This is an uncertain period for the Nigerian economy due to the
continuing fall in the price of crude oil, the nation’s main revenue
earner, and projections for the petroleum industry are indeed grim,
’FEMI ASU writes
With crude oil trading around $30 per barrel in
the international market from a peak of $114 in June 2014, production
from Nigeria now faces a decline as some fields face an imminent
shutdown if the low oil price persists.
Industry players say
operating some of the fields in the country is becoming uneconomic, with
the selling price of oil being driven down close to the production cost
level.
The price of the Nigerian crude oil, Bonny Light, has
fallen to $29.47 per barrel, according to the latest data obtained from
the Central Bank of Nigeria.
“When oil price drops, we are all
in serious trouble, because if the oil price and your unit operating
cost are almost the same, it means that when you sell the oil, there is
little profit or you are at a loss. Many companies are not far from
there,” the Project Director for the Uquo gas field development, a joint
venture project by Frontier Oil Limited and Seven Energy, Alhaji
Abdullahi Bukar, told our correspondent.
“The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,” he added.
According to Bukar, the average production cost for many of the fields in the country is $24 to $25 per barrel.
“For
some fields, the production cost is well above $25, maybe $28. For some
fields, it is well below $20 and $25. Many of the older fields, which
are mostly with the International Oil Companies, have got high
production costs,” he said.
Global financial services firm,
Morgan Stanley, on Monday joined banks such as Goldman Sachs, City Group
and Bank of America Merrill Lynch, in warning that prices could slide
to $20 per barrel.
Bukar said, “The production in Nigeria is
going to suffer. In the last five years, we have not invested as much as
we should to develop additional reserves. Once, we keep going like
that, whether there is price change or not, the amount of oil Nigeria is
going to be producing will go down.
“When the price drops as
low as $20-$30 range, people who have got those old fields or fields
where oil production cost is above the selling price will shut them
down. There is no point in producing oil to sell at a loss.”
Nigeria,
Africa’s top oil producer, relies on crude oil for most of its export
earnings and government revenue. Oil production in the country has
continued to hover between 1.9 million barrels per day and 2.3 million
bpd in recent years.
President Muhammadu Buhari had projected
crude oil production of 2.2 million bpd for this year’s budget, down
from 2.2782 million bpd in the 2015 budget, with oil-related revenues
expected to contribute N820bn.
Industry experts also say the continued decline in global oil prices would stall a number of deep-water projects in the country
An
energy expert and Technical Director, Drilling Services, Template
Design Limited, Mr. Bala Zakka, said with oil at $30 per barrel, the
profits and projects, including Corporate Social Responsibility
activities of many oil firms would be negatively affected.
“Major
deep-water projects will be affected because they are very expensive.
If oil continues to fall, a lot of exploration and drilling campaigns
will reduce. A lot of marginal field operators will not be able to drill
new wells. There is every possibility that companies will retrench to
be able to stay afloat,” he said.
The Head, Energy Research,
Ecobank Capital, Mr. Dolapo Oni, said, “Our production is really having
issues, and I think it might be worse in 2016. Our production is likely
to reduce this year.
“There are not as many fields likely to come
on stream this year. Most companies just want to focus on their
existing production. So, it is possible we won’t see as much new
production come on stream to reverse the trend of decline in major
fields we have. That might make production go down.”
Oil
prices could reach as low as $10, Standard Chartered warned, stating,
“Given that no fundamental relationship is currently driving the oil
market towards any equilibrium, prices are being moved almost entirely
by financial flows caused by fluctuations in other asset prices,
including the dollar and equity markets.”
Wood Mackenzie, the
energy consultancy firm, said in a report last week that since the oil
price collapse in 2014, 68 major upstream projects containing 27 billion
barrels of oil equivalent had been deferred.
This, it said, amounted to $380bn of capital expenditure deferred by total project spend in real terms.
High
cost deep-water fields, particularly those in Angola, Nigeria and the
Gulf of Mexico, requiring heavy upfront investment, account for more
than half of that deferred production
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