Should Rising Oil Prices Be A Problem For Nigeria?

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Recently, the GMD, Nigerian National Petroleum Corporation, Mallam Mele Kyari, asked Nigeria not to rejoice at the rising prices of crude oil. As a person when the price of your product is rising and the buyers are present, willing and able, should you rejoice or cry? Among Kyari’s major worry is settling fuel subsidy receipts. IMF, in its characteristic manner has expressed its disdain for government’s continued fuel subsidy payment. Chris Paul reports

When crude oil price rallied around $75 per barrel on Friday, Nigeria were about singing the alleluia chorus, when the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, warned that rather than being a positive development, the rising prices of crude oil in the international market could cause major challenges for resource-dependent nations like Nigeria.


Speaking at the virtual Citizens Energy Congress, tagged: “Securing a Sustainable Future Energy System through Strategy, Collaboration and Innovation,” on Thursday, 17, Kyari described the rising price of crude oil as a “chicken and egg” situation; adding that oil prices had started leaving the comfort zone set by the NNPC, and becoming a burden.

For Nigeria to have sufficient comfort, Kyari puts the tolerable globally price at $58-$60, stressing that anything above $70-$80 will create major distortions in the projections of the corporation and add more problems for the NNPC.

According to him Brent crude, Nigeria’s oil benchmark, is currently selling beyond $74 and may increase further in the coming days as the NNPC continues to battle the dilemma of shouldering the payment of petrol subsidy, which has drained its purse to the point it was unable to contribute to the Federal Account Allocation Committee (FAAC) on two occasions.

Expressing concern over price rise for the commodity, Kyari feared buyers of Nigeria’s crude may be compelled to accelerate their investment in renewable sources of energy, thereby leaving the industry in a quagmire.

“In a resource-dependent nation like Nigeria when it gets too high, it creates a big problem because your consumers shut down their demand.

Demand will go down and obviously even as the prices go up, you will have less volume to sell.

“So, it’s a chicken and egg story and that’s why in the industry when people make estimates for the future, they always make it about $50 to $60. Nobody puts it beyond $60,” he said.

The burden, however, for Nigeria, according to the NNPC GMD, is that providing cheap fuel also increases; which Kyari affirmed, “Is a challenge for us but on a net basis, you know, the high prices, as long as it doesn’t exceed $70 to $80, it’s okay for us.”

But he assured that Nigeria will have no problems supporting the restoration of about 5.8 million barrels a day that the Organisation of Petroleum Exporting Countries (OPEC) still has offline since the pandemic, consequent upon curbs in production quota imposed by the oil cartel.

For him, adding that number to demand is the fix that will stabilise and probably bring oil prices down to about $60 level or a little below $60; and that Kyari asserted is the comfort zone every producing company or country desires to be in.

The NNPC GMD does not envisage any difficulty, with Nigeria, agreeing to add additional volume to cushion the effect of these high prices for this period.

Although, in early 2020, the country actually produced up to 2.4 million barrels of oil per day for both oil and condensates. Kyari revealed that Nigeria is already producing well below its capacity, today.

If the rising Oil price is not properly managed, the NNPC chief believes, the next five years, the world may experience an energy crisis; due to declining investments in the oil sector.

“But we know that a number of things are going on in the transition journey at renewables. Many oil companies are transiting to renewables in the future. And that means that emphasis will be on gas and I see a very turbulent next five years and potentially some stability in the next 10 years,” he said.

As the hitherto fossil fuels-driven world is transiting to renewables is an ongoing reality, Kyari’s concern is fired by Nigeria’s infrastructure-deficiency which requires resources from oil to exit poverty.

An effective transition for Nigeria entails going for a low-carbon option and moving towards more gas development than the liquids.

He added that in the long run, the country would need to wean herself off oil dependence.

“Renewables are real and we are making efforts to go in that direction, but obviously, our first step is to develop our gas resources.

“In this industry, you can’t do anything except you have the financing and financing is now clearly constrained both in terms of available resources and the decision of some of the shareholders of some of the lending institutions,” he said.

Kyari is disturbed by the disquieting silence on gas, as an alternative energy resource and the immense possibilities therein; saying,

“Everybody is saying that in the next 10 years, we will get to peak oil. But nobody has said peak gas. And it’s very difficult to distinguish the two because as you get peak oil, in many cases, you know, oil is produced alongside gas.

