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Home Columnists Nigeria: A Nation Boxed Into Oil Quagmire! BY Nick Agule

Nigeria: A Nation Boxed Into Oil Quagmire! BY Nick Agule

by Tom Chiahemen
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Introduction

In early October 2021, the Organisation of Petroleum Exporting Countries (OPEC) reported that Nigeria exported $27.73bn worth of petroleum products in 2020 but also that the value of the country’s petroleum imports in the same year was $71.28bn. This resulted to Nigeria’s petroleum imports exceeding its exports by $43.55bn during the year. OPEC further reported that Nigeria’s imports of petroleum products consistently exceeded the nation’s exports for five years running.

Nigeria’s main source of foreign exchange earnings is crude sales, but the country is in an unenviable position where she shrieks if crude oil prices rise and equally feels terror if oil prices go down! This situation has arisen because Nigeria is perhaps the only oil producing country in the world that exports 100% of her crude oil production and imports 100% of her refined petroleum products needs! Thus, when crude oil prices rise, Nigeria experiences a boom in revenues but tragically, a rise in crude oil prices means a rise in the cost of refined petroleum products sending the country’s books into the red! On the other hand, a fall in crude oil prices results in a fall in the cost of imported refined petroleum products but equally tragically it means a crash in the volume of revenues for the country thus ruining budgetary projections! Nigeria has therefore boxed herself into oil quagmire where head or tail she loses sleep!

Port Harcourt Refining Company (PHRC) Limited,

Inexplicably also, Nigeria flares her produced gas thus earning zero revenues from a valuable resource that is, as at today the biggest source of electricity generation in the world! Nigeria then turns around to import same gas from far flung countries like the US thus expending a chunk of the revenues earned from crude oil sales to buy a product they have set fire on theirs!

The Causes of the Oil Quagmire

There are three principal reasons responsible for the emergence of the oil quagmire that Nigeria boxed herself into resulting in the country spending more than 2.5 times what she earns in oil revenues to import petroleum products:

1. Dead Refineries: Nigeria has four government owned refineries with a combined refining capacity of 445,000 barrels of crude oil per day. But successive governments have allowed the refineries to rot, and the refineries are currently gulping nearly N200 billion annually to refine zero barrels of crude oil!

2. Non-Existent Gas Plants: The World Bank projected in 2017 that almost 8 billion cubic meters of gas was flared annually in Nigeria according to satellite data. Nigeria’s oil Minister Chief Timipre Sylva is reported to more recently to have said about 3 billion cubic meters of natural gas was lost to gas flaring in the first five months of 2020.

3. Petroleum Products and Gas Importation: Nigeria is a major producer of crude oil and gas but with dead refineries and non-existent gas plants, the country largely depends on imported petroleum products and gas that are refined in foreign nations. Nigeria has therefore found herself at the receiving end in the oil business as the equations below depict:

Revenues = Crude Export Sales
Costs of Imports = Cost of Crude (sold by Nigeria) + Refining Costs + Profit Margins + Shipping and Handling Costs + Taxes (to foreign govts) + Insurance Costs etc.

From the equations above, it is clear that Nigeria pays back the entire revenues she earns from crude sales plus much more to import petroleum products into the country.

In every litre of fuel that Nigerians pay for at the pump is included salaries of foreigners who refined the crude for us, taxes paid to foreign governments plus crude, refining and transportation costs etc!

The situation with the manufacturing sector is no different as figures obtained from the National Bureau of Statistics reports that the value of manufactured goods imported into the country exceeded exports by N4.37tn in the second quarter of 2021 alone. With Nigeria flaring gas and thus supplying a miserly 4GW of electricity to an economy that needs 200GW, the manufacturing sector is all but dead resulting in such adverse and negative balance of payment position!

Recommendations

For Nigeria to punch herself out of the oil quagmire, the country must address the reasons for the quagmire as listed above:

1. Resuscitate the Refineries: The Government must as a matter of urgency lease out or outrightly sell off the four dead refineries to investors. The refineries can be sold for $1 each to enable the investors bring in their money, technology and expertise to repair, rehabilitate and turn-around the refineries to begin refining Nigeria’s crude for Nigerians! This will also create millions of additional jobs all along the value chain from crude feed to the refinery to the pump!

2. Build Gas Plants: Nigeria must remove the structural barriers that are hindering investment in the gas sector to enable investors to build gas plants to harness the gas that is now flaring. The harnessed gas will be fed into power generation, domestic and other industrial uses. A sufficiently powered economy will create millions of its own jobs and result into rapid economic growth and development.

3. Invest in renewable energy: Nigeria is blessed with a huge abundance of renewable energy sources – solar, wind, water, biomass etc. – and the Government must take urgent steps to create the enabling environment for massive investment in the sector. If Nigeria begins to run her economy with renewable energy, she can export 100% of her crude and gas to other nations and earn billions in dollar revenues. Millions of jobs will be created too.

4.End gas flares: The president to sign an executive order ending gas flares by a set deadline of a maximum of 1 year from the effective date of the order. This will force the hands of the oil companies operating in Nigeria to invest to harness produced gas to ensure continuity of crude oil production.

Conclusion

Nigeria’s economy will never prosper and thrive if this imbalance between oil export revenues and costs of petroleum product imports is allowed to fester! It will only amount to robbing Peter (Nigerians) to pay Paul (foreign refineries and their governments) which will further strangulate the economy and inhibit growth. It is not late for the government to make a start to correct the imbalance.

References:
https://hallmarknews.com/opec-says-nigerias-petroleum-imports-exceeded-exports-by-43-56bn/
https://punchng.com/quarter-2-manufactured-imports-exceeded-exports-by-n4-3tn-nbs/#:~:text=The%20value%20of%20manufactured%20goods,per%20cent%20of%20total%20trade.

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