The Nation Newspaper

Tag: Oil

  • Making non-oil export economy’s heartbeat

    Making non-oil export economy’s heartbeat

    Can the Export Rediscounting and Refinancing Facility (ERRF) and the Non-Export Stimulation Facility (NESF) achieve their aims? Yes, they can, argue  experts, who note that the programmes can boost non-oil export and facilitate diversification of the economy, if properly driven by the government. Assistant Editor CHIKODI OKEREOCHA reports.

    They are coming at an auspicious time. The  Export Rediscounting and Refinancing Facility (RRF) and Non-oil Export Stimulation Facility (ESF) designed to stimulate non-oil export are coming when the economy is, perhaps, at its most vulnerable ever. They are coming in the heat of the crisis in the international oil market where the price of crude has been crashing, requiring urgent rejuvenation of the non-oil export sector as a wedge.

    Nigeria depends on oil for 70 per  cent and 95 per cent of her revenue and foreign exchange earnings. But global oil prices have been tumbling since June 2014, putting the finances of Africa’s largest economy/oil producer under severe pressure. From over $120 per barrel in December 2013, oil price nose-dived to around $60 per barrel in December 2014. By December 2015 and January 2016, oil price crashed to as low as $32 per barrel and $27 per barrel, respectively.

    Although, oil price went up slightly above  $30 per barrel, Tuesday this week, the unprecedented fall in oil prices necessitated strident calls on the Federal Government to speed up the development of the non-oil sector and the diversification of the economy to mitigate the impacts made worse by over-dependence on proceeds from crude oil. The new export financing programmes are therefore, seen as indication that the Federal Government may have finally seen the wisdom in reducing the country’s over reliance on export of crude oil as a major source of revenue, which price is prone to volatility.

    The Federal Government through the Central Bank of Nigeria (CBN) said last week that it has designed two export financing programmes known as RRF and ESF to improve non-oil export in the country and achieve total diversification of the economy. The move is seen by not a few experts and stakeholders as a short in the arm of real sector operators especially those in the non-oil export business,

    CBN Governor Godwin Emefiele, who made the initiative known in Abuja at the non-oil exports stimulation conference organised by the apex bank and the Nigerian Export-Import Bank (NEXIM), said the CBN and NEXIM came up with the initiative to encourage exporters expand their businesses as well as provide a pool of funds for commercial banks to enable them support exporters.

    According to Emefiele, credit to the non-oil export sector is currently in the decline, constituting a paltry 0.6 per cent of total domestic credit to the private sector in the past five years, while domestic credit to the economy has been on the rise. He blamed low level of export loans for being largely responsible for the decline in non-oil export revenue receipts from $10.53 billion in 2014 to $4.39 dollars in 2015.

    “The impact of these developments on the country’s export growth potentials is quite significant and has become instructive for stakeholders to dialogue on strategies to expand resources for export,” the CBN boss said, adding that the decline also limited the sector’s contribution to foreign reserve accretion.

    Emefiele said volatility in the international oil market s necessitated the renewed focus on non-oil exports as panacea to the nation’s dwindling foreign reserves. He noted that a rejuvenated non-oil export would stimulate economic growth and development, address the challenges of unemployment and target economic rebirth through the diversification of the Nigerian economy.

    At the conference themed ‘Strategies for Growing Nigeria’s Non-Oil Exports,’ Emefiele pledged that CBN will continue to play a catalyst role in improving export and encouraging local production through collaboration with the Ministry of Agriculture.

    Throwing  more light on the new facilities’ NEXIM Managing Director, Mr. Robert Orya, said the funds would be provided to all banks that lend to the export sector and that the banks would be mandated to give loans to exporters at nine per cent maximum. “If a commercial bank gives you a loan to say that you will return it in a year, the bank will not have money to loan out until you return that money.

    “But this window is such that as soon as this money is given to you, they will bring the credit papers and we refinance and give them the same money that they have given you, so they can give to another person. As soon as they finish disbursing to that person, they will bring the credit papers to us again and we will be able to refinance,” he explained.

    Orya emphasised that the facility is to encourage banks to lend by providing liquidity for them and to also enable them give the non oil facility at a moderated rate. He also said CBN and NEXIM would soon meet to finalise on the quantum of funds to be provided for the facilities and also the modalities for the disbursement.

    At the conference, which attracted about 400 participants across all stakeholders in the non-oil sector, the NEXIM MD said the funding would also aid exporters to improve on quality standards, packaging issues, export productions and operational challenges.

    Indeed, lack of quality control measures has been one of the greatest pains in the neck of exporters, which was why CBN’s latest intervention is music in their ears. “Quality is number one. It is the first thing that ought to be considered as the nation focuses on building a robust export-based economy,” the National President, Association of Systems Management Consultants, Mazi Coleman Obasi, said.

    While describing the initiative as a welcome development, the certified Quality Management Practitioner told The Nation that there is need for the authorities to speed up the adoption of the draft document for the proposed National Quality Policy (NQP) for Nigeria. He wondered why the formulation and subsequent adoption of the document is being delayed despite the fact that the European Union (EU) made available 12 million Euros about two years for the establishment of a National Accreditation System in Nigeria.

    He said the fund was supposed to support the enhancement of the national quality infrastructure, with a view to improving the quality, safety, integrity, and marketability of made in Nigeria goods and services. According to him, the intervention by the EU and other international technical partners was to increase the competitiveness of locally made products at the international market place.

