Senate fumes over high cost of oil production

The Nigerian National Petroleum Corporation (NNPC) on Monday came under fire at the Senate over the cost of crude oil production in Nigeria.

In the revised 2020 budget, the cost of crude oil production is pegged at $21.2 per barrel, while the oil price benchmarked is at $25, resulting in marginal profit of just $3 per barrel for the country .

Members of the Senate Committee on Finance, at a meeting with Minister of Finance, Budget and National Planning, Zainab Ahmed, and other heads of revenue-generating agencies, expressed worry that crude oil production in Nigeria was among the most expensive in the world.

They said it was difficult to understand its economic benefit for the country if the government could only get $3 as its returns on investment.

The NNPC’s chief operating officer (Upstream), Yemi Adetunji, blamed the high production cost on security challenges, oil theft, pipeline vandalism and administrative cost.

But almost all the members of the committee dismissed his submission as untenable, saying that all oil-producing countries have their own unique security challenges.

Chairman of the committee, Senator Solomon Adeola (Lagos West), said the Senate was beginning to be afraid as to why the country is channeling all its efforts to the oil and gas if the return on investment is nothing to write home about.

According to him, while cost of oil production in Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is $21.2 per barrel in Nigeria.

He said “I begin to look at the oil revenue and the mineral revenue as proposed in the MTEF that has dropped from almost N8.86trn to N3.33trn, are you saying that it is worthwhile investment for us as a nation.

“Going by the fact that the cost of producing one barrel is $21 and the benchmark is $25 and all these costs you have listed, who determines them. How do you ensure that Nigeria is being charged the right cost on each barrel of oil.”

Senator Adeola’s position was re-echoed by other members of the committee.

However, the NNPC said it was working with relevant stakeholders to reduce the high production cost, which, it said, historically had been $30 per barrel.

Adetunji said, “We know that these costs are high that is why we have decided to go from even the initial approved of $25 per barrel in the earlier approved budget to $21 per barrel.

“There are things we are targeting. Security challenges are kind of peculiar to Nigeria. In other climes pipelines are on the surface you hardly see them being tampered with but in Nigeria even when they are buried two to three metres deep, they are still being vandalised.

“In some cases we are trying to take them to deeper levels but those ones will add to cost of production like going 10m to 15m deep. It will add to the cost about three or four times the cost of production as against putting the pipelines on the surface.

“We are working with security agencies to put in place new framework to ensure that all the hitches are brought down to the nearest minimum.”