Nigeria stands a very good chance of benefiting from the current plunge in international crude oil prices if managers of its economy, especially those in the oil and gas sector, take a radical view and depart from beinga crude oil exporter and recalibrate its crude oil management template.
MadakiAmeh, an energy lawyer, with industry and consultancy experience in the oil and gas industry, who is promoting a radical shift in Nigeria’s handling of its crude oil policy, says going forward, Nigeria can become a country that only markets and sells refined products and jettison the long held position of a crude oil exporter.
He spoke against the backdrop of the country’s crude failing to find buyers in the international market and, therefore, being forced to be sold at give-away prices. The market had been hit by the double whammy of a coronavirus pandemic that has swept the world and made nonsense of global economic calculations, and an oil price war between Saudi Arabia and Russia over refusal by the latter to agree to production cuts to boost sagging prices.
Last month, Mele Kyari, group managing director of Nigerian National Petroleum Corporation (NNPC), raised the alarm that Nigerian crude oil cargoes were failing to find buyers, as a price war between Saudi Arabia and Russia, who produce crude much cheaper than Nigeria, has meant that crude offered by the two countries were far cheaper for buyers than Nigerian crude.
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But Ameh, who had worked in an international oil company (OIC) and one of the big four global financial and audit advisory consultancies, said even working with a scenario of an oil market selling at $10 per barrel, the oil and gas industry in Nigeria can be remodeled on a similar path as Indonesia and Singapore, the latter which does not even produce any crude oil.
“Working on a $10/ barrel scenario, we can model our industry along the lines of countries like Indonesia, which, even though it produces about 3 million barrels of crude oil a day, took a conscious decision, years ago, to exit OPEC, and stop selling crude oil. Today, Indonesia is a leading exporter of refined petroleum products and they earn almost ten times what they used to earn from selling crude oil,” Ameh said.
According to him, even the small island city state of Singapore, with largely different fundamentals, since it does not produce any barrel of crude oil, has become a major hub for refined petroleum products.
“They buy cheap crude oil from countries like Nigeria, refine them in their over 50 refineries in the small island country where almost half of the country’s citizens work in one of the refineries or the other, and supply the refined products back to countries like Nigeria, who do not have functional refineries, at several times the cost of the crude oil they bought from them,” he explained.
Ameh wants to see a radical departure from this long-held belief by Nigeria’s policy establishment that exporting crude oil without adding value confers any advantage other than laziness of the mind to think out of the box.
A four points recipe is what the legal energy expert believes his proposition is hinged on.
He is challenging the country’s policy establishment sitting around the oil and gas table to consider the immediate suspension of sale of Nigeria’s crude oil for the time being and assume a worst-case scenario of an oil price at $10 to a barrel.
Secondly, Nigeria should proceed to refine all of its crude oil production, but noting that, “For the time being, due to the comatose nature of our refineries, contract foreign refineries who would refine our crude at a contractually agreed price and bring back 100% of the by-products to Nigeria.”
He said under such a scenario, it is even more efficient to refine abroad than in Nigeria because there would be no down time arising from unplanned shutdowns, labour issues, power failure, pipeline vandalism, among other drawbacks.
Ameh noted that awash with products, Nigeria can then take full control of its downstream sector and fully deregulate it, adding that “products would then become available all over the country at desirable prices without the need for subsidy at all, and this would apply to AGO, PMS, DPK and Jet A-I, all of which can actually be sold at the same prices,” he explained.
Regarding concern that may arise from smuggling of products across Nigerian boarders if there is a huge disparity in prices between Nigeria and neighbouring countries, he suggested that Nigeria could negotiate with those countries to allow operators in its downstream sector to open up modern outlets in the countries concerned, where products would be trucked to and sold legitimately at prices that post a healthy margin to the marketers and to Nigeria.
“This further expands the economy, with attendant benefits in terms of employment creation, enhanced earnings, and value creation,” Ameh said.
He emphasized that implementing the strategy in a focused and nationalistic manner, using a knowledgeable and result oriented PPPRA (Petroleum Products Pricing Regulatory Agency), as regulator of the downstream sector, will create the much needed diversification of the Nigerian economy, using the same oil and gas industry that has been accused for years of being responsible for our current monocultural economy.