With crude oil trading around $30 per barrel in the international market from a peak of $114 in June 2014, production from Nigeria now faces a decline as some fields face an imminent shutdown if the low oil price persists.
Industry players say operating some of the fields in the country is becoming uneconomic, with the selling price of oil being driven down close to the production cost level.
The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria.
“When oil price drops, we are all in serious trouble, because if the oil price and your unit operating cost are almost the same, it means that when you sell the oil, there is little profit or you are at a loss. Many companies are not far from there,” the Project Director for the Uquo gas field development, a joint venture project by Frontier Oil Limited and Seven Energy, Alhaji Abdullahi Bukar, told our correspondent.
“The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,” he added.
According to Bukar, the average production cost for many of the fields in the country is $24 to $25 per barrel.
“For some fields, the production cost is well above $25, maybe $28. For some fields, it is well below $20 and $25. Many of the older fields, which are mostly with the International Oil Companies, have got high production costs,” he said.
Global financial services firm, Morgan Stanley, on Monday joined banks such as Goldman Sachs, City Group and Bank of America Merrill Lynch, in warning that prices could slide to $20 per barrel.
Bukar said, “The production in Nigeria is going to suffer. In the last five years, we have not invested as much as we should to develop additional reserves. Once, we keep going like that, whether there is price change or not, the amount of oil Nigeria is going to be producing will go down.
“When the price drops as low as $20-$30 range, people who have got those old fields or fields where oil production cost is above the selling price will shut them down. There is no point in producing oil to sell at a loss.”
Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue. Oil production in the country has continued to hover between 1.9 million barrels per day and 2.3 million bpd in recent years.
President Muhammadu Buhari had projected crude oil production of 2.2 million bpd for this year’s budget, down from 2.2782 million bpd in the 2015 budget, with oil-related revenues expected to contribute N820bn.
Industry experts also say the continued decline in global oil prices would stall a number of deep-water projects in the country.
The Chief Executive Officer, Petrosystem Nigeria Limited, Mr. Adeola Elliott, said, “Obviously, the plunging price will affect investment in new fields. I had a discussion with a top official in one of the IOCs operating in the country. What they have done now is to just keep maintaining the facility they have now and producing what they producing now. There is no more new investment.”
Prior to the drop in prices, several IOCs had in recent times shifted more of their focus to the offshore areas of the Nigerian oil industry as a result of onshore risks, with a number of planned deep-water projects expected to come on stream in the coming years.
Deep-water oil projects that have yet to achieve Final Investment Decision include Bonga Southwest and Aparo (Shell); Zabazaba-Etan (Eni); Bosi, Satellite Field Development Phase 2 and Uge (ExxonMobil); and Nsiko (Chevron).
An energy expert and Technical Director, Drilling Services, Template Design Limited, Mr. Bala Zakka, said with oil at $30 per barrel, the profits and projects, including Corporate Social Responsibility activities of many oil firms would be negatively affected.
“Major deep-water projects will be affected because they are very expensive. If oil continues to fall, a lot of exploration and drilling campaigns will reduce. A lot of marginal field operators will not be able to drill new wells. There is every possibility that companies will retrench to be able to stay afloat,” he said.
The Head, Energy Research, Ecobank Capital, Mr. Dolapo Oni, said, “Our production is really having issues, and I think it might be worse in 2016. Our production is likely to reduce this year.
“There are not as many fields likely to come on stream this year. Most companies just want to focus on their existing production. So, it is possible we won’t see as much new production come on stream to reverse the trend of decline in major fields we have. That might make production go down.”
Oil prices could reach as low as $10, Standard Chartered warned, stating, “Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the dollar and equity markets.”
Wood Mackenzie, the energy consultancy firm, said in a report last week that since the oil price collapse in 2014, 68 major upstream projects containing 27 billion barrels of oil equivalent had been deferred.
This, it said, amounted to $380bn of capital expenditure deferred by total project spend in real terms.
It stated, “As oil prices continue to fall and capital allocation tightens, we expect the list will grow further. The level of production impacted by these deferrals is material in a global context.
“The FIDs on many of these projects have been pushed back to 2017 or beyond. Deep-water is hit the hardest. Over the next five years, $170bn of potential investment currently hangs in the balance across these 68 projects.”
Wood Mackenzie says, in all, some 27 billion barrels of oil equivalent in reserves, or 2.9 million barrels per day of liquids production, will not come on stream until early in the next decade, later than envisaged.
High cost deep-water fields, particularly those in Angola, Nigeria and the Gulf of Mexico, requiring heavy upfront investment, account for more than half of that deferred production.
Oil Slips With Energy Prices in Europe Halts Record Rally
Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.
West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.
Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.
