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Saturday, March 25, 2023

Nigeria Fails to Benefit From Higher Oil Prices

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 …