The Reality of Oil Price fall

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By Elvis Ogenyi

President Muhammadu Buhari

The Nigerian government is obviously traumatised. Since the outbreak of the coronavirus pandemic, the government has watched with bathed breath, the performance of oil at the international market and is currently exploring options to stave off the stranglehold on the economy which is made obvious by a sliding price.

A principal player in the global oil market, Nigeria is Africa’s largest oil and gas producer. It is the tenth most petroleum rich nation with an estimated 35 billion barrels buried in over 1,400 wells in almost 160 oil fields scattered in the landscape of the Niger Delta region. A recent discovery of oil in the North East is an added advantage to Nigeria in the global oil industry.

Crude oil is unrefined hydrocarbons. When refined, petrol, kerosene, bitumen, grease, gas, wax and other products are recovered for various economic and industrial purposes. Currently, all four Nigerian refineries in Warri, Port Harcourt, Lagos and Kaduna are moribund and the attention is on Dangote refinery with a capacity of 650,000 barrels a day production which is underway to fill a yawning gap.

Until then, Nigeria retains an ignoble culture of product importation. It exports crude oil and imports refined products. Technically, Nigeria does not produce oil. Foreign multinational oil companies of Shell, Mobile, Chevron and Agip have the license to produce oil under certain financial terms that acrue revenue to the government. The Nigerian National Petroleum Corporation (NNPC) represents the interest of the government in such transactions.

 The foreign nationals have both the skills and manpower for production and export which Nigeria lacks, perhaps due to lethargy. All six exporting terminals are owned by the foreign multinational oil companies. The implication is that, from exploration to export, there is a dominance of foreign multinational oil companies in the chain of production and accruals to Nigeria are sundry revenues from royalties, tax, gas flaring compensation and other receipts the government collects.

How the Nigerian economy survives is chiefly through oil revenue. Oil therefore, is the Oxygen of the Nigerian economy despite its volatility. It is the country’s major source of revenue, energy and foreign exchange. Power, transportation, manufacturing and the service sectors, each is attached to the petroleum industry with an umbilical cord. Much more, the oil sector accounts for 98% of Nigeria’s export and 95% of her foreign exchange earnings.

The Nigerian government depends on oil export for 80% of revenue and 70% of the budgetary allocation. Monthly, the revenue from oil and other sources are pooled together and shared among the three tiers of government. The federal government gets 54% of the revenue while about 26% are shared among the 36 states and FCT and the 774 local governments keep the rest.

It is understandable, therefore, that the Nigerian government catches cold whenever the global oil market witnesses unsavoury development, the most recent being the crash in prices as a result of the coronavirus scare. From 60 dollars per a barrel of oil before the coronavirus outbreak to half the amount, a Nigerian budget appropriated against an oil benchmark of 57 dollars i obviously threatened and required an urgent reprieve. This was the basis of a recent meeting of top government officials to reexamine the impact of the surving oil price.

Nigeria is not new to slump in oil prices. What is strange is her continued intransigence and inability to prepare for a backlash. Once the global oil market begins to tailspin, the call for an alternative revenue source will resonate with a strong emphasis which lapses as soon as the market regains stability.

 It is pretentious to be serious over the development of the nonoil sector only when crisis erupts in the global oil market. Indeed, Nigeria has a comparative advantage in the oil and gas sector and should have evolved into a major economic player globally but for corruption. Since the seventies, over 400 billion dollars have accrued to Nigeria as oil revenue. Over 80% of revenue from oil and gas is shared among 1% of the population leaving 70% of Nigerians in poverty and improveshment.

While in office, former president Olusegun Obasanjo declared that Nigeria had no business with poverty. However, more than half of the population is currently in extreme poverty despite series of programmes of the government to alleviate poverty over the years. Elsewhere, poverty is a consequence of lack, in Nigeria, it is waste and corruption combined. Yet, there is hardly any country in Africa with a more elaborate anti-corruption programmes.

Naturally, a slump in oil prices leaves a devastating effect on the Nigerian economy. A marginal advantage however, seems to be a reduction in the price of fuel in the local market. In the wake of the recent crash at the international market, the government considered a possible reduction of the pump price of fuel which currently hovers around 143 and 145 naira a litre.

The manufacturing and service sectors are expected to take advantage of a reduction in the pump price of fuel and gas to grow exponentially and cushion the negative influence of the distress imported from the unstable regime at the international market. It should result to a reduction in the price of goods, services and cost of production nationwide and sets the economy on a rebound.

The mass population wakes up to the reality of a reduction in the cost of transport and essential commodities as a result of a crash in pump price of fuel. It goes to say therefore, that a slump in the price of oil at the international market results in the mass population gaining from the nation’s oil resources more meaningfully.

Oil accounts for 14% of Nigeria’s GDP compared to 40% from agriculture. Meaning that there are more jobs in agriculture than there are in oil. However, the oil sector pays higher wages and the dream of the teaming young Nigerian graduates is to secure employment in the oil sector, especially, the multinational oil companies.

Nigeria is reckoned with globally in oil and gas. What confers an advantage on Nigeria is her high quality oil which has been described as” light and sweet” due to its low sulphur content. Her oil is comparable in quality with the North Sea oil, therefore, it is in high demand globally. Indeed, no OPEC member produces this quality of oil more than Nigeria.

After the discovery of oil in 1956, Nigeria commenced export to Europe after two years. Oil boom in the seventies led to rural, urban drift and the abandonment of agriculture, a situation described as “Dutch disease.” A current emphasis of the Nigerian government to stimulate the growth of the non oil sector is at a slow peace but is expected to produce a viable alternative to oil.

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