The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.
Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”
Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.
Fuel Scarcity: Petrol Sells N220 Per Litre in Nsukka
Premium Motor Spirit, otherwise called petrol, now sells for between N200 and N220 per liter at the independent marketers’ service stations in Nsukka, Enugu State.
The News Agency of Nigeria is reporting the hike in the price against the official pump price of N162 per liter.
It said it started about a fortnight ago due to the scarcity of the commodity in the town and its environs.
Some residents of the town expressed deep worry over the development in separate interviews with NAN on Wednesday.
A civil servant, Stephen Ozioko, said the situation had further compounded the economic difficulties in the area.
Ozioko said many private car owners had been compelled to park their vehicles at home and move around in public transport.
He said: “Since the scarcity started, I decided to park my car and take public transport to the office and back home. N220 per liter is exorbitant and I cannot afford it considering my salary as a civil servant. I shall continue to use public transport until the situation returns to normal.”
A building material dealer, Timothy Ngwu, said the development had also led to an increase in transport fare in the area.
Ngwu said: “Some people now trek from Nsukka Old Park to Odenigbo Roundabout because of the 100 percent hike in fares from N50 to N100 by tricycle.
“Before now, transport fare from Nsukka to Enugu was N500, but transporters now charge between N800 and N1000.”
Also, a commuter bus driver, Victor Ogbonna, described the scarcity and hike in the price of petrol as “unfortunate and an ugly development”.
Ogbonna added: “Today, only a few filling stations are selling the commodity in Nsukka town, while others are shut.”
He alleged that some filling stations, which claimed to be out-of-stock, were selling to black marketers at night.
He said: “This is why black marketers have sprung up everywhere in the town, selling the commodity for about N300 per liter.”
NAN reports that virtually all the major marketers in the area have stopped the sale of petrol, claiming to be out-of-stock.
The people called on the government to urgently intervene in order to bring the situation under control and also put an end to its harsh economic effects on the messes.
DPR Targets N3.2T Revenue by Year-End
Nigeria’s Department of Petroleum Resources (DPR) will hit the N3.2 trillion revenue target by December 2021, according to its Director/ Chief Executive Officer, Mr Sarki Auwalu.
Auwalu made the disclosure when he led a delegation of the DPR management team to the Executive Secretary of Petroleum Technology Development Fund (PTDF), Mr Bello Gusau, in Abuja on Wednesday.
He said that 70 percent of the revenue projection had already been met. “Last year, we exceed our revenue budget. We were given N1.5 trillion but we were able to generate N2.7trillion.
“This year, our revenue budget was N3.2 trillion. By the end of August 2021, we have generated up to 70 per cent.
“So, we with September, October, November and December, it is only the 30 per cent that we will work over,’’ he said
He noted that the government took advantage of fiscal terms within the old and new legislation, thereby creating a level of increased signature bonuses.
“We reorganise the work programme that is normally being done in the DPR to key into the new operational structure as we see it in the bill, now an act.
“That programme is being handled by the planning and strategic business unit as against what we use to have because the entire work programme is supposed to show not only technical but also commercial and viability of oil fields and to guarantee the return on investment for investors.
“We have also created an economic value and benchmarking unit to key into the new fiscal provisions of the PIA,’’ he said.
Commenting on capacity, Auwalu said the country stands at the advantage of exporting skills to emerging oil and gas countries across Africa with proper implementation of the newly passed Petroleum Industry Act.
This, he said, the DPR was ready to partner with the Fund to continue to build capacity in the oil and gas sector
He noted that the Federal Government was determined to create leeway that would encourage investors and drastically improve the nation’s petroleum industry.
He further noted that no fewer than 300 legal battles in the oil and gas industry in Nigeria, which had been stalled for the past 20 years in courts, had been resolved through alternative dispute resolution.
According to Auwalu, the DPR is strategising well to ensure effective implementation of the PIA.
Responding, Gusau commended the DPR for enabling the industry and enhancing business activities in the oil and gas sector.
He said that DPR remained the head of the oil and gas industry in Nigeria adding that the Fund was grateful to benefit from the wealth of ideas from DPR.
“The last time we visited, we had a good discussion and issues raised are being implemented like tracking the inflow of funds in signature bonus accounts.
“We extended the meeting and involved ministry of Finance, Accountant General office and even the Central Bank of Nigeria (CBN).
“Sitting at field development plans and attending significant meetings, helped us to know where and what the industry is trying to do and it also helps to inform our decisions in training and capacity plans,’’ he said
He urged the DPR to continue on its effort to ensure an efficient and productive petroleum industry in Nigeria
He assured collaboration with all as the head of the implementation committee of the Petroleum Industry Act. (NAN)
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