“Yes, it’s possible, it can be in 10 years’ time but you also know that what we are doing today in the industry is also curtailing investment and meeting the transition target in 2050.

“What that means is that in five years’ time, you could be in a situation of shock and this shock will mean that people will have to put more money into producing the liquids and that means that it will defer the date for liquid oil and potentially pushing it by 20 to 30 years.”

The NNPC GMD made these concerns about the same time the International Monetary Fund (IMF) was worrying over the re-emergence of fuel subsidy in Nigeria in the face of the country’s low revenue mobilisation.

Although, IMF said the views expressed in the statement were those of the IMF staff and did not represent those of the IMF’s Executive Board, the anti-fuel subsidy statement credited to its staff has been IMF’s sing-song since the subsidy situation became Nigeria’s portion.

Led by IMF’s Mission Chief for Nigeria, Ms. Jesmin Rahman, in the virtual meetings with the Nigerian authorities, held from June 1st to June 8th, 2021, the IMF team came to discuss recent economic, financial developments and outlook.

At the end of the visit, Rahman, in the statement, said the Nigerian economy had started to gradually recover from the negative effects of the COVID-19 global pandemic; saying, “The mission expressed its concern with the resurgence of fuel subsidies. It reiterated the importance of introducing market-based fuel pricing mechanism and the need to deploy well-targeted social support to cushion any impact on the poor.

“The mission recommended stepping up efforts to strengthen tax administration to mobilise additional revenues and help address priority spending pressures.”

It stated that tax revenue collections in Nigeria were gradually recovering but with fuel subsidies resurfacing, additional spending for COVID-19 vaccines, added to address security challenges, the fiscal deficit of the consolidated government was expected to remain elevated at 5.5 per cent of Gross Domestic Product (GDP).

It added that following sharp output contractions in the second and third quarters, GDP growth turned positive in the fourth quarter (Q4 2020) and growth reached 0.5 per cent (year-on-year) in Q1 2021, supported by agriculture and services sectors.

Of great concern, however, to the Team, was the declining employment level in the country which continues to deepen dramatically together with other socio-economic indicators, remained below pre-pandemic levels.

“Inflation slightly decelerated in May but remained elevated at 17.93 per cent, owing to high food price inflation. With the recovery in oil prices and remittance flows, the strong pressures on the balance of payments have somewhat abated, although imports are rebounding faster than exports and foreign investor appetite remains subdued resulting in continued forex shortage.

“The incipient recovery in economic activity is projected to take root and broaden among sectors, with GDP growth expected to reach 2.5 per cent in 2021,” it added.

It anticipated that inflation in Nigeria would remain elevated in 2021, but likely to decelerate in the second half of the year to reach about 15.5 per cent, following the removal of border controls and the elimination of base effects from elevated food price levels.

Downside risks to the near-term arise from further deterioration of security conditions, and the still uncertain course of the pandemic both globally and in Nigeria, it added.

In the face of Nigeria’s prevailing condition and the current contexts running the nation’s affairs today, Kyari’s rising Oil prices alarm and IMF’s fuel-subsidy fears may be misplaced.

Concerning the rising Oil prices and the fear of losing Nigeria’s customers, all the NNPC needs to do is to look inward.

Even if the world decides to move into renewables next month, for instance, the Nigerian and African market with over $1 trillion GDP, is still a substantially large field for the nation’s Oil to play.

Besides, the growing renewable energy Community came into being, largely to escape rising Oil prices and of course exit the carbon pollutions that come with the usage of resource. So, at some point, Nigeria is bound to lose Buyers who will run to renewables to power their businesses etc.

The commonsensical thing for NNPC to do, therefore, is to use the proceeds to aggressively pursue and power the federal government non-Oil Export drive, while exerting an equally effective energy on the campaign for the development of renewables.

Meanwhile, the potentials for the domestic market of Crude Oil cannot be ignored.

For an economy that is literally driven by fossil fuel, the NNPC will not lose much, in a worst case scenario, should Buyers be scared away by rising Oil prices.

Rising number of domestic Refineries creates a ready in-country market for the nation’s Oil.

Following on that the output of petrochemical products by the Local Refiners will generate another ready revenue source for the economy.

