This week, the oil price in the international market has continued to soar as it surges to a record seven-year high, but Nigeria, quite unfortunately, isn’t maximising this increase as much as it should. As of Tuesday, oil prices traded at $86.71 per barrel amid a surprisingly supply constraint among OPEC member nations, with Nigeria leading the pack of underperforming countries.
In the last two weeks, Brent crude, which is the most traded of all the oil benchmarks, has continued to witness an increase as much as 10% as it reached $86.7, a figure which has now exceeded late last year’s all-time high.
To put this in context, this increase was last experienced in 2014 when oil hit a record high of $115.
Riding on the back of this development, some analysts are projecting that crude oil benchmarks will hit $100 and above per barrel this year, except a glut is seen in supply. And this, from all indications, is far from happening.
Last year, OPEC countries agreed to a phased increase in production output of 40,000 barrels a day each month. This has seen member nations increasing their daily contributions to replace the earlier cut effected at the start of the pandemic. However, not all member nations have been able to meet their monthly target.
For Nigeria, despite its goal to produce 1.67 million barrels per day in December, it managed to produce only 1.44 million barrels and 1.49 barrels per day in November. This has impacted OPEC’s total output, which means that it cannot meet its monthly target, which is seen as insufficient by consumer nations.
Due to the above, Nigeria, which ought to be at a huge advantage with the increase in oil price that should translate to more revenue, is instead on the losing end.
Why is this so?
Ageing infrastructure due to years of under-investment and corruption in the management of the nation’s prized infrastructure are some of the reasons for the situation the country has found itself in.
For the records, Nigeria has five refineries, out of which the government manages four and the fifth by the Niger Delta Petroleum Resources Limited. Unfortunately, none of the government-owned refineries are working. Despite this, the government has spent about $9.5 million so far on what it calls “turnaround maintenance”.
Sadly, Nigeria is currently the only OPEC member nation that imports 90-95 per cent of refined petroleum products for its local consumption despite being a major crude oil extractor.
Speaking on the issue recently, the National President of the Trade Union Congress, Quadri Olaleye, had said that the energy crisis in the nation today is simply a result of incompetence and corruption in government.
Another major reason for the confusing situation the country has found itself is the issue of subsidy. The country spends a good portion of whatever it makes as revenue to pay for petrol subsidies.
The Nigerian National Petoleum Corporation (NNPC) records show that Nigeria spent N25.374 billion on N60.396 billion and N61.966 billion on subsidy in February, March and April 2020.
In May, June and July, it also recorded that the government spent N126.298 billion and N164.337 billion on subsidy while the spending for August, September, October and November was N103.286 billion, N173.132 billion, N149.283 billion, N163.709 billion and N131.4 billion, respectively.
This humongous spending is totally avoidable if national refineries were functional. But since successive governments have failed to get the refineries working, the entire country and its neighbours will now be at the mercy of the Dangote refinery that is still in the works.
Hopefully, the private refinery will commence operations before the Muhammadu Buhari-led government executes its proposed plan to remove fuel subsidy in 2022, a move that could push the already overburdened Nigerians to the edge.
About Dangote Refinery
The refinery is still under construction in the Lekki Free Zone in Lagos, Nigeria’s commercial nerve centre. It is projected to be completed in 2022.
The refinery will meet and surpass Nigeria’s refined petroleum product requirement. It is expected to produce up to 50 million litres of petrol and 15 million litres of diesel a day, about 10.4 million tonnes of the product, 4.6 million tonnes of diesel, and 4 million tonnes of jet fuel per year.
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