The economic crisis faced by Nigeria may not be ameliorated anytime soon with reports that the Nigerian oil fields may shut down in a situation where oil constitutes 90% of the national income.
This is an uncertain period for the Nigerian economy due to the continuing fall in the price of crude oil, the nation’s main revenue earner, and projections for the petroleum industry are indeed grim, ’FEMI ASU writes.
With crude oil trading around $30 per barrel in the international market from a peak of $114 in June 2014, production from Nigeria now faces a decline as some fields face an imminent shutdown if the low oil price persists.
Industry players say operating some of the fields in the country is becoming uneconomic, with the selling price of oil being driven down close to the production cost level.
The price of the Nigerian crude oil, Bonny Light, has fallen to $29.47 per barrel, according to the latest data obtained from the Central Bank of Nigeria.
“When oil price drops, we are all in serious trouble, because if the oil price and your unit operating cost are almost the same, it means that when you sell the oil, there is little profit or you are at a loss. Many companies are not far from there,” the Project Director for the Uquo gas field development, a joint venture project by Frontier Oil Limited and Seven Energy, Alhaji Abdullahi Bukar, told a correspondent.
“The unit technical cost of many of our producers is not far from $30 per barrel. So many companies are in trouble,” he added.
According to Bukar, the average production cost for many of the fields in the country is $24 to $25 per barrel.
“For some fields, the production cost is well above $25, maybe $28. For some fields, it is well below $20 and $25. Many of the older fields, which are mostly with the International Oil Companies, have got high production costs,” he said.
Global financial services firm, Morgan Stanley, on Monday joined banks such as Goldman Sachs, City Group and Bank of America Merrill Lynch, in warning that prices could slide to $20 per barrel.
Bukar said, “The production in Nigeria is going to suffer. In the last five years, we have not invested as much as we should to develop additional reserves. Once, we keep going like that, whether there is price change or not, the amount of oil Nigeria is going to be producing will go down.
“When the price drops as low as $20-$30 range, people who have got those old fields or fields where oil production cost is above the selling price will shut them down. There is no point in producing oil to sell at a loss.”
Source: Punch