With Nigeria relying heavily on oil as its main source of revenue, the recent move by Organization of the Petroleum Exporting Countries (OPEC) to cut down daily oil production of member countries would cripple the expected revenue from oil, hence, Nigeria must explore other means or amends its oil production system to make ends meet.

Crude oil exports account for about 90 percent of Nigeria’s foreign exchange earnings and 80 percent of government revenue, implying that the nation’s economy really heavily on it.

Production is however said to be 2.16 million barrels per day less than the 2.5 million target for the 2019 national budget.

Recent developments in the global oil market space appear to be posing a serious challenge to the federal government.

For instance, while the federal government 2019 budget proposal is based on assumptions such as oil price benchmark of $60 per barrel and production estimate of 2.3 million barrels per day, including condensates; both indices are currently under threat.

Consequently, experts implored the country to take a second look at how to manage this sector if its aim of using it as a springboard to diversify and grow the economy is to be achieved.

Two key incidents took place recently which calls for a reflection. First, the move by the nation’s largest crude buyer, India to buy oil from the United State.

The state-owned Indian Oil Corporation Ltd (IOC), was reported to have announced a year-long contract that will see the delivery of up to 60,000 barrels of oil per day (bpd) or three million tonnes worth of crude cargoes.

According to the Nigerian National Petroleum Corporation (NNPC), India was the largest importer of Nigeria’s crude, buying over 131 million barrels of oil in 2017. Although the NNPC is yet to speak on the implications of India’s new deal, it is obvious that Nigeria is likely going to loss their patronage to some extent.

But confirming the development, IOC’s chairman, Sanjiv Singh, in a statement said, “Indian Oil has finalised a term contract for import of up to 3 million tonnes of crude oil of US origin grades as a part of its strategy to diversify term crude sources.”

Experts say the new deal, which is the first of its kind, would cut India’s dependence on the Organisation of Petroleum Exporting Countries (OPEC) and its members including Middle Eastern nations and their West African counterparts.

Analyzing the implication, an international energy consultant, Sri Paravaikkarasu,said, the move would enhance India’s bargaining power with the US.

“Lots of geopolitical issues are going around. We expect lots of volume going away from Venezuela, West Africa and Iran, so it makes sense to have guaranteed term supplies from the U.S., where crude production is increasing,” she said.

Unfortunately, the second largest importer of Nigeria’s crude in 2017 was the US, with over 94 million barrels of oil sold to the North American country.

And as Reuters rightly put it, “But with the changing dynamics in the global oil market, the US has now become the biggest producer of crude oil in the world, making it offer terms that address its location disadvantage with respect to its rivals in OPEC– all in a bid to secure the Indian market.”

This changing dynamics leads to the second issue that Nigeria must take seriously-the OPEC crude cut deal.

While it is agreed that Nigeria is a leading member of the so called ‘oil cartel,’ the decision to accept the proposed production cut must be reviewed from the perspective of national interest.

Considering the fact that the nation’s economy depends largely on the commodity whose price remains unstable and our inability to meet the production target for the 2019 fiscal year projections, there lies ahead a danger of failing to meet budget targets. The implication is that the country will continue to borrow to fund its budget, thus leaving debt for future generations.

Alternatively, like the US, Nigeria can stand its ground and encourage more deep water exploration at a lower cost and source for market or concentrate on refining crude for the West African market.

While it is a welcome development that the Special Envoy of King Salman Bin Abdulaziz, Custodian of the Two Holy Mosques and Minister of State for African Affairs of the Kingdom of Saudi Arabia, Mr Ahmad Qattan, was in Abuja last Wednesday to meet President Buhari to discuss Nigeria’s crude production cut as opined by OPEC, government must not losse sight of the different situation facing both countries.

As noted in the statement by the Senior Special Assistant to the President on Media and Publicity, Mr Garba Shehu, which quoted Buhari as saying that the President wished that there was no need for cuts because of Nigeria’s large population and the need to secure more money, adding, ‘I wish we can produce more.’ Nigeria indeed should strive to produce more and as well focus on adding value to crude to create a more lucrative economy.

Although Mr Qattan was quoted to have said his country had reduced its own output by 1.4 million barrels per day to ensure that prices went up, he failed to tell Mr. President that his country produces over 10 million barrels per day with a lesser population than ours.

Government, according to experts, must therefore fast track the implementation of the 7 Big Wins policy, the presidential assent to the petroleum industry governance bill (PIGB), revamping local refineries and building new ones as well as reconsidering the benefit of OPEC membership.

Except drastic, innovative, forward looking decision that take cognizance of the national interest at heart, is made, market observers said, Nigerians may wake up one day and find out that the crude, which is a source of revenue generation is dried up. The Venezuela example is enough lesson for Nigeria to further scrutinise its crude economy power, experts said.

SOURCE: Leadership