    Under the EU-funded National Quality Infrastructure (NQI) project, implemented by the United Nations Industrial Development (UNIDO), with the support of the Federal Ministry of Industry, Trade and Investment, the objective was to improve the quality of products made in Nigeria so that they can be sold internally and in the international market. It was supposed to help develop a National Metrology Institute (NMI) to ensure that instruments are of international standards, improve the capacity of members of the Organised Private Sector (OPS) to conform to standards.

    The initiative, which was expected to produce a legislation that will contain a NQP and establish an internationally recognized National Accreditation Body (NAB) that will vet the activities of regulatory agencies such as the Standards Organisation of Nigeria (SON) and the National Agency for Foods, Drugs Administration and Control (NAFDAC).

    It will also establish conformity assessment bodies as well as enhance the powers of the Consumer Protection Council (CPC) and other consumer organisations to sensitize consumers on quality standards, and ensure improved consumer protection. But these have so far not happened. Yet, experts say that the creation of these key systems and institutions are supposed to boost the competitiveness of locally made products at the international market place and ensure the global acceptance of products and services from Nigeria.

    Failure by exporters to comply with specified standards is said to be responsible for mass rejection of non-oil exports from Nigeria at entry points in many countries in Europe. The Nation learnt that the rejected exports are mostly in the food and beverage segment where items such as beans, sesame seeds, melon seeds, fried fish, meat, peanut chips and palm oil are said to have been banned from entering Europe till June 2016.

    Non-oil products such as cocoa and cashew nuts were also rejected in many other countries, not only in Europe, with the importing countries citing  exporters’ inability to adhere to global standards, poor packaging, and high level of chemicals, poor labeling, insufficient information on nutritional content, and presence of high level of pesticide residue and presence of Mycotoxins.

    While admitting that lack of quality control measures remains a major hurdle on Nigeria’s quest to ride on the back of a robust non-oil export sector to grow and diversify the economy, the Chairman, Export Group, Lagos Chamber of Commerce and Industry (LCCI), Mr. Obiora Madu, identified other challenges facing non-oil exporters to include lack of incentives, logistics/infrastructure deficiency, and high cost of doing business.

    The Director General, Nigerian Economic Summit Group (NESG), Mr. Laoye Jaiyeola, said although policies to address the constraints of the non-oil sector abound, there is need to harmonise and properly implement them to ensure that they work. “People want to invest in the non-oil export sector, but our institutions and infrastructure must be right, our monetary policies must be consistent and macro economy level stable. But we scare them when we say one thing today and another tomorrow,” he said.

    Jaiyeola said the non-oil sector was fundamental to economic diversification, rapid revenue base expansion, sustainable growth and employment generation. He therefore, advised government to harmonise its non-oil export stimulation policies and ensure consistency in the administration of intervention funds to non-oil exporters.

    The Federal Government’s RRF and ESF are additions to previous policy interventions aimed at giving impetus to the emphasis on the non-oil sector in the face of the economic downturn caused by plunging oil prices. Recall that last year, the Federal Government gave vent to its push for economic diversification when it listing 13 National Strategic Export Products (NSEP) to replace oil. The 13 NSEP were listed in three categories including; agro-industrial- palm oil, cocoa, cashew, sugar and rice); mining related- cement, iron ore/metals, auto parts/cars, aluminium and oil and gas industrial products- petroleum products, fertilizer/urea, petrochemical and methanol.

    The former Minister of Industry, Trade and Investment, Dr. Olusegun Aganga, said then that Nigeria could no longer continue to be an import-dependent country. According to him, the nation was wasting its foreign reserves on imported products most of which can be produced locally.

    The Executive Director of Nigerian Exports Promotion Council (NEPC), Mr. Olusegun Awolowo, also said NEPC under his leadership had long recognised the need to develop the non-oil export sub-sector and had in the process held series of strategic meetings with stakeholders for the development of ideas aimed at improving the foreign exchange earnings by Nigeria through different avenues.

    These, he said, include the development of a 4-year Strategic Plan, One State One Product (OSOP), Nigerian Diaspora Export Programme (NDEX) and the development of new markets for new products. But as highly commendable as govern-ment’s moves to diversify the economy by riding on the back of non-oil export are, the political will to carry such policies to their logical conclusion remains the challenge.

    While real sector operators have thrown their weight behind the emphasis on non-oil economy, insisting that it is more inclusive, growth-oriented and characterized by high economic linkages and more sustainable, the consensus is that the success of the latest initiative, like previous ones, depends on the extent government demonstrates political will to carry them through.

  • Fitch: Nigeria’s oil response has fiscal, growth risks

    Nigeria’s response to the oil price shock is focused on achieving state-led development that would boost economic growth and import substitution, Fitch Ratings agancy, has said

    The rating agency said it is not yet clear if the associated measures taken by government will promote growth while containing fiscal pressures.

    It however, insisted that there are a number of downside risks.

    The agency said emerging economic policy under President Muhammadu Buhari, includes an increase in public spending and state-directed investment, revenue-side reforms, and accommodative monetary policy.

    It said the 2016 budget envisages spending of N6 trillion, up from N4.6 trillion in the 2015 budget, including a 30 per cent increase in capital spending.

    It said the government aims to finance additional spending through revenue-side reforms, including improved tax collection and public finance management, as well as increase external financing.

    Fitch said the fall in oil prices below the $38/barrel level assumed in the 2016 budget, has increased the need for external financing, stating that government recently announced it is looking to the World Bank and African Development Bank (AfDB) for additional lending and is also exploring a Eurobond issuance sometime in June.

    According to the agency, the Central Bank of Nigeria (CBN), took a large role in implementing economic policy during last year’s six-month wait for cabinet appointments.

    It introduced exchange controls and restrictions on foreign currency and resisted pressure for further naira devaluation. The CBN cut benchmark rates by 200bp in November and reduced the cash reserve ratio for commercial banks.