The corporation’s recent purchase of 29% stake in Dangote Refinery, as a sign of its new strategy to ensure fuel availability and affordability in the country, demonstrated Kyari’s understanding of the nation’s downstream debacle.

With a Dangote, for example, the national oil company will be using one stone to kill the many birds of doom that have been eating the heart of Nigeria’s economy.

Once the Dangote and other private Refineries come on stream, fuel scarcity and importation will be a thing of the past.

Central Bank of Nigerian Governor, Godwin Emefiele, will cease to sweat in his air-conditioned office with worry over the scarce forex fuel importation gulps almost on a daily basis.

The nation’s economy will breathe better with fuel importation headache taken care of; just as non-Oil Export players can now have unhindered access to a forex that will most likely be in excess of expectations.

That means the naira will begin an accelerated rise from its ashes and naturally gather enough steam to push down inflationary pressure on Nigerians and the economy at large.

Other Petrochemical products, imported by players in allied and other sectors of Nigeria’s manufacturing Community will now be sourced back home, in Nigeria.

In other words, these materials will be easily accessible to Industries; eliminating the headache associated with pre and post importation management.

Stressless, Companies can now have enough comfort to hire more hands to work in factories; thus drastically decapitating the raging monster of the unemployment market.

It is a concern for Nigerians, that in all of IMF’s fuel subsidy fears and the solutions being proffered by international finance body, it has never advised let alone insist or volunteered to help Nigeria repair her Refineries quickly to save the country from the pocket-tearing fuel subsidy payment.

What is more worrisome is the fact that the body is silent over the growing indigenous private Refiners in the country.

Why it has refused to acknowledge a Dangote Refinery as one of Nigeria’s low hanging fruits in solving the subsidy problem is in itself a worry to all well-meaning Nigerians.

In its statement, IMF admits that the endless insecurity plaguing the country, today, is a major problem for the economy.

In real terms, with the rising insurgency, killing and kidnapping in the country, there may be no economy to talk about, if the cancer is not treated once and for all.

IMF knows that much; and if in doubt, ask those living in North Eastern Nigeria. Ask Rwanda; ask Nigerians who lived in the South East during the 3-year Nigerian civil war.

For purposes of this discourse, let us concede (for a moment) to the IMF and apply its ‘bitter pill’ as some Analysts say.

So, in other to save scarce foreign exchange money, Nigeria decides to allow as IMF ‘advised’ to allow Nigerians to pay per liter, the price that defines or captures current international oil price reality.

The recent report by the Kaduna State Governor, Nasir El Rufai- Committee will win an IMF award as the best ‘fix’ for an economy in distress.

Against the backdrop of NNOC’s alarm that the corporation may no longer be able to contribute to the federation account, because fuel subsidy payment is now taken most of its profit from Crude Oil sales, the Rufai- Committee came up with a solution scared and shook Aso Rock to its foundation.

What was it?

The committee recommended that Government should ‘mandate’ NNPC to sell petrol to Nigerians at N385 per liter.

So, a ‘fearless’ President Muhammadu Buhari gives his approval as the Principal Petroleum Minister.

With the rage seething inside over 90% of Nigerians, arising from deepening poverty and overwhelming state of insecurity, the tragedy that will be visited on neighborhoods, streets, state houses and infrastructure can be better imagined.

Thankfully, Buhari must have done a quick mental scan of a N385 per liter of petrol Nigeria and decided, it is not the kind of inferno he or any Government can handle.

In other words, as ‘nice’ as the IMF advise may seem and as ‘sweet’ its anti-fuel subsidy song may sound in the mouth of anti-fuel subsidy proponents, its demerits are a danger to the very country and economy the international finance body claim to be speaking for.

The danger this IMF idea portends for Nigeria and her economy contradicts the organization’s objectives for the nation’s economy.

In the end, the fear of fuel subsidy payment, and the worry that there may be no more revenue from the sale of Crude Oil for Nigeria, is what informed Kyari’s pessimism at a point where Nigeria should be celebrating rising Oil prices.

Like an adrenaline rush, Kyari’s stated worry bolstered an excited IMF to believe ‘this is the exact time to push’ its anti-fuel subsidy agenda against Nigeria.

Should Buhari’s government fall for this anti-fuel subsidy temptation, there may be no country and no economy to control.

– Thisday

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