By Muyiwa Lucas and Collins Nweze
A report published by The Economist has indicated that price controls and low production are the major reasons preventing Nigeria from profiting from the global oil boom.
The report, which stated that oil exporters in the Middle East and Central Asia are happy with the oil windfall, as they may pocket over $320 billion in oil revenue this year than previously forecast, added that Nigeria, which is Africa’s biggest oil-producing country, is a “conspicuous absentee from the merry petro-party”.
“Price controls remain the biggest reason the boom was ruining the public purse, whereas elsewhere, as the price of crude rises, drivers pay more at the pump, it was not so in Nigeria. Africa’s most populous country, around 220m-strong, desperately needs the money an oil boom could bring. Some 40 percent of its people live on less than the equivalent of $1.90 (N 812.44) a day,” the report reads.
It further read: “The government is struggling to service its debts. Social services are dire. The woeful economy has contributed to the violence that afflicts much of the country. In the first half of this year, nearly 6,000 people were killed by jihadists, kidnappers, bandits or the army. Petrol is about N175 ($0.42) a litre, among the world’s cheapest, yet the government has not raised the official price since December 2020.”
The report blamed the President Muhammadu Buhari, who it said, reneged on his latest promise to reform the system. This, it noted, has left the government to pay for the vast gap between the country’s low fixed price and the global one. It also blamed the now defunct state-owned Nigerian National Petroleum Corporation (NNPC) Limited, which covers the fuel subsidy from its profits and sends what is left to the government. But in the first half of this year, it sent nothing at all.
Furthermore, it fingered some Nigerians who buy cheap, subsidised petrol, smuggle it across the border and sell it at a huge markup in neighbouring countries. Such smuggling, it noted, is most lucrative when global prices are high. Sadly, the report findings observed that although Nigeria pumps crude oil, its refineries are so dysfunctional they have been closed down, making the country to import almost all of its refined fuel.
The report also identified low production as another reason for reduced benefits, adding that Angola’s petrol production has superseded Nigeria. It explained that low production or output is due to the shortage of cash after paying for petrol subsidies that it struggles to cover production costs for pumping crude oil.
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It also added that a lot of oil is never counted as part of Nigeria’s output because it has been stolen.
“Another reason Nigeria’s public finances benefit so little from high oil prices is that production itself has slumped to 1.13 million barrels per day, the lowest in more than 50 years, which is partly why the oil industry has also been a drag on headline economic growth. Output has been dipping slowly since 2005.This year, it has dived. Angola’s output recently overtook Nigeria’s,” the report added.
Although estimates vary, The Economist said the oil industry’s regulator noted that thieves are snaffling 108,000 barrels a day, about seven percent of production, costing the government about $1 billion in the first quarter of this year.
“The Trans Niger pipeline, which can transport 180,000 barrels a day (about 16 percent ent of the country’s production) suffers so much theft that its flow has been halted since June,” the report added.
“Another big pipeline that carries 150,000 barrels a day has also been repeatedly attacked. Shell, a big oil firm, has declared force majeure since March on all its exports of Bonny light, a high-quality crude, permitting it not to meet its contractual obligations.”
The Economist further revealed that one-way oil theft takes place is to overload legitimate shipments with more oil than is declared. Another is to “break into pipelines and siphon oil off, then cook it up in bush refineries before selling”.
“Plenty of stolen crude goes straight into the international market. Small boats glide along the delta’s canals, filling up from illegally tapped pipelines. They deliver it to offshore tankers or floating oil platforms. Sometimes the stolen crude is mixed with the legal variety and then sold to unknowing buyers. Much of it, however, is bought by traders who pretend not to know it is stolen, or do not care,” the report added.