    The CBN, it added,  has continued to restrict access to forex in 2016, limiting dollar sales to Bureau de Change operators. It has maintained its support of the naira rather than risk the inflationary impact of devaluation.

    Overall, Fitch Ratings said these policies present downside risks to Nigeria’s sovereign credit profile, although there are various mitigating factors: Increased borrowing and higher interest payments would add to pressure on the fiscal position.

    It said public debt is low, and the government is unlikely to fully execute its spending plans. Capital expenditure, for example, has constituted only about 20 per cent of total federal government spending in recent years and is estimated to have dropped to about 13 per cent for 2015.

    It sad erosion of fiscal and external buffers and policy uncertainty drove our revision of the Outlook on Nigeria’s ‘BB-’ sovereign rating to Negative in March 2015, which we affirmed in September.

  • How to boost oil, gas reserves, by operators

    President Muhammdu Buhari has been asked to  encourage exploration and production to boost oil and gas reserves.

    Oil chiefs gave the charge at Petroleum Technology Association of Nigeria (PETAN) dinner/awards, night in Lagos.

    They issued robust  and continuous consultations with the government to create an all-inclusive and implementable policies that would keep the sector productive and competitive.

    PETAN Chairman Mr. Emeka Ene, who is also the managing director of  Oildata Energy Group, said the crude oil reserves might not enable the country realise its long-term economic objectives if urgent measures were not taken to boost exploration and increase oil reserves, which were being depleted.

    He noted that robust oil and gas reserves form the basis for increased production, adding that exploration and drilling is best done during periods of low oil prices, which is now.

    He urged the government to follow the steps of other oil producers in the Middle East and North Africa (MENA), where he said that drilling rig counts have sharply risen since the fall in oil prices began resulting also in reduced cost of services.

    Ene, the immediate past Chairman of the Nigerian Council of Society of Petroleum Engineers (SPE), said Nigeria’s long-term economic aspirations were at stake because investments in exploration had fallen resulting in drastic reduction in fields, which gave rise to redundancy and massive staff lay-offs across the industry’s value chain.

    He said PETAN can provide leadership in the service sector by providing a model for value-added local content, which guarantees significant cost reduction, and a stimulus for increased drilling and production activities.

    He urged the government to provide stable medium to long-term economic aspirations by diligently working to actualise the planned oil reserves of 40 billion barrels, daily production of four million barrels per day, monetisation of gas resources, and increase in local content activities for the advancement of indigenous capacity and job creation.

    Managing Director Seplat Petroleum Development Company Plc and former President of Nigerian Association of Petroleum Explorationists (NAPE), Mr. Austin Avuru, said low oil reserves is not good for Nigeria considering the contribution of the oil and gas sector to the economy.

    He said Nigeria is seriously feeling the impact of oil price crash because it failed to build a robust sovereign wealth fund that would have cushioned price fall shock.

    He said the Organisation of Petroleum Exporting Countries (OPEC) countries were driving exploration and production with sovereign wealth funds despite the low oil prices, while Nigeria is cash constrained to carry out such activities.

    Avuru corroborated Ene’s position on the need for medium to long-term economic plans, adding that little or no exploration in the industry means the nation’s lean oil and gas reserves can no longer provide support for economic projections.

    Avuru said oil production from onshore and shallow water environments has fallen from 2.4 million barrels per day to 1.2 million barrels per day (mbpd), adding that production from the deepwater which should have increased the  production has merely ended up only stabilising output at 2.4 mbpd.

    Domestic gas demand, according to him, has jumped from the previous 300 million standard cubic feet per day (mscf/d) to 1.0 billion scf/d. He projected that demand will jump to 3.0 billion scf/d by 2017. “The projected domestic gas demand is about four times more than what the country’s estimated gas reserves can support,” he added.

    Outstanding industry players conferred with awards include the  late Dr Rilwanu Lukman, Dr Emmanuel Egbogah, Gaius Obaseki, Sanni Bello, and Mutiu Sunmonu, Mrs. Callista Azogu, Charles Ngoka and Ugo Ralph Ekezie.

    Others include Shawley Coker, Pedro Egbe, Steven Aribeana, Sam Adegboyega, Dr Diran Fawibe and Emeka Okwuosa.

    Corporate award winners include Shell Petroleum Development Company (SPDC), Neconde Limited and First bank Plc. They recognised for their contributions to the development of the oil industry in 2015.

    The event ended with meetings, conferences and other industry forums with members of PETAN, Nigerian Association of Indigenous Petroleum Companies (NAIPEC), Nigerian Association of Petroleum Explorationists (NAPE) and the Society of Petroleum Engineers (SPE), among others in attendance.

  • Policies to cushion oil price fall under way, says Kentebe

    Bracing for the challenges of falling oil prices, the Nigerian Content Development and Monitoring Board (NCDMB) has initiated steps to fashion out strategies to protect local capacities developed by oil and gas service companies in the past five years of implementing the Nigerian Content Act, its Executive Secretary, Mr. Denzil Kentebe, has said.

    He stated this at an event to mark the load out and sail away (taking the platform to the point of operations) of the Sonam non-associated gas wellhead platform (NWP) topside at the Nigerdock Yard on Snake Island, Lagos. The topside is for the Chevron/Nigerian National Petroleum Corporation’s Domestic Supply Obligation (DSO) gas project.

    Celebrating the feat by Nigerdock in fabricating the topside, which is the largest in Nigeria, weighing about 2,700 tons, Kentebe harped on the need to ensure that such achievements are sustained and the gains recorded not eroded as a result of the crash in oil prices and cutbacks on capital expenditures and projects.

