Cost Of Producing Oil Drops To $20 In Nigeria — But Poor Local Refining Stalls Growth

The Nigerian National Petroleum Corporation (NNPC) on Monday said it has brought down the cost of producing crude oil to $20 per barrel.

This is $4 less than the previous cost but still above the average of $10 in Saudi Arabia.

Speaking at the Technology and Innovation Expo 2018 in Abuja, Maikanti Baru, group managing director, NNPC reaffirmed the federal government’s position to bring down crude oil production cost to a low of  $15 per barrel.

He said that a combination of science, technology and efficient work processes had made the cost reduction possible, adding that “accomplishing that feat would enable more revenue generation to the federal government”.

Ibe Kachikwu, minister of state for petroleum resources, had in February said that the federal government wants oil companies to drive down production cost to $15 per barrel, from the high of $23 to $24 a barrel.

He said the federal government plans to raise the country’s refining capacity thereby increasing its domestic oil production to 2.5 million barrels per day (mbpdd) by 2019 and three million barrels per day in the next five years.

The minister also expressed optimism that oil should companies adopt new business models to focus on local oil production, local processing and refining.

REFINING’S PERFORMANCE THREATENS LOW COST

Gross domestic product (GDP) figures released by the National Bureau of Statistics (NBS) on Tuesday showed that oil production dropped from 2.03 million barrels per day (mbpd) in third quarter (Q3) 2017 to 1.91 mbpd in Q4 2017.

“In the period under review, oil production averaged at 1.91million barrels per day (mbpd), -0.12million barrels lower than the daily average production recorded in the third quarter of 2017,” the report stated.

The report further showed that even though the oil sector contributed 8.68 percent to the GDP, oil refining was in the negative at -27.7 percent for full year 2017, making it the worst performing sector of the year.

“Oil refining under manufacturing sector contracted by -46.24% in Q4 2017 from -45.4% in Q3 2017 and -0.97% in Q4 2016,” the report added.

Nigeria’s refineries have over the years operated below capacity, with the cost of turn around maintenance (TAM) of Nigeria’s four refineries almost costing the amount spend to build them.

In February, the house of representatives ordered the NNPC to suspend a plan to spend $1.8 billion on the TAM of the nation’s four refineries.

Garba Datti Mohammed, chairman of the house adhoc committee, had explained that the suspension was to enable the committee probe the authenticity of the TAM procedure.

N774m TO SUBSIDISE PETROL IMPORT

Baru on Sunda said the corporation spends N774 million day to subsidise petrol import, given the price differentials in landing cost of the imported fuel and the regulated pump price in the domestic market.

Nigeria imports around one million metric tonnes per annum of petrol due to the poor performance of the four oil refineries managed by the NNPC.

In its petroleum products imports and consumption (truck out) statistics for 2017, the NBS reflected that 17.31 billion litres of petrol were imported into the country during that year.

The rise in the demand for petrol which reaches about 50 million litre per day, is not commensurate with what is dispensed, thereby leading to the scarcity experienced across the country in the past few months.TheCable