•Rig count remains unchanged at 6

•Output stagnates at 1.399 mb/d

•As rising oil prices set to doom 2022 budget

By Udeme Akpan, Energy Editor

Nigeria’s rig count, a major index of measuring performance in the upstream sector, remained static Year-on-Year, at six in January 2022, according to the February Monthly Oil Market Reports, MOMR, of the Organisation of Petroleum Exporting countries, OPEC.

This indicated that the nation did not invest much in the exploration and production of crude oil during the period under review.

Industry operators say 2022 is not likely to record any significant improvement despite the huge output benchmark in the 2022 budget.

According to the operators, this means that the current high prices of crude oil, which saw the price of Nigeria’s Bonny Light rising to $96.33 per barrel on Thursday last week, about eight years highest, will not impact positively on the nation’s economy.

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This was even as the reports put the nation’s output at 1.399 million barrels per day, mb/d, excluding condensate, in January 2022, compared to 1.382 mb/d recorded in the corresponding period of 2021, indicating a marginal increase of 17,000 bp/d, according to data, it obtained from direct sources.

However, the country also produces about 400,000 bp/d of Condensate, a light crude, which attracts the same price as Bonny Light, meaning that the nation’s $62 per barrel and 1.8 mb/d budget 2022 target might be realised. 

Fuel Subsidy

But besides the output challenges and the consequent limited earnings from crude oil sales, Nigeria is now faced with higher domestic expenditure on the back of the higher oil prices as a consequence of its fuel subsidy policy in 2022.

Already, the Federal Government has made an extra budget of N2.55 trillion to fund the subsidy, which could have been invested on capital projects, especially infrastructure.

The supplementary budget is now proving to be inadequate as it was based on the lower price of oil and cost of refined products in the international market.

In a recent downstream report obtained by Vanguard Public Finance, the Major Oil Marketers Association of Nigeria, MOMAN, which made strong cases against the subsidy, due mainly to its negative impact on the nation’s debt profile and others, stated: “With an external debt of $31billion and increasing to a projected $36billion, Nigeria’s debt service burden is already in excess of 96% of independent revenues.

“Nigeria has lost the following benefits from subsidizing petrol: 60,000 fully equipped primary health centers across the country (at N30million each); 100,000 Nigerian children provided with educational support through a tertiary level (at N5millio each); 10,000km of roads constructed across the country (at N500million each); 1,000,000 entrepreneurs (including farmers) given capital for start-ups or business upgrade (at N1million each); 100,000,000 Nigerians insured by the NHIS (at N15, 000 each).

“Nigeria has lost the following benefits from subsidizing petrol: 328,100 fully equipped primary health centers across the country (at N30million each); or 16,405,000 boreholes constructed across the country (at N600,000 each); or 1,968,000 Nigerian children provided with educational support through tertiary level (at N5million each); or 19,686km of roads constructed across the country (at N500million each);

“Or 656,200 houses built and mortgaged (at N15million each); or 27,342MW of solar electricity added to the national grid (at N360million each); or 984,300 classrooms built (at N10million each); or 9,843,000 entrepreneurs (including farmers) given capital for start-ups or business upgrade (at N1million each); or 190,000,000 Nigerians insured by the NHIS (at N15,000 each).

“Another negative economic effect of the fuel subsidy is its inequitable distribution of resources as it favours the rich more than the poor.

“The benefits of fuel subsidies are distributed in proportion to energy consumption as higher income households that own several cars, jeeps and SUVs are typically more energy-intensive, consuming more fuel at the expense of those from lower income households.

“Nigeria must not only rationalize its expenditure, it must at the same time grow its GDP and only private capital can do this at the levels required for our survival and growth in all sectors of the economy.

“The report also, stated: “Price control will not only lead to pressures to restart subsidies when international fuel prices go up, it strongly discourages private capital from investing to develop the petroleum sector through refineries, ancillary and derivative industries which is the clear path to develop country resources to become the refining hub of West Africa and grow the country’s GDP.”

The report, which compared Nigeria to other countries, stated: “Countries around Nigeria continue to have significantly higher petrol prices than Nigeria due to taxes they charge on fuel consumption leading to a continued propensity to smuggle petrol across the borders.

“Nigeria is not only subsidizing its own economy but also that of its neighbours. The downstream industry is currently over-regulated with multiple agencies significantly duplicating administrative costs which all impact fuel prices negatively.

“A strong single regulator could be empowered to prevent market abuses related to price gang ups, market dominance and ensure consumer protection without fixing pump prices.” 

Market driver, expectation

The current wave of high oil prices was escalated when the Russian forces made their way into Ukraine, thus fueling instability in the market.

A close oil market source, who pleaded anonymity, said: “The conflict is just beginning and no one can certainly know how long it will last and the consequences it will bring.”

Also, in its February 2022, MOMR, OPEC further, stated: “In 2022, oil demand growth is expected at 4.2 mb/d unchanged from last month, with the Organisation for Economic Co-operation and Development, OECD and non-OECD projected to grow by 1.8 mb/d and 2.3 mb/d, respectively.