    “While we celebrate the feats, we are mindful of the current economic environment, lull in business and threat to these capacities,” he said.

    Kentebe said the new strategies would require stakeholders to work together to see that new projects come on stream to sustain jobs and capacity in fabrication yards and other facilities. He added that the Federal Government was taking steps to bring stakeholders to the table to work out solutions to the challenge.

    Kentebe hailed the commitment of Nigerdock to the development of Nigerian Content, recalling that the company had recorded many firsts on several projects, including modules fabricated on USAN and Ofon for Total, Abang and Itut topsides for ExxonMobil and Meren and Sonam topsides for Chevron.

    He said: “The capacity has not only been sustained but increased over time. Thousands of Nigerians have continued to be employed and trained. Nigerian suppliers have also been built up on the back of these projects and activities.”

    An example is Wellmann Nigeria Limited, which has developed the capacity to load out heavy fabricated modules by investing in the acquisition and operation of Self Propelled Modular Trailers (SPMTs), he said.

    The Executive Secretary challenged other service providers to take a cue from Nigerdock and deliver quality and efficient service when given the opportunity, noting that every stakeholder has a part to play in making Nigerian Content work.

    Nigerdock Chairman, Mr. Anwar Jamarkani said there had been a dramatic increase in the capability of indigenous companies since the signing of the Nigerian Content Act in 2010.

    He said: “Many companies in Nigeria were inspired by the bold steps taken by Nigerdock and the Jagal Group.”

    Jamarkani said the company was ready to take on more ambitious projects, stressing that Nigeria must domesticate its work in-country to be able to develop, build its future and train its youths. He lamented that the lull in industry activities had taken a toll on the company, noting that it does not have job orders ahead of six months, a situation that is threatening the job security of the company’s 1000 employees.

    He charged regulators and operators to come up with initiatives to ensure that the enormous infrastructural and human capacity built up in the company and other service companies are not lost.

    “We are national assets and we are committed to the success of this government; we want more from Nigerian Content and we have to keep the engines of our companies running,” he added.

  • Nigeria loses N1tr yearly to oil production cost

    • Reps to reduce  $38 oil benchmark

    Nigeria loses an average of N1 trillion yearly as production cost in the exploration of crude oil, Chairman, House of Representatives Committee on Appropriation, Abdulmumin Jibrin has said.

    The lawmaker, who spoke with reporters  on the 2016 budget yesterday said there is a need to look closely at the aspect of cash calls related to the production of crude oil.

    Jibrin also said in the face of dwindling oil revenue, the House of Representatives is set to reduce the benchmark in the 2016  budget to a “realistic” figure.

    Members of the Green Chamber are also to engage with the Central Bank of Nigeria (CBN) to see if it is possible to adjust the exchange rate as passed in the budget.

    He said: “One very important aspect that swallows a large chunk of the money in the budget is the cash call and production costs. Many people take their eyes away from production costs.

    “But it is critical, this is because every year we pay an average of N1 trillion  as cost of production. So, it is important that this time around, we need to sit with relevant authorities in the oil and gas sector to see the details of this production cost, to ensure  the country is not just being shortchanged.

    “We are just mopping a lot of money from the first line charge just to give to our foreign partners.

    On the benchmark, he said:  “The benchmark has been pegged at $38 and of course we have known that the oil price has gone much below that figure. I am sure that during this budgeting period, we will engage again  with the Committee on Finance and relevant committees and we should be able to peg the benchmark at a very safe figure that should be more realistic.

    “Of course, the benchmark is one of our concerns and the revenue aspect of the budget. One you have raised the issue of benchmark which we are going to work on to see that we peg it in what looks more practicable, then of course, there is the aspect of the non oil.

    “The non oil of  course, the projection looks realistic but if you go by history, we must also be extremely disciplined to ensure that the projections are met month after month; so, we are not unmindful of that.”

    Commenting on exchange rate, he said: “On the aspect of the exchange rate, it is an exclusivity of the CBN but of course we do engage them. The CBN usually comes up with justifications for pegging the exchange rates.

    “The CBN is an autonomous body, it is independent, so, we don’t tamper with that. But again within this period, we will still engage the CBN so that we can be able to discus with them if there are some possibility of any adjustment. Otherwise, in terms of exchange rate, we leave it as the CBN recommends to the National Assembly.

    “And very quickly also, there is the aspect of the budget of deficit financing, we are also concerned about that, in the next few days, we will be also going to engage the executive particularly, the Minister of Finance and  the Minister of Budget and Planning, so that we can really be sure how the deficit is going to be financed.”

    Jibrin said said there is need to reduce domestic borrowing and increase external borrowing in implementing the budget.

    “Generally the position of the National Assembly is  that we need to reduce domestic borrowing significantly, we expect that a chunk of the borrowing should come from external sources,”he said, adding that the economy is struggling “and when you now put so much weight on the local economy in terms of drawing more money, it is going to do a lot of harm to the economy.”

  • $10 oil soon? How did we get here?

    On Thursday, January 14, 2016, “Oil-Price.Net”, a commodity trader, posted $30.31/barrel for the (North Sea) Brent Crude, against which our Bonny Light is indexed.

    On the same day, anchor persons on BBC World Business Today, a daily Television dialogue, quoted Standard Chartered Bank analysts predicting, pessimistically, $10/ barrel for the black gold “someday soon.”

    The previous day, on January 13, 2016, Ibe Kachikwu, the Nigerian minister of state for Petroleum, in a CNN interview, hoped that production cuts, to boost price, could be achieved with OPEC and non-OPEC countries, Russia inclusive.

