Nigeria not worried about falling crude oil prices, says Kachikwu
Ibe Kachikwu, minister of state for petroleum resources, says Nigeria is unruffled by the slide in crude oil prices, maintaining that the country can comfortable ride the storm with oil prices hovering between $60 and $70 a barrel band.
The global crude oil market had been rattled recently on the back of mounting fears of another supply glut with the Brent crude, the international benchmark of crude oil, shedding $5 during the past eight days of trading.
But with Nigeria’s oil production on the ascendancy, the federal government believes the oil price band for now will not create another shock for the economy.
Kachikwu, at a world press conference on Thursday in Abuja, said rather than the oil prices, what the country and oil producing companies should be worried about is that of keeping production cost low.
“I don’t think we need to be panicky about it, we hit $70 per barrel in December which was a surprise to all of us. We are not ruffled by it. I know it has come down to highest $60s now,” the minister said.
“We were producing 2.07 million b/d at the end of January was at 2.07 million b/d, with crude oil alone averaging 1,707,294 million b/d. So we are not rattled at all by the decline in oil prices, but to focus on production costs.”
The 2018 budget is anchored on oil price assumption of $45 a barrel and production benchmark of 2.3 million b/d.
The Organisation of Petroleum Exporting Countries (OPEC) had reached an agreement with non-member countries in November to reduce crude supply to the market in the bid to boost prices.
Prices recovered from as low as $40 a barrel to a high of $71 a barrel at the end of January this year.
However, a surge in shale oil output by the US has threatened to overturn the gains of the historic accord between OPEC and non-OPEC countries.
Kachikwu, however, said it is not yet time for OPEC to press the panic button.
“The recent drop in oil prices was still insignificant to worry OPEC,” he said.
“But I have always said that OPEC needs to just focus on itself and what it needs to do, and forget what is happening in shale.
“Every OPEC producer must work hard to be a least cost producer because the truth is that if Shale can produce at $65, there is absolutely no reason why we should be struggling. So, upper $60s is not too bad, we moved from $27 and $28, let’s not begin to complain, it is a bit too early. These things fluctuate.”
Kachikwu to NNPC: Do whatever it takes to end petrol queues in Abuja
Ibe Kachikwu, minister of state for petroleum resources, says the Nigerian National Petroleum Corporation (NNPC) should “do whatever it takes” to end petrol queues in Abuja before Sunday.
Speaking at a press conference on Thursday to announce the upcoming Nigeria International Petroleum Summit (NIPS) in Abuja, Kachikwu said it would be “embarrassing” for delegates of the event to witness the long fuel queues in the city.
Kachikwu said that the crisis resulted from both “policy and logistics” challenges and will be addressed accordingly.
“I can tell you behind the scenes, a lot of meetings are taking place because the fuel queue issue is both logistics and policy issues,” he said.
“We will need to address fundamental policy issues to enable it go away especially in the area where the pricing is showing differentials between the landing price and sales price.
“I will hate for my colleagues to come and see the fuel queues so my directive to NNPC would be to get these queues out of Abuja.
“I haven’t gone round today but when I went round yesterday there was a huge improvement and I will be instructing the NNPC to do whatever it takes to ensure there are no queues next week.
“Quite frankly, they will have to do whatever it takes to get this eliminated in Abuja.
“That is the directive I will be sending to the NNPC and let them work night and day to put a lot more efforts in trying to do this.”
Speaking on the maiden edition of the petroleum summit, Kachikwu said it would kick off on February 18 and close on February 23.
He said the NIPS event is geared towards building capacities, fostering competitiveness and opening up investment opportunities in Nigeria’s oil and gas industry.
Oil contribution to GDP rebounds after four-year fall — but Nigeria still vulnerable
Oil contribution to Nigeria’s gross domestic product (GDP) is on the rise after witnessing a downward trend over a four year period-between 2013 and 2017.
In the second quarter of 2017 (Q2 2017), Nigeria came out of its worst recession in 29 years after five successive quarters of lackluster performance in the oil and gas sector.
Data from the National Bureau of Statistics (NBS) showed that the economy grew at 0.55 percent in that quarter.
The rebound was driven predominantly by improved performance in four key sectors — oil, agriculture, manufacturing and trade.
In that quarter, oil contribution to GDP was 9.04 percent, up from 8.79 percent in the corresponding quarter of 2016 (Q2 2016) and 8.53 percent in the preceding quarter of 2017 (Q1 2017).
Year-to-date oil growth rate also rose from -14.45 percent to 3.80 percent.
