Mallam Mele Kyari, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), has warned that rising crude oil prices on the international market, rather than being a positive development, could pose severe issues for resource-dependent countries like Nigeria.
In the wake of the country’s low revenue mobilization, the International Monetary Fund (IMF) raised alarm about the re-emergence of fuel subsidies in Nigeria.
The Washington-based organization, on the other hand, praised the Central Bank of Nigeria (CBN) for its recent efforts to harmonize currency rates and certify Nigerian banks as liquid and well-capitalised.
Kyari portrayed the rising price of crude oil as a “chicken and egg” issue yesterday at the virtual Citizens Energy Congress, titled “Securing a Sustainable Future Energy System via Strategy, Collaboration, and Innovation.”
He went on to say that oil prices had begun to outside the NNPC’s comfort zone and had become a burden.
The event was organized by DMG Events, a London-based public relations firm, with the goal of allowing participants to reset the energy agenda following COVID-19 and link conflicting and polarizing viewpoints.
The worldwide comfort zone, according to Kyari, is $58-$60, with anything beyond $70-$80 causing severe divisiveness for the NNPC, anything above $70-$80 will create major distortions in the projections of the corporation and add more problems to the company.
Brent crude, Nigeria’s oil benchmark, is currently selling for over $74 and is likely to increase further in the coming days as the NNPC continues to battle the dilemma of shouldering the payment of petrol subsidy, which has made it unable to contribute to the Federal Account Allocation Committee (FAAC) on two occasions.
Kyari expressed the concern that as the commodity prices rise, buyers of Nigeria’s crude may be compelled to accelerate their investment in renewable sources of energy, thereby leaving the industry in a quagmire.
According to him; “In a resource-dependent nation like Nigeria when it gets too high, it creates a big problem because your consumers shut down their demand. Demand will go down and obviously even as the prices go up, you will have less volume to sell.
So, it’s a chicken and egg story and that’s why in the industry when people make estimates for the future, they always make it about $50 to $60. Nobody puts it beyond $60.
“But for us as a country, as prices go up, the burden of providing cheap fuel also increases and that’s a challenge for us but on a net basis, you know, the high prices, as long as it doesn’t exceed $70 to $80, it’s okay for us.”
According to him, Nigeria will have no problems supporting the restoration of about 5.8 million barrels a day that the Organisation of Petroleum Exporting Countries (OPEC) still has offline since the pandemic, due to the curbs in production quota imposed by the oil cartel.
He said adding that number to demand will stabilise and probably bring oil prices down to about $60 level or a little below $60, stressing that that’s a comfort zone for every producing company or country.
I don’t see them (Nigeria) having any difficulty agreeing to add additional volume to cushion the effect of these high prices for this period,” he said.
He stated that Nigeria is already producing well below its capacity, because in early 2020, the country actually produced up to 2.4 million barrels of oil per day for both oil and condensates.
With declining investments in the oil sector, Kyari stated that in a short time, most likely the next five years, the world may experience an energy crisis if the current situation is not properly managed
But we know that a number of things are going on in the transition journey at renewables. Many oil companies are transiting to renewables in the future. And that means that emphasis will be on gas and I see a very turbulent next five years and potentially some stability in the next 10 years,” he said.
He described the transition to renewables as a reality, adding that for Nigeria, what is clear is that the country is deficient in infrastructure and, therefore, needs resources from oil to exit poverty.
He stated that for Nigeria, to transit means to go for a low-carbon option and move towards more gas development than the liquids, adding that in the long term, the country needs to find a way out of dependence on oil.
“Renewables are real and we are making efforts to go in that direction, but obviously, our first step is to develop our gas resources.
“In this industry, you can’t do anything except you have the financing and financing is now clearly constrained both in terms of available resources and the decision of some of the shareholders of some of the lending institutions,” he said