    It may wishful thinking. In the same interview few minutes later, the Minister of Petroleum of the United Arab Emirates (UAE), an OPEC member country petroleum minister, dismissed such notion, calling it “artificial.”

    He however expressed optimism that by end 2016, oil price would rally as demand would surge and high-cost producers would be thrown out of business? So, is the downward slide unstoppable? Is $10/barrel, at least in the short term, possible?

    Commodities, crude oil no exception, experience wide price swings. Until 16 years ago (precisely March 28, 2000), when OPEC adopted the $22 -$28 price band for the OPEC basket of crude, real oil prices only exceeded $30/barrel in response to wars or conflict and especially only in the Middle East.

    If long term history is anything to go by, crude oil upstream operators should plan to operate with profit under $25 per barrel oil. Back in my early days as a geologist at Shell Petroleum, Operating Expenditure (OPEX) rarely exceeded $5/barrel. Of course, then, economy of scale helped as no field went on stream if it did not make 30,000 barrels per day. There was then, in SPDC, the Atlas of Un-appraised Discoveries (UAD) which a Dutch colleague, Aryan Schouten-Netten, taunted in Dutch tautology, “un-appraisable discoveries.”

    Memory lane

    According to the energy newsletter WTRG Economist, crude oil prices between 1869 and 2011, adjusted for inflation to 2010 United States dollars, averaged only $24.58per barrel. This is the benchmark any upstream operator should stick to and this amount includes profit. It is the “normal” price according to industry analysts.

    The Texas Railroad Commission, precursor of OPEC, regulated since 1869, domestic oil prices in the United States. It did so successfully, arm-twisting operators in the oil producing states of Texas, Oklahoma and Louisiana by putting a lid on what which field produced.

    The Texas Railroad Commission effectively controlled oil prices in the United States prior to 1970. From 1948 through the 1960s, crude oil prices ranged between$2.50 and $3.00 per barrel: $17 – $19 in 2010 United States dollars.

    Enter OPEC

    OPEC was born in1960 with founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Eleven years later, its members included Qatar, Indonesia, Libya, United Arab Emirate (UAE), Algeria and Nigeria.

    In1971, Texas Railroad Commission lifted lid on U. S. domestic crude production (100% proration, the industry jargon). But by then there were no more spare production capacity in the country. The baton was passed to the new organisation, OPEC, headquartered in Vienna, Austria.

    Supply shocks

    Events in the middle East, since early 1970s created supply shocks while, at the same time, demand soared following post World War II recoveries in Europe, America and, lately, Asia (Japan and China).

    In reaction to United States support for Israel during the Yom Kippur war, Saudi Arabia, together with other Arab oil exporting countries, embargoed oil export to the United States. The war, initially between Israel on the one part and Syria (Hafed Assad, father of the current beleaguered Assad) and Egypt on the other part, was short lived- the six day war. But the embargo unleashed tremendous ramifications on the oil market.  Five million barrels per day of crude were taken off the market. Oil price quadrupled to more than $12 per barrel. OPEC arrived.

    OPEC toothless bulldog?

    The organisation, alas, had seldom succeeded in maintaining production discipline among members. For much of the 1980s OPEC was faced with lower demand and, more important, increasing non-OPEC supplies. Between 1982 and 1985, she attempted to set, but unsuccessfully, production quotas among members. The attempts were serial failures and oil prices continued to fall. In June 1986, world oil price tumbled below $10 per barrel.

    Crude vs refined export

    It is amazing how, for so long, we exported crude oil rather than finished petroleum products. Nobody makes money selling raw materials. It is akin to the proverbial yam farmer who grows lots of yams but sends them elsewhere to obtain pounded yam to eat.

    According to Global PetroleumPrices.com, an energy intelligent newsletter, world crude oil prices plummeted 44% in the last six months July 2015 – January 2016, alone. Since 2014, prices have tumbled even further. The Economist’s, an influential British weekly crude oil price index changed -50% a year on to January 2015 and an additional -35%  a year on to January 2016.

    The poor stuff trades today at $31per barrel 2016 United States dollars. Adjusted for inflation at 2010 United States dollars, this amounts to no more than $24 per barrel. And one year forecast said to be a mere $35 per barrel. Over the same periods, refined products prices barely nudged. Petrol, for example, averaged world-wide, 110 United States cents ($1.10) per liter. It was down only by 19% to 89 cents per liter. Automotive gas oil (AGO), popularly known as diesel, retailed world average 94 United States cents. It was down by a mere 18%, to 77 cents per liter.

    Fortunately, our country has made a dramatic turn, took the wise decision and remove fuel (really petrol only) subsidy. Our revered former petroleum minister, Prof. Tamuno David-West, called it [fuel subsidy] “monumental fraud.”

    Its removal would not only free huge amount of government budget for even much more needed social service- education, hospitals, roads, etc- but would pave the way for investment in the downstream: refineries.

    Aliko Dangote, Africa’s foremost business man is blazing the trail, building a huge refinery in Lagos. It is the wise thing to do. Others will follow.

    In his keynote address at the 2015 annual conference of the Nigerian Association of Petroleum Explorationists (NAPE), Layi Fatona, an industry dye-in-the-wool and Managing Director NDPR, Pioneer Marginal Field Operator and independent Refiner, forecasts Africa’s refining capacity need by 2020 would be a whopping 1.8million barrels per day. That’s about the amount of crude our oil fields produce daily. Lets shoot to refine all of that and by the end of the Buhari administration, himself a former petroleum minister, Nigeria no longer qualifies membership the unprofitable club of [crude] oil exporting countries, exporting only refined products from its numerous refineries.