The increase in oil GDP was attributed to amplified oil production, which was revised from 1.84 million barrels per day (mbpd) to 1.87mbpd.
Oil production for Q3 2017 also increased by 420,000 barrels per day, spiking to 2.03 mbpd, from 1.61 mbpd in Q3 2016.
Maintaining its growth trajectory, oil GDP in Q3 2017 rose to 10.04 percent, up from 8.09 percent in Q3 2016 and 9.04 percent in Q2 2017.
REDUCED OIL PRICE AND OUTPUT WEAKENS GDP
In 2015, the annual average of Brent crude, the international benchmark for crude oil fell to $52.35 from $99.03 per barrel in 2014. These depressed global oil prices, coupled with challenges in oil output in Nigeria, largely affected crude oil contribution to GDP.
By 2016, the global average for brent crude had fallen to $43.55 per barrel. This led to a visible reduction in oil sector’s share of real GDP. This also was occasioned by falling oil prices as well as increased pipeline vandalism in the Niger Delta region.
Lack of substantial investments in the sector was also evident in the decline in capital importation to the sector.
Ibe Kachikwu, the minister of state for petroleum resources, had said 350,000 jobs had been lost to the oil-driven economic crisis as at 2016.
Kachikwu’s stance was corroborated by NBS data, which revealed that “capital importation into Nigeria’s oil and gas sector declined from the $200 million (N90 billion) from the second quarter of 2016 to $172 million (N78 billion) in 3rd quarter” as investors voted their monies.
In all, full year oil GDP figures from 2013 up till the second quarter of 2017 (Q2 (2017), showed oil sector’s contribution to GDP observed a downward trend.
Annual growth rate of the oil sector was in the negative at -13.07 percent in 2013, -1.32 percent in 2014, -5.45 percent in 2015 and -14.45 in 2016.
Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC), said in 2016 alone, Nigeria lost an estimated $7 billion in oil revenue.
According to him, the loss stemmed from vandalism of oil infrastructure and incessant crude oil theft in the Niger Delta.
He also said oil price shock and high production costs had affected the sector negatively.
Hence, in 2016, oil GDP was at an all-time low in relation to production and price challenges. This led the sector to contract sharply and reduced the sector’s share of real GDP to 9.64 percent for the full year 2016.
But 2017 proved to be a turning point for Nigeria’s oil sector as there was an improved performance.
According to a PriceWaterhouseCoopers projection, Nigeria was to experience “a gradual but weak recovery of economic activities and a further decline in per-capita GDP” — though out of recession.
The projection hinged the recovery on “moderate improvement in crude oil production to an average of 1.8mbpd, up from 1.7mbpd in 2016”.
This was possible as vandalism of oil and gas infrastructure reduced in the period under review.
EXPERTS: NON-OIL SECTOR ALSO NOT IMMUNE TO OIL CRASH
Speaking with TheCable on the factors that hindered oil output in the period under review, Bismarck Rewane, chief executive officer, Financial Derivatives Company, said constant attack on oil installations by militants was a key issue.
“It’s very simple. First and foremost, GDP is an output measure not a revenue measure,” he said.
“Even if the price of oil goes to heaven, if you don’t produce your output will fall. Therefore, the question we should be asking is: Why did output increase?
“The reason why the output did not increase was because the militants were sabotaging the operations. Now that the militants stopped sabotaging it, then we’ve seen an increase.
“But now we have a cap, we cannot do more than 1.8 million barrels, so from the third quarter last year up till now, our production has capped at 1.8 million barrels.
“Before then, it was down to 1.3 million barrels or 1.2 million barrels. So that difference from 1.2 million barrels to 1.8 million barrels is responsible for the increase in output.
“Before it was constrained because the militants were sabotaging the activities of the oil sector.”
The CEO of Economics Associates, Ayo Teriba, also attributed the poor performance of the oil sector during the review period to vandalism of oil infrastructure as well as fall in global oil prices.
“There are two components in the oil GDP- there’s the output component and there’s the price component,” he said.
“For Nigeria, both nosedived around 2015 and 2016 because Niger Delta Avengers were vandalising oil installations and this led to a fall in Nigeria’s oil output.
“The global oil price fell as a result of global supply glut in the oil market. Whereas Nigeria had enjoyed oil price of $100 a barrel or more on average up to 2014.
“Since 2015…production fell almost by 50 percent at the peak of the avenger’s actions (Niger Delta Avengers).
“So that led to a collapse of the income Nigeria was getting from oil.”