“In the OECD, optimism arises from economic growth with the supportive effects of fiscal and monetary policies expected to more than offset the negative effects from Omicron on oil demand.

“Industrial activities are also anticipated to accelerate, boosting diesel demand. Meanwhile, mobility has recovered substantially with domestic, regional and international flights already showings signs of recovery.” 

FG now laments high oil prices

Industry observers now wonder at the irony where Nigeria’s government is lamenting at the rising crude oil prices which should have been a blessing to the economy.

At the beginning of the current Federal Government regime in 2015, the government lamented low crude oil prices.

The Minister of Petroleum Resources, Timipre Sylva has disclosed that the Nigerian government is unhappy with the high price of crude oil at the international market as it comes with other high costs for the country.

Sylva told journalists yesterday in Abuja that the government was working to improve Nigeria’s low oil production level.

The Minister who was speaking ahead of the 2022 Nigeria International Energy Summit (N.I.E.S), explained that high oil price would also attract shale producers in the United States.

He said:  ”Once oil prices go up to a certain point, you’re encouraging a lot of production that will otherwise not be in the market. So we are not happy when prices go to a certain level.

“We believe that prices should be at a certain point, which will be optimal for us to make sub-optimal for the shale producers.

“That’s why we like to have that balance right here in Nigeria as well. You know that we are right now a net importer of petroleum products.

“And when the price of crude is up it also affects the price of petroleum products.

“So for us as a net importer it’s not very good for us. But of course, in a way what we are saying is if we are going to produce more and you get more dollars from your production they give you more money for your inputs.

“But if you are now producing less and then you still have to make sure that the Nigerian market is supplied fully then you see there is a shortfall.

“That’s why we would rather like to have production now to the point where we’ll at least get in enough to be able to do the imports better production at this point is not very optimal”, he added.

He said Nigeria would like to raise its production to a level that “can take advantage of the high prices not to think that we are very happy with the prices being where they are because you are taking from the side and giving it away from the other side.

“So at the end of the day, we are not necessarily making a lot of gains because we are taking from the high prices.

“We’re also importing higher priced product. And on the other side we’re also encouraging producers who should not be producing to produce which of course neutralizes the market for us”.

On the 2022 NEIS which is opening in Abuja on Monday, he said about 5,000 participants are expected, adding that “the objective of the summit from inception is to deliver the biggest and best African Petroleum Technology and Business Conference that will be the definitive platform, not just for Nigeria, but also for Africa to engage the global energy community.

“I believe that we have delivered on that with every edition”.

Expert reacts

Similarly, in an interview with Public Finance, a Consultant at BL&C Limited, Bode Longe, said: “This is positive for us as a country considering the oil benchmark figure, and the actual price of crude in the international market.

“This is supposed to increase the Excess Crude Account, ECA, savings account.

““The ECA operates in a way that, if the actual oil revenue is greater than the budgeted oil revenue, we save to the ECA, but if the actual oil revenue is less than the budgeted oil revenue, we withdraw from the ECA.

“The slight challenge is, rather than follow through the deregulation of the PMS market from February 1, 2022, the government seems to have backed and pushed the implementation of the petroleum industry Act, PIA, for another 18 months.

“The real challenge is that the savings which we would have gotten from the higher price of crude will be fritter away in terms of subsidy payment, since NNPC has proposed N3 trillion for subsidy support.

“While the better thing to have done is to bite the bullet and deal with this subsidy issue once, so we can actually create a foreign reserve to support us when the oil price drops again, but as usual the government doing things the way it does, we are going to fritter it away into subsidy payment and when the oil price plunges, we are back again to where we are.” 

Shell provides insight

In its briefing Notes obtained by Public Finance, Shell Companies in Nigeria (SCiN) provided much insight.

It stated: “Production in Nigeria was hit by the pandemic and OPEC quota reductions imposed in response to the global economic slowdown.

“Output from the SPDC JV and SNEPCo in 2020 fell from the record highs of 2019 but, at around 620,000 barrels of oil equivalent per day, remained close to the 5-year average of 625,000.”

Taxes, royalties drop

Nevertheless, the report also showed that nation suffered a crash of $3.7 billion on taxes and royalties it received from Shell Companies in Nigeria (SCiN) in just one year.

The figures of transactions and operations expressly published by the oil major in its Briefing notes also showed a bearish business between 2019 and 2020.

The Country Head, Corporate Relations and Director, Shell Of Petroleum Development Company (SPDC), Igo Weli, who presented the Briefing Notes, said: “In 2019, our taxes and royalty stood at $4.6 billion but as you could see this figure came down to $900 million in 2020.

“This has improved in the 2021 report and when the report is made available you will be able to see this improvement.”

Prospect

However, in a telephone interview with Public Finance, National President, Oil and Gas Service Providers Association of Nigeria, OGSPAN, Colman Obasi, said: “The oil prices will not rise for ever.

“There is an indication that it will drop to between $80 and $90 per barrel at the end of the Ukraine crisis. This, I hope will be good for Nigeria.”

Vanguard News