    • Dokun is Consulting Petroleum Geologists and Products Marketing Consultants in Ilorin.
  • Making non-oil export economy’s heartbeat

    Making non-oil export economy’s heartbeat

    Can the Export Rediscounting and Refinancing Facility (ERRF) and the Non-Export Stimulation Facility (NESF) achieve their aims? Yes, they can, argue  experts, who note that the programmes can boost non-oil export and facilitate diversification of the economy, if properly driven by the government. Assistant Editor CHIKODI OKEREOCHA reports.

    They are coming at an auspicious time. The  Export Rediscounting and Refinancing Facility (RRF) and Non-oil Export Stimulation Facility (ESF) designed to stimulate non-oil export are coming when the economy is perhaps, at its most vulnerable ever. They are coming in the heat of the crisis in the international oil market where the price of crude has been crashing, requiring urgent rejuvenation of the non-oil export sector as wedge.

    Nigeria depends on oil for 70 per  cent and 95 per cent of her revenue and foreign exchange earnings. But global oil prices have been tumbling since June 2014, putting the finances of Africa’s largest economy/oil producer under severe pressure. From over $120 per barrel in December 2013, oil price nose-dived to around $60 per barrel in December 2014. By December 2015 and January 2016, oil price crashed to as low as $32 per barrel and $27 per barrel, respectively.

    Although, oil price went up slightly above  $30 per barrel, Tuesday this week, the unprecedented fall in oil prices necessitated strident calls on the Federal Government to speed up the development of the non-oil sector and the diversification of the economy to mitigate the impacts made worse by over-dependence on proceeds from crude oil. The new export financing programmes are therefore, seen as indication that the Federal Government may have finally seen the wisdom in reducing the country’s over reliance on export of crude oil as a major source of revenue, which price is prone to volatility.

    The Federal Government through the Central Bank of Nigeria (CBN) said last week that it has designed two export financing programmes known as RRF and ESF to improve non-oil export in the country and achieve total diversification of the economy. The move is seen by not a few experts and stakeholders as a short in the arm of real sector operators especially those in the non-oil export business,

    CBN Governor Godwin Emefiele, who made the initiative known in Abuja at the non-oil exports stimulation conference organised by the apex bank and the Nigerian Export-Import Bank (NEXIM), said the CBN and NEXIM came up with the initiative to encourage exporters expand their businesses as well as provide a pool of funds for commercial banks to enable them support exporters.

    According to Emefiele, credit to the non-oil export sector is currently in the decline, constituting a paltry 0.6 per cent of total domestic credit to the private sector in the past five years, while domestic credit to the economy has been on the rise. He blamed low level of export loans for being largely responsible for the decline in non-oil export revenue receipts from $10.53 billion in 2014 to $4.39 dollars in 2015.

    “The impact of these developments on the country’s export growth potentials is quite significant and has become instructive for stakeholders to dialogue on strategies to expand resources for export,” the CBN boss said, adding that the decline also limited the sector’s contribution to foreign reserve accretion.

    Emefiele said volatility in the international oil market s necessitated the renewed focus on non-oil exports as panacea to the nation’s dwindling foreign reserves. He noted that a rejuvenated non-oil export would stimulate economic growth and development, address the challenges of unemployment and target economic rebirth through the diversification of the Nigerian economy.

    At the conference themed ‘Strategies for Growing Nigeria’s Non-Oil Exports,’ Emefiele pledged that CBN will continue to play a catalyst role in improving export and encouraging local production through collaboration with the Ministry of Agriculture.

    Throwing  more light on the new facilities’ NEXIM Managing Director, Mr. Robert Orya, said the funds would be provided to all banks that lend to the export sector and that the banks would be mandated to give loans to exporters at nine per cent maximum. “If a commercial bank gives you a loan to say that you will return it in a year, the bank will not have money to loan out until you return that money.

    “But this window is such that as soon as this money is given to you, they will bring the credit papers and we refinance and give them the same money that they have given you, so they can give to another person. As soon as they finish disbursing to that person, they will bring the credit papers to us again and we will be able to refinance,” he explained.

    Orya emphasised that the facility is to encourage banks to lend by providing liquidity for them and to also enable them give the non oil facility at a moderated rate. He also said CBN and NEXIM would soon meet to finalise on the quantum of funds to be provided for the facilities and also the modalities for the disbursement.

    At the conference, which attracted about 400 participants across all stakeholders in the non-oil sector, the NEXIM MD said the funding would also aid exporters to improve on quality standards, packaging issues, export productions and operational challenges.

    Indeed, lack of quality control measures has been one of the greatest pains in the neck of exporters, which was why CBN’s latest intervention is music in their ears. “Quality is number one. It is the first thing that ought to be considered as the nation focuses on building a robust export-based economy,” the National President, Association of Systems Management Consultants, Mazi Coleman Obasi, said.

    While describing the initiative as a welcome development, the certified Quality Management Practitioner told The Nation that there is need for the authorities to speed up the adoption of the draft document for the proposed National Quality Policy (NQP) for Nigeria. He wondered why the formulation and subsequent adoption of the document is being delayed despite the fact that the European Union (EU) made available 12 million Euros about two years for the establishment of a National Accreditation System in Nigeria.

    He said the fund was supposed to support the enhancement of the national quality infrastructure, with a view to improving the quality, safety, integrity, and marketability of made in Nigeria goods and services. According to him, the intervention by the EU and other international technical partners was to increase the competitiveness of locally made products at the international market place.