Teriba added that the non-oil sector was also hurt by the issues in the oil sector, following the fact that Nigeria’s oil receipt is largely responsible for the country’s foreign exchange supply.
“Nigeria also depends on oil for the bulk of its foreign exchange supply, and that also declined,” he continued.
“The fall in the foreign exchange crept into the non-oil sector, because the non-oil sector depends on the forex from oil.
“So inability to get the forex needed for imports, pushed the non-oil economy into recession.
“In 2017, domestically the government succeeded in dialoguing with the Niger Delta Avengers, and they ceased their attacks.
“Also internationally, OPEC headed by Mohammad Barkindo, secretary general, managed to broker an agreement for major OPEC and non-OPEC producers to cut output to reduce the glut, and that helped to lift the price.
“They’ve extended the agreements further, so in 2018 we are even seeing further positive impacts on oil prices.
“So oil GDP fell because of the cut in output and the fall in price, and it has lifted again because both have recovered.”
Oil falls below $60— Nigeria safe for now
The global crude oil market seems not to have recovered from the fears of another supply glut as West Texas Intermediate (WTI) fell below $60 on Tuesday.
Brent crude, the international benchmark of crude oil, traded at $62; a safe place for Nigeria, whose Bonny Light oil is priced the same as Brent crude.
In the last eight days, Brent crude oil lost $5 from the $67.68 it traded at on Monday, February 5.
The Organisation of Petroleum Exporting Countries (OPEC) had to reach an agreement with non-member countries to reduce crude supply to the market to salvage the market.
The 2018 budget is not threatened by the current trading price of Brent crude, as the crude oil benchmark in the proposed budget is $45.
Rising crude oil prices had increased the landing cost of petrol meaning that falling prices would reduce the loss absorbed by the Nigerian National Petroleum Corporation NNPC).
Speaking at the just concluded West African International Petroleum Exhibition and Conference (WAIPEC) hosted in Lagos, Austin Avuru, chief executive officer of Seplat Petroleum Development Company Plc, said $80 was not a good place for oil investments.
He said when crude oil approaches $80, $90 and $100, it encourages operators to take on massive investments in unconventional sources of energy, which create glut in the oil market and crash the price
“I was telling somebody that I am praying that it doesn’t get to $80 per barrel because it will draw us out. We are safe at $60. But by real balancing what I am referring to is the fact that when the prices get to certain threshold, certain forms of unconventional become attractive and over a period of time, it crashes the price,” he had said.
Crude oil loses $3 in a week — good and bad news for Nigeria
The price of Brent crude — the equivalent Nigeria’s Bonny light — has dropped by $3.31 between Monday and Friday after weeks of sustained rise.
As at mid-day on Monday, Brent crude traded at $67.68, a drop of $2.32 from the $70 it traded for in late January.
By mid-day on Friday, prices had dropped to $64.37 after the supply of West Texas Intermediate from the United States threatened to plunge the market into another supply glut.
In 2016, the Organisation of Petroleum Exporting Countries (OPEC) had to reach an agreement with non-member countries to reduce crude supply to the market to salvage the market.
Although the proposed 2018 budget is not threatened by the current trading price of brent crude, as the crude oil benchmark in the proposed budget is $45, a number of things will be affected by the declining prices.
For one, Nigeria will not be able to build its excess crude account as much as it would love to, since it saves the difference between budget benchmark and actual market price.
While speaking at the Nigeria annual international conference and exhibition organised by the Society of Petroleum Engineers in 2017, Emmanuel Ibe Kachikwu, minister of state for petroleum resources, had said that the cost of producing one barrel of crude oil is $27.
Kachikwu lamented that Nigeria was losing out on possible returns compared to Saudi Arabia, where it costs $9.
Falling oil prices would mean a reduction in Nigeria’s profit margin and inevitably reduced profit.
‘EXTRA COST’ MANAGEMENT
While addressing a press conference in December, Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC), said the landing cost of petrol has become N171.
By TheCable’s calculation, it translated to the federal government paying N40.70 on every litre of petrol imported.
In reaction to this, Vice-President Yemi Osinbajo and Kemi Adeosun, minister of finance, said it would only translate to extra cost on the part of NNPC and not subsidy on the part of the federal government.
Declining oil prices would mean a reduction in NNPC’s earning and their ability to cater for the extra cost especially at a time when the NNPC wants to increase petrol importation to combat scarcity.
On the brighter side, the landing cost of petrol, currently at N171 per litre, will certainly drop, and the losses absorbed by NNPC as a result will also drop.
