Three weeks into Russia’s invasion of Ukraine, causing the usually volatile crude oil prices to skyrocket beyond bookmakers’ predictions, many oil-producing countries are counting their fortunes in the windfall, but Nigeria is counting its losses, due to the mismanagement of the oil and gas sector by the Nigerian National Petroleum Corporation (NNPC).
From the opening crude oil price of $76.03 per barrel at the beginning of 2022, prices have jumped to about $130 per barrel, about 70 per cent increase, and the highest price for the commodity since over a decade ago.
The last time prices went so high was in 2008, when they hit $145.31 per barrel on account of huge demand by developing countries, especially China, at a time when production fell in the Middle East. Crude oil prices also stayed high, above $100 per barrel, for much of 2011 to 2013.
The gloom for Nigeria in the era of increased commodity prices was first forecasted by World Bank Country Director for Nigeria Shubham Chaudhuri, who said in January that “Nigeria is at a point now where rising oil prices might not be a good thing because although oil production might go up and crude oil revenue may increase, which in some sense is a good thing, the fiscal cost of PMS subsidy and gasoline subsidy will also go up.”
The World Bank chief made the remarks when crude oil prices were at $88 per barrel. However, it came as a surprise when the Minister of State for Petroleum, Timipre Sylva, spread the sad news that the windfall from the Russian-Ukrainian crisis was not a source of hope for Nigeria.
Many oil-producing countries, like Saudi Arabia, Norway, Brazil, United Arab Emirate, Kuwait, Canada, have begun to boost their stabilization funds with the windfall. But, from the handwriting on the wall, Nigeria may not have any reason to celebrate though prices have risen far beyond $62 per barrel projected for the 2022 budget.
All things being equal, the difference of $68 per barrel of Nigeria’s crude oil earnings should be set aside, out of the current $130 per barrel. But this may not happen for two reasons. One, Nigeria is a net importer of refined petroleum products, in spite of the fact that the country owns four refineries. As a result of the ineptitude of the NNPC, the refineries in Kaduna, Warri and Port Harcourt, and even the core of the Midstream oil and gas sector have failed. Not for lack of funding because billions of dollars have been sunk into them.
The consequence of the mismanagement of the refineries is that the 440,000 barrels of crude oil supplied to NNPC daily for local refining is exported and never transparently accounted for. Even refined products supposedly imported at the bitter and harsh oil prices, are coloured with dubious statistics about daily petroleum products consumption.
The revitalization of the four refineries has been a refrain of the Buhari administration since 2015. Seven years after, the refineries are not pumping out refined products. The Group Managing Director of NNPC, Mele Kyari, claimed that in 2021, N100 billion was sunk into the maintenance of the refineries, an average of N8.2 billion every month.
The amount is different from $26.5bn already spent on the supposed Turn-Around-Maintenance (TAM) of the four refineries over the years, an amount enough to build three new refineries, according to experts.
Apart from being fleeced by NNPC and its collaborators in the name of oil subsidy or the strange term ‘under-recovery,’ Nigeria has failed to meet its oil production quota allocated by the Organisation of Petroleum Exporting Countries (OPEC).
From an average of 2.1 million crude oil production quota per day, when the Buhari administration was voted into power in 2015, Nigeria is at present allocated 1.7 million per day, out of which it produces between 1.3 million and 1.4 million per day. This shortfall is a result of the lack of investment, as International Oil Companies (IOCs) have continued to exit Nigeria’s oil sector.
Another excuse being peddled by NNPC is untamed oil theft in the Niger Delta. These excuses constitute evidence of mismanagement and lacklustre attitude of the drivers of the oil and gas sector to its development.
In spite of the above scenario, the Ministry of Petroleum Resources, NNPC and its subsidiaries cannot convince Nigerians that there will be no gains from the current oil windfall. Such gains must not be frittered away under any guise.
In the wake of the Russian-Ukrainian crisis, crude oil-producing countries are saving gains in their stabilization funds, projecting how to use the excess earnings to boost their economy and improve on the provision of social infrastructure for their citizens.
We, therefore, call on the National Assembly to investigate this issue thoroughly and ensure that money meant for the country indeed comes to the country. The managers of Nigeria’s oil and gas sector must account for the gains that accrue to Nigeria from the current windfall.