    Under the EU-funded National Quality Infrastructure (NQI) project, implemented by the United Nations Industrial Development (UNIDO), with the support of the Federal Ministry of Industry, Trade and Investment, the objective was to improve the quality of products made in Nigeria so that they can be sold internally and in the international market. It was supposed to help develop a National Metrology Institute (NMI) to ensure that instruments are of international standards, improve the capacity of members of the Organised Private Sector (OPS) to conform to standards.

    The initiative, which was expected to produce a legislation that will contain a NQP and establish an internationally recognized National Accreditation Body (NAB) that will vet the activities of regulatory agencies such as the Standards Organisation of Nigeria (SON) and the National Agency for Foods, Drugs Administration and Control (NAFDAC).

    It will also establish conformity assessment bodies as well as enhance the powers of the Consumer Protection Council (CPC) and other consumer organisations to sensitize consumers on quality standards, and ensure improved consumer protection. But these have so far not happened. Yet, experts say that the creation of these key systems and institutions are supposed to boost the competitiveness of locally made products at the international market place and ensure the global acceptance of products and services from Nigeria.

    Failure by exporters to comply with specified standards is said to be responsible for mass rejection of non-oil exports from Nigeria at entry points in many countries in Europe. The Nation learnt that the rejected exports are mostly in the food and beverage segment where items such as beans, sesame seeds, melon seeds, fried fish, meat, peanut chips and palm oil are said to have been banned from entering Europe till June 2016.

    Non-oil products such as cocoa and cashew nuts were also rejected in many other countries, not only in Europe, with the importing countries citing  exporters’ inability to adhere to global standards, poor packaging, and high level of chemicals, poor labeling, insufficient information on nutritional content, and presence of high level of pesticide residue and presence of Mycotoxins.

    While admitting that lack of quality control measures remains a major hurdle on Nigeria’s quest to ride on the back of a robust non-oil export sector to grow and diversify the economy, the Chairman, Export Group, Lagos Chamber of Commerce and Industry (LCCI), Mr. Obiora Madu, identified other challenges facing non-oil exporters to include lack of incentives, logistics/infrastructure deficiency, and high cost of doing business.

    The Director General, Nigerian Economic Summit Group (NESG), Mr. Laoye Jaiyeola, said although policies to address the constraints of the non-oil sector abound, there is need to harmonise and properly implement them to ensure that they work. “People want to invest in the non-oil export sector, but our institutions and infrastructure must be right, our monetary policies must be consistent and macro economy level stable. But we scare them when we say one thing today and another tomorrow,” he said.

    Jaiyeola said the non-oil sector was fundamental to economic diversification, rapid revenue base expansion, sustainable growth and employment generation. He therefore, advised government to harmonise its non-oil export stimulation policies and ensure consistency in the administration of intervention funds to non-oil exporters.

    The Federal Government’s RRF and ESF are additions to previous policy interventions aimed at giving impetus to the emphasis on the non-oil sector in the face of the economic downturn caused by plunging oil prices. Recall that last year, the Federal Government gave vent to its push for economic diversification when it listing 13 National Strategic Export Products (NSEP) to replace oil. The 13 NSEP were listed in three categories including; agro-industrial- palm oil, cocoa, cashew, sugar and rice); mining related- cement, iron ore/metals, auto parts/cars, aluminium and oil and gas industrial products- petroleum products, fertilizer/urea, petrochemical and methanol.

    The former Minister of Industry, Trade and Investment, Dr. Olusegun Aganga, said then that Nigeria could no longer continue to be an import-dependent country. According to him, the nation was wasting its foreign reserves on imported products most of which can be produced locally.

    The Executive Director of Nigerian Exports Promotion Council (NEPC), Mr. Olusegun Awolowo, also said NEPC under his leadership had long recognised the need to develop the non-oil export sub-sector and had in the process held series of strategic meetings with stakeholders for the development of ideas aimed at improving the foreign exchange earnings by Nigeria through different avenues.

    These, he said, include the development of a 4-year Strategic Plan, One State One Product (OSOP), Nigerian Diaspora Export Programme (NDEX) and the development of new markets for new products. But as highly commendable as govern-ment’s moves to diversify the economy by riding on the back of non-oil export are, the political will to carry such policies to their logical conclusion remains the challenge.

    While real sector operators have thrown their weight behind the emphasis on non-oil economy, insisting that it is more inclusive, growth-oriented and characterized by high economic linkages and more sustainable, the consensus is that the success of the latest initiative, like previous ones, depends on the extent government demonstrates political will to carry them through.

  • Tackling plunging oil price dominates OWA confab

    Discussions on mitigating the impact of the plummeting global oil price dominated presentations and panel sessions at the ongoing 20th Offshore West African Conference and Exhibition (OWA) in Lagos.

    The three-day conference started yesterday and the concerns on the prevailing reality in the oil and gas industry were expressed by big and small players. The industry operators were sharing ideas on how tackle the plunged oil price that has refused to rally. They discussed various cos- efficient measures, and encouraging government policies that would keep them in business and sustain investments.

    The speakers were not optimistic that oil prices will rise, and said there is need for the West African sub-region to take urgent action that will address the problem in the short term while plan and strategise for the long term and the future.

    The Managing Director and Chief Executive, Total Exploration and Production (E&P) Nigeria, Nicolas Terraz; Chief Executive Officer, Ghana National Petroleum Corporation, Alexander K. M. Mould; General Manager, Deep Water Operations & Joint Interest Assets, Esso Exploration & Production, Nigeria, Oladotun Isiaka; Director-General, Federal Institute of Food and Industrial Research Oshodi, Gloria Elemo; and the Managing Director PennWell International, Glenus Ensar, among others were speakers at the event yesterday.

