for between the N162 and N165 per litre price band.
However, Sylva urged Nigerians to prepare for the pains of the increase, saying that it cannot all be pleasure always.
He said: “Since we are optimising everything, NNPC needs to also think about the optimisation of product cost because as we all know, oil prices are where they are today, $60.
“As desirable as this is, this has serious consequences as well on product prices. So, we want to take the pleasure and we should as a country be ready to take the pain. Today the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy.
“So, somewhere down the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it. As a country, let us take the benefits of the higher crude oil prices and I hope we will also be ready to take a little pain on the side of higher product prices.”
The minister said of the nine priority areas given to the ministry as its operational mandate, reduction of crude oil extraction cost remains key.
He stated that the cost of oil production in Nigeria is exceptionally high compared to other oil-producing nations like Iran and Saudi Arabia, adding that the development is robbing the country of its desire to attract investments and remain globally competitive.
Sylva listed capital expenditure, operational cost, policy-related elements, weak collaboration, capacity and capability issues, facility reliability, single sourcing syndrome, a high magnitude of crude loss, multiplicity of tariff as some issues that the federal government is battling.
“Average total cost is now below $30/barrel for JV contract and less than $20 for Production Sharing Contracts (PSC). We need to do more. Engagement should reach a consensus on cost reduction.
‘’We are making a case for shared services. Our target is 3mpd daily production and 40 billion barrels reserves.
“We want to position Nigeria as the best designation for investment in the hydrocarbon sector. The benefits of NUCOP are many. It includes reducing the contracting cycle to three months or less, prompting efficiency, profitability and competitiveness. Its success is dependent on the collaboration of stakeholders,” he added.
The minister assured the gathering that the executive will collaborate with the legislature to ensure the passage of the Petroleum Industry Bill (PIB) this year.
NNPC Group Managing Director, Mallam Mele Kyari, in his remarks, said Nigeria must cut production cost if it is to optimise its crude oil resources.
He said: “There’s a global energy transition. Less cost-efficient companies cannot survive today. Fifty dollars per barrel production cost cannot survive. There are issues around synergy that we’ve not achieved.
“There are issues of security. Many companies are hiring their own armies and we can’t continue like that. Issues of taxes and others have to be addressed. Our practices must change so that service providers can deliver.
‘So, we can achieve economic growth and our partners can derive benefits. It’s not CSR but pure business. We must have the best of fiscal environment and policies so that cost of operation can come down and our target is at least $10/barrel.
‘If we do these, tax benefits will increase and the profit margin will increase. This is a task that must be done. This partnership will help the country. Crude has hit the $60 and it comes with a product price increase.
“We are trying to keep the country wet. We are engaging with labour. No provision for subsidy in the budget.”
Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr Simbi Wabote, said the discussion on cost reduction was long overdue and assured stakeholders of the board’s support.
‘‘Cost reduction comes with some pain and what’s important is how the business will survive to sustain jobs. Local content is a panacea for cost reduction. There are massive cost savings when Nigerians run the business unlike when expatriates flood the business,” he said.
President of the Petroleum and Natural Gas Workers Senior Staff Association of Nigeria (PENGASSAN), Mr Festus Usifo, called on the government to review its expatriates’ costs, saying that many of them are earning fat pay for jobs that can be done by Nigerians.