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The price of oil, now in the neighborhood of $30 per barrel, is getting close to its production cost in Nigeria and soon may lead to the shutdown of some of the country’s oil fields, according to some energy executives and financial institutions.
The Central Bank of Nigeria’s latest figures show that the price of Nigeria’s crude, Bonny Light, has dropped to $29.47 per barrel. And several financial services companies, including Bank of America, Merrill Lynch, City Group, Goldman Sachs and Morgan Stanley say it could drop further to $20 per barrel.One oil executive, Alhaji Abdullahi Bukar, told the Nigerian newspaper Punch that the current price isn’t much more than it costs to extract the oil.
“The unit technical cost of many of our producers is not far from $30 per barrel,” said Bukar, the project director for the Uquo gas field development, a joint venture project by Frontier Oil Limited and Seven Energy. “So many companies are in trouble.”
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According to Bukar, extracting a barrel of oil in Nigeria costs between $24 and $25 on average but sometimes will cost more. “For some fields, the production cost is well above $25, maybe $28,” he said. “For some fields it is well below $20 and $25. Many of the older fields … have got high production costs.”
The low oil price also threatens to delay several deep-water projects planned off Nigeria’s coast, long a mainstay of Nigerian production. Adeola Elliott, the CEO of Petrosystem Nigeria Ltd, said, “What [international oil companies] have done now is to just keep maintaining the facility they have now and producing what they [are] producing now. There is no more new investment.”
Nigeria is the leading producer of oil in Africa, and relies on its oil for most of its revenues from exports and its national budget. In the past several years its average production has ranged between 1.9 million barrels of oil per day and 2.3 million barrels per day.
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In 2015 it produced an average of nearly 2.28 million barrels per day, but President Muhammadu Buhari says he expects it to fall to no higher than 2.2 million barrels per day in 2016.
Despite such concerns, Tam David-West, who served as Nigeria’s oil minister in 1984 and 1985, said there’s little if any reason to worry about the country’s oil industry.
“It is nonsense to panic over the current oil price,” David-West said in a telephone interview with The Sun, another Nigerian newspaper. Instead, he said, the government should focus on strict budget discipline and crackdown on corruption in the oil industry.
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David-West said that in 1984, when he was oil minister, the price of Bonny Light fetched no more than $30 per barrel on the world market, and even plunged to $10 per barrel in April of that year. Nevertheless, the country’s leadership – coincidentally Buhari’s military government at the time – remained calm and kept the country from the brink of economic disaster.
“All of the fears are not necessary,” David-West said. “People should not put the nation into unneces¬sary anxiety.”
David-West said he’d already reminded Buhari of this oil-price crisis of three decades ago, and added that “the president agreed with me.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com