    Ensar said: “Guessing the oil price rebounding soon is a max game, with Iran coming online in the market and lack of demand from China, we assume that these relatively low oil price is going to stay for a while, therefore the participants at the OWA conference this year are intellectually looking at the best way forward to survive in the really tough moment.

    “Nigeria as an oil producer needs to continue to increase in transparency and make the act of doing business within its territory easy and sustain that process. The big word here is cost control; you need to bring down the price at which you continue to produce to maximize profit.”

    The Chief Executive Officer, Ghana National Petroleum Corporation, Alexander K. M. Mould, said the oil-producing firms should plan for longer period of low oil prices. He urged African governments on policy stability and consistency, noting that the long term of political risk in the continent has largely impacted negatively on businesses.

    He said countries such as Nigeria, Ghana and Libya are having relative high cost of production especially in the offshore and may have to shut down some wells and reduce production at a particular point. He said the United States would not relent in the shale oil production because it is a private sector. Private sector will only relent if they cannot meet the cost of production but they have presently reduced their cost to around $20 per barrel.

    It’s not a government policy, but in Nigeria, it’s a government policy, OPEC can make a policy and reduce the production but countries like Ghana will be based on economics, if our cost of production is high, we will have to shut down some wells. He said the cost of producing from Jubilee oil field is less that $10 per barrel.

    The 20th Offshore West Africa Conference and Exhibition, according to the organizers, PennWell International, began with over 2,400 attendees from more than 35 countries.

  • Content Board, banks discuss long-term loans to oil, gas firms

    Content Board, banks discuss long-term loans to oil, gas firms

    The Nigerian Content Development and Monitoring Board (NCDMB), has started  engaging banks to find ways of providing long-term funding to oil and gas firms, the Executive Secretary,  Denzil Kentebe, has  said.

    Kentebe, who spoke on the sideline of the Load-Out and Sail-Away ceremony of Chevron’s Sonam Non-Associated Gas Wellhead Platform (Sonam NWP), built by Hyundai Heavy Industries and Nigerdock in Lagos at the weekend, said the discussion has become imperative to enable banks move away from the current short term facilities to oil and gas companies, as the oil industry projects are long tenured.

    He said the Board has been in discussion with banks on the issue. “Discussion with banks to ensure they (banks) don’t put pressure on oil firms is nothing new to us, because we have over time been engaging the bankers and that has been one of the areas we have been pushing them to make sure we have facilities that last for quite long and not just short term facilities.”

    He debunked allegations that the Nigerian Content Fund has remained idle while many players in the  industry couldn’t access funds to execute their jobs, or projects.

    Kentebe, who refused to be drawn as to the current value of the Fund, or the amount so far disbursed, said Nigerian companies are utilising the Fund, “therefore it is not idle,” he added.

    He said: “The Nigerian Content Fund is not idle. The Fund is being utilised by Nigerian companies. For instance, Ladol, which is in Lagos, is taking advantage of the facility, and a lot of other companies. We are doing all we can to make sure Nigerians are more aware of the Fund’s availability. We are also engaging the banks to ensure that the banks release information at their disposal that can help their clients on the standards of the facilities that can be tapped into.”

    He expressed concern over the job loss in the industry on account of low oil prices in the international market.

    The Nigerian Content Development Fund (NCDF) as at April last year, had about $540 million. The Fund was established by the Nigerian Oil and Gas Industry Content Act (NOGIC Act), 2010 to address financial and liquidity challenges of local companies that operate in the oil and gas industry.

    The Fund is built through contribution of one per cent from every contract awarded to any operator, contractor, subcontractor, alliance partner, or any other entity involved in any project, operation, activity or transaction in the upstream sector. It is deducted at source by contract awarding entities and paid into designated accounts which are kept with Custodian Banks under the programme

  • Oil price falls below $27/bbl

    Oil price falls below $27/bbl

     For the first time since 2003, the  price of Brent crude, the world’s benchmark oil yesterday sold below $28 a barrel, America’s crude grade – West Texas Intermediate (WTI) $26.62 and OPEC basket grade $23.85 a barrel on Tuesday.

    Despite over 25 per cent slump in oil price so far this year with the attendant pains and fears, oil drillers and producing nations have continued to pump more oil into an oversupplied market. Oil traders are concerned that the crude oil supply glut could last longer.

    The world stock markets are declining. Nigerian stock market last week lost over N455 billion as stock prices failed to rally.

    The extent of challenge before the government and the citizens can be explained in the concerns over the implementation of this year’s budget. Currently the government has proposed to borrow $1.8 trillion to fund the budget based on a benchmark of $38 a barrel. Today the price has dropped below $27 a barrel creating a shortfall of over $10 a barrel in the budget benchmark.

    The International Energy Agency (IEA) said in a report that the world may soon drown in oversupply. Senior market analyst at Price Futures Group, Phil Flynn said there is also “a record short position in hedge funds and we have the promise of more Iranian oil on the world market. Add it all up and it’s causing the crude-oil market to crater around the globe.”

    Iran’s production is expected to ramp up fairly significantly this year. The country projects that its production will increase by 500,000 barrels per day (bpd ) in the coming weeks, along with a further 500,000 bpd in the next few months. The IEA in its monthly oil market report projected it will rise by 0.3 million bpd by the end of the current quarter, and by 0.6 million bpd by mid-year. The EIA expects it to average 3.1 bpd in 2016, an average increase of 300,000 bpd across the entire year.

    A university don at the Pan Atlantic University, Dr Austin Nweze confirmed it would be a challenging year for the country. He said the price of oil will get worse before getting better, adding that the return of Iran into the mainstream will worsen the situation.