• Sat. Jun 10th, 2023

    Why Nigeria’s not excited over rising crude oil prices – Sylva

    ByBassey Udo

    Feb 25, 2022

    By Bassey Udo
    Last Thursday’s launch of a full-scale attack by Russia against Ukraine has predictably driven crude oil prices at the international oil market above the $100 per barrel, with Brent crude blend sold for $101.5 per barrel on Friday.

    Despite the high oil price, which should be a cause for cheer among oil producers like Nigeria, whose 2022 Budget was benchmarked at an average of $62 per barrel, Minister of State for Petroleum Resources, Timipre Sylva, said on Thursday that Nigeria was not excited over the development.

    The Minister who spoke in Abuja at the pre-Summit media briefing ahead of the forthcoming Nigeria International Energy Summit (NIES) in Abuja said the period of rising crude oil prices above a certain threshold is not always a period for too much celebration for Nigeria.

    “A time of rising crude oil prices at the international crude oil market is not always a thing to celebrate too much for Nigeria, because when crude oil prices grow high above certain levels, it means there are other competing productions that would also start raving up the competition,” he said.

    Sylva cited an example of such periods as the shale oil producers in United States would also find it profitable to produce, as against if the crude oil price were to be at a lower level, which would not be profitable for them to produce their shale oil.

    “So, once the oil prices go up to a certain point, you are encouraging a lot of production of competing blends that would otherwise not be in the market. So, that is why we are not happy when crude oil prices rise to a certain level.

    “We believe that crude oil prices should be at a certain point to be optimal for the country, but suboptimal for the shale oil producers. That is why Nigeria would always like to have that balance,” Sylva said.

    Considering that Nigeria is a net importer of refined petroleum products, the Minister said a period of rising crude oil prices is also not good for the country, because increased crude oil price at the international crude oil market would affect the retail price of petroleum products at the pump.

    On the other hand, he said if Nigeria were to produce more oil, and earn more dollars from the export of its oil production, it would earn more revenue, which would become available for the importation of refined petroleum products.

    If the country were to produce less capacity, he said the domestic market would not be fully supplied, as there would still be a shortfall to cover.

    “That is why we will rather have our production now to be at the point where we would be at least gaining enough to be able to do the imports. But our oil production at this point is not very optimal. That is why I said we could have our production rise, so that we can take advantage of the high prices.

    “It is not as if we are very happy with the crude oil prices being where they are, because we are taking from one side (exports of crude oil) and giving away from the other (imports of refined products), and at the end of the day, the country is not necessarily making a lot of gains, because Nigeria is taking from the high crude oil prices and spending on the importation on higher prices of refined petroleum products,” he said.

    What the country is doing at the moment, the Minister said, was encourage oil producers to produce more crude oil to neutralize the oil market for the country.

    Sylva who said early this week that Nigeria may not be supporting a proposal to increase the Organization of Petroleum Exporting Countries (OPEC) member production quota, said Nigeria was doing everything within its capacity to boost its oil production, to enable the country to take full advantage of the rising crude oil prices.

    “Already, our oil production capacity is not where it was a few months ago. It is beginning to climb up gradually, and we are hoping that before the end of the year, we would have completely regained our production capacity and meet our OPEC quota,” Sylva said.

    “We are not happy at all that we are not able to take advantage of the high crude oil prices that we can see today (because the country is spending much on importation of refined petroleum products). So, we are doing everything to ensure that we are able to bring back our production,” he added.

    Although prior to the breakout of COVID-19 pandemic Nigeria was able to raise its oil production capacity from an average of 2.3 million barrels per day, the capacity was limited by an output ceiling imposed by OPEC on all its members in an effort to stabilize the oil market and strengthen price.

    Latest production data from the NNPC showed the country’s average production, apart from the condensate production, which is not captured under the OPEC output computation parameters, stands at about 1.4 million barrels per day, against the proposed benchmark capacity in the 2022 Appropriate Act of 1.88 million barrels per day.

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