Nigeria’s high cost of oil production

WHEN the Minister of State for Petroleum, Mr. Timipre Sylva, recently spoke at a seminar organised by the Petroleum Technology Development Fund (PTDF) at the Federal Capital Territory (FCT), Abuja, he only reiterated the dominant complaint in the industry about the relatively high cost of crude oil production in the country. It costs $35 to produce a barrel of oil, a venture on which oil-producing countries like the United Arab Emirates (UAE) and Saudi Arabia reportedly spend around $10 per barrel. As Sylva noted, Nigeria must do everything within its powers to reduce the cost of production in order to boost revenue generation for economic growth.

Earlier in the year, the chairman of the multinational oil giant, ExxonMobil, Mr. Paul McGrath, also spoke in a similar vein. He described the country as the largest oil producer in Africa, with hydrocarbon prospects among the brightest in the world. He noted that however that “there are fixes to be put in place if it aspires to maintain and expand the investment profile in the hydrocarbon industry.” McGrath suggested that the high production cost was a major disincentive to investments, especially at this time of considerable global competitiveness.

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It will be recalled that the immediate past Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, claimed to have brought down the cost of crude oil production to $25 per barrel. So how did it jump up $35 so soon? With the high cost of production, the royalty that accrues to the country has become too paltry to be meaningful. To say the least, the country’s expectations from the sector are high. There is a dire need for revenue, and the prices of the commodity are competitive. Countries like Saudi Arabia and Kuwait stand to gain more from their transactions than Nigeria, thanks to the high cost of production, but they are already expanding their post-oil agenda.

At some point in the life of this present administration, the price of crude oil hovered around $37 per barrel in the international market. How much profit did the country then make? The high cost of production is not sustainable in the least. Incidentally, Sylva even traced the trajectory of the hike in the cost of production through the years and how it traversed from the sane beginnings of $4 to the incredible rate of $35 per barrel. Something certainly has to be done to stop this hike.

Instructively, the cost of shale oil production in the United States has been witnessing a steady reduction on account of interventions in new technologies. The increasing cost of production is threatening to cut the country out of competition in the world market. The government must therefore see the desperate need to look closely at the operations of the  Nigerian National Petroleum Corporation (NNPC) and check the often deplored massive corruption and sharp practices therein. The government’s lax control of the NNPC is strangulating the economy. Cutting the country out of competition in the global market will have dire consequences. A comprehensive investigation of the modus operandi of the NNPC and the multinational companies is required to unmask the reasons for the current suicidal experience in oil production. This is both imperative and urgent.

Nigerian Tribune