NNPC to import 100m litres of petrol daily to tackle scarcity
In a bid to tackle the fuel shortages still ravaging some parts of the country, the Nigerian National Petroleum Corporation (NNPC) says it has programmed to import two cargoes of petrol daily for the rest of February 2018 to boost supply.
Each cargo has 50 million litres, making an import of a total of 100 million litres per day for the rest of February to increase supply and replenish strategic reserves.
Industry analysts, however, told TheCable Petrobarometer that the NNPC might be seeking to cash in on the drop in crude oil prices in the international market, as well as the urgent need to have the PMS cargoes in place before many of the European refineries go on their scheduled maintenance.
About 45 million litres of petrol were discharged from ships into jetties across the country on Wednesday, the corporation said.
Prior to the fresh 45 million litres discharge, there were 324 million litres of petrol on land and 432 million litres in marine storage making a total of 756 million litres, enough to last for 22 days at 35 million daily consumption rate.
The jetties that received the 45 million litres shipments include Nacj, Apapa; Bop, Apapa; Techo Jetty, Lagos; Dutchess, Oghara; Vine Jetty, Calabar; Chipet Jetty, Lagos; and ECM Jetty, Calabar.
Data released by the ministry of petroleum resources on Wednesday showed that while the supply of petrol increased by 12.87 million litres per day between December 2017 and January 2018, the scarcity of the fuel persisted in some parts — a clear indication that the product is being diverted.
In some parts of the country, petrol is being sold for various prices ranging from the official price of N145 to as high as N200 in some parts of the country.
NNPC said that to ensure efficient distribution of the product to depots in the hinterland, the Nigerian Pipeline and Storage Company (NPSC), a midstream subsidiary of the NNPC, has been mandated to fix relevant pipelines to facilitate seamless pumping, in addition to massive trucking arrangement that is in place.
Petrol supply increases in January — yet scarcity lingers
Facts and figures published by the ministry of petroleum resources show that the supply of petrol increased by 12.87 million litres per day between December 2017 and January 2018.
But petrol scarcity is yet to be tackled in some parts of the country despite the increase — a clear indication that the product is being diverted.
The data showed that 2.07 million barrels of oil per day, including condensate, were produced in January as against the 2.05 million produced in December.
Accordingly, 49.84 million litres of petrol per day were distributed round the country in January as against 36.97 million litres in December.
During the same period, diesel and kerosene supply increased by 3.07 million litres per day and 380,000 litres respectively.
In some parts of the country, petrol is being sold for various prices ranging from the official price of N145 to as high as N200 in some parts of the country.
While speaking at a public hearing organised by the joint committee on petroleum downstream of the national assembly in January, Maikanti Baru, NNPC group managing director, said cross border fuel smuggling was making it hard for the corporation to meet the nation’s petrol needs.
“The sudden and unnatural shock in fuel consumption to record levels has over-stretched the direct-sale-direct-supply (DSDP) crude for product supply arrangement which was originally based on 35 million per day petrol consumption pattern,” Baru had said.
His position confirmed a report by TheCable Petrobarometer which revealed that the upward swing in the prices of crude oil in the international market was fueling the smuggling of petrol from Nigeria.
Fears over renewed militancy after Bonga oil field shut-down
The Bonga deep offshore oil field, one of Nigeria’s highest volume producers and top revenue earners, was shut down for days in January, disrupting crude exports and cutting the country’s projected oil revenues for the month, TheCable has learnt.
The closure of the Bonga field, with output capacity of 225,000bpd owing to leakages in the piping system at the facility, immediately triggered fears that Niger Delta militants might have snooped on the facility as they had threatened to do on January 18, 2018.
However, operator of the Bonga field, the Shell Nigeria Exploration and Production Company (SNEPCo), has allayed fears, saying the field had been brought back to production.
“Production and export of oil and gas at Bonga have resumed after a brief shut-down to effect repairs on a piping system,” a Shell spokesman told TheCable.
“The repairs were effected January 16-28, 2018, and further checks and ancillary repairs mean production is being ramped up gradually,” the spokesman added.
Oil traders hinted that some tankers already programmed to load crude from the Bonga terminal in January and February were delayed while the maintenance lasted.
Apart from major crude exports from the Bonga field, a larger chunk of the natural gas feedstock for the six train, Liquefied Natural Gas (LNG) plant owned by Nigeria LNG Limited is also supplied by the Bonga field.
The Bonga field is located is located in oil mining lease (OML) 212 and has produced about 702 million barrels of oil since it commenced production in 2005.
Shell carried out maintenance work on the facility in April and October 2017, to improve operational efficiency at the facility.
Oil exports account for around 80% of foreign exchange earnings of the Nigerian government.
Niger Delta Avengers had threatened to launch attacks on offshore oil facilities, including the Bonga production facilities, while demanding resource control.
Buhari should sign PIGB ‘to eliminate huge oil revenue losses’
The Nigeria Natural Resource Charter (NNRC) has asked President Muhammadu Buhari to sign the Petroleum Industry Governance Bill (PIGB) into law.
Signing the bill into law will help eliminate or, at the very least, limit huge revenue losses in the oil and gas sector running into billions of dollars, the centre said in a statement.
The PIGB will also “foster solid investments in Nigeria’s petroleum sector to improve her competitiveness on the world stage”, the group said.
Commending the passage of the PIGB in tranches, Tengi George-Ikoli (pictured), programme coordinator, NNRC, said the national assembly should prioritise the fiscal component of the bill, adding that it would boost development in the oil and gas sector.
“The overarching importance of this development to the oil and gas sector cannot be over emphasized,” she said.
“From the NNRC’s point of view, there is no better time than now, especially with the government’s commitment towards economic diversification, greater private sector participation, openness and accountability, inclusivity and environmental remediation, all encapsulated within the 12 precepts of the NNRC framework.”
George-Ikoli further noted that “lack of proper functionality in the petroleum sector has reportedly led to huge revenue losses amounting to over $200 billion over the years”.
She said Nigerians can only enjoy its natural resource endowments if all the components of the omnibus bill (Petroleum Host Community Bill, Petroleum Industry Fiscal Bill, and Petroleum Industry Administration Bill) become laws.
“The passage of the component parts of the bill will contribute to improving Nigeria’s performance against Precept 1 of the Nigeria Natural Resource Charter framework which states that resource management can only secure the greatest benefit for citizens through an inclusive and comprehensive national strategy, a clear legal framework, and competent institutions,” she said.
The Nigeria Extractive Industries Transparency Initiative (NEITI) earlier said the passage of the bill would bring about “professionalism and accountability in the oil sector”.
Nigeria, Niger to build oil refinery ‘to tackle smuggling’
In a major bid to frontally tackle the menace of cross-border fuel smuggling, Nigeria and the neighbouring Niger Republic plan to build an oil refinery.
Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, led a Nigerian government delegation to Niamey, the Nigerien capital, on Wednesday to discuss a firm agreement for the design and construction of the refinery to be strategically located at a border town between the two countries.
Kachikwu, according to a statement by his ministry, said the move would be “in line with the commitment to collaboratively work across the region to ensure definitive solutions to [oil] sector challenges”.
The collaboration, according to Kachikwu, willbe “expressed through the construction of a refinery in the border town between the Republic of Niger and Katsina State, Nigeria and a crude oil pipeline from the Republic of Niger to the new refinery”.
He held talks with president of Niger, Mahamadou Issoufou, and the country’s energy minister Foumakoye Gado.
“Bilateral and technical agreements will be signed in coming days,” the statement revealed.
The capacity of the proposed refinery was not made known.
The group management director of the Nigerian National Petroleum Corporation (NNPC) Maikanti Baru, had recently raised the alarm that the rising fuel smuggling across Nigeria’s borders was negatively impacting on availability of petroleum products in the country.
According to Baru, even with petrol supply across the country averaging 55 million litres a day since the beginning of December 2017 — well above the projected consumption rate of 35 million litres per day — the country still experienced shortages because much of the volumes were being smuggled out of the country, as smuggling syndicates cashed in on the obvious petrol price differentials between Nigeria and neighboring countries to make illicit profit.
Nigeria is Africa’s top crude oil producer with output averaging around 2.05 million bpd including condensates.
The OPEC member country has four state-owned refineries with combined nameplate capacity to refine 445,000 bpd of crude, but the poorly maintained facilities hardly produced above a quarter of their capacity.
Niger Republic, on the other hand, sits on some of the world’s largest uranium deposits but has few oil producing fields located in the southern part of the country.
In November 2016, NNPC signed a memorandum of understanding (MoU) with with Savannah Petroleum Company, a UK-based independent oil producer, to supply crude from the latter’s Agadem oil field in Niger Republic to Kaduna refinery.
The agreement then envisaged that an 800-km pipeline will be constructed to transport crude from Agadem field to Kaduna refinery.
The deal came at the height of militancy in the Niger Delta which saw many pipelines transporting crude to the 110,000 Kaduna refinery in the north, bombed.