‘Nigeria’s Crude Oil Revenue May Decline by $10bn in 2015’

Should crude oil prices remain volatile, averaging $53 in 2015, the Oil Producers Trade Section (OPTS) has estimated that Nigeria’s revenue from oil and gas sales could be cut by about $10 billion or 30 per cent.

OPTS, through its chairperson and Managing Director of Total Upstream Companies in Nigeria, Elisabeth Proust, said on Thursday at the 2015 Oloibiri Lecture Series and Energy Forum (OLF) in Abuja that low crude oil prices have significantly reduced the level of investible funds at a time when competition for investments is sharpening.

OLF is organised annually by the Society of Petroleum Engineers (SPE), while OPTS is a private sector group under the umbrella of the Lagos Chamber of Commerce and Industry.

Its 22 members account for 96 per cent of total oil and gas output in Nigeria.

Proust explained that like 2014 when oil prices averaged $77.5 and revenue dropped significantly, resulting in the slowing down or cancelation of many infrastructure projects that Nigeria desperately needs, the same scenario may be repeated with the current condition in 2015.

“There is no doubt that the low crude oil prices that we are experiencing today are having a severe adverse impact on the revenues of both producers and host governments globally,” Proust said.

She added that: “Unfortunately, Nigeria is not immune to this revenue squeeze. We estimate that if crude oil prices average $53 per barrel in 2015, compared to $77.5 in 2014, the federal government’s oil and gas revenue will decline by $10 billion this year, or a gut-wrenching 30 per cent.”

Proust who noted that the advent of shale oil in the US, Brazil’s deep-water development which is attracting huge share of global investment as well as both Mozambique’s and Tanzania’s massive offshore gas discoveries now constitute enormous competition to Nigeria, explained that the country in this regard has some in-country risk factors that hinder its ability to compete in the market.

She said certain prevalent issues such as crude oil theft, pipeline vandalism and associated product shut-ins, insecurity of industry personnel and assets which had been identified by operators in the country were still part of challenges hampering Nigeria from competing well.

“The advent of shale oil is underpinning an oil industry renaissance in the USA and propelling USA crude production to levels unthinkable 10 years ago, attracting massive investments in the upstream and downstream as well as infrastructure build-out.

“Deepwater developments in Brazil are attracting a growing share of global investment, while the massive offshore gas discoveries in Mozambique and Tanzania are expected to draw tens of millions of dollars in investment, competing in Nigeria’s own backyard,” she said.

Exacerbating the sharpening competition for investment funds, she said: “Nigeria has in-country risk factors that hinder its ability to compete.”

Proust, in this regard, noted that Nigeria can adopt smart approaches that include cost optimisation, upgrade of industry capacity and efficiency of existing facilities as well as prioritisation of projects and investments to balance the short and long term effects of the cyclical price fluctuations.

However, the Nigerian National Petroleum Corporation (NNPC) at the OLF, listed at least eight key immediate measures that the federal government would need to adopt against the crude oil price volatility and its impacts on Nigeria’s revenue profile.

NNPC noted that an engagement of these eight measures, will in addition to the few others that had been identified by OPTS and other key industry players in the wake of crude oil price drop, ensure that Nigeria reacts positively and competitively with the current market situation.

NNPC’s Group Coordinator, Corporate Planning and Strategy, Timothy Okon, said in his presentation that the passage of the Petroleum Industry Bill (PIB), restructuring of public finance, scrapping of petrol subsidy regime, review of capital expenditure, focus on profitable subsidiaries of NNPC, and exploration of the Asian market could act as a game changer for Nigeria against the price instability.

Okon also listed quick delivery of domestic gas and Liquefied Natural Gas (LNG) projects, as well as optimisation of domestic crude oil refining as part of the measures that could keep Nigeria competitive in the industry.

“No one can confidently predict the length and severity of the current oil price slump. Therefore, it is critical for the Nigerian government to identify a clear set of scenarios for where oil prices may go, and to develop a set of practical options for how to respond to continuous evolutions in the prices at present and in the future.

Given the oil prices at record lows, the cost of procuring fuel for Nigeria, both domestic supply chain or product importation is also declining. This should enable the government to remove fuel subsidies and establish pure market-based mechanisms for fuel pricing,” Okon said.

He further said: “Hard times call for a hard-nosed examination of existing plans to spend large significant capital in the oil and gas sector.

It will be important for FGN and for NNPC to maintain a prudent level of capital spending to support cash generation in the medium term and to develop critical infrastructure to build the country’s gas and power sector.”

“NNPC should also take a rigorous look at its overall capital expenditure programme so that non-critical projects are cancelled or deferred while the truly critical project portfolio is pursued with an intensive, cost optimisation approach.

Now is the time to challenge and overhaul expensive design, procurement and construction practices and agreements to aggressively strip out costs and reset performance targets to get the best return on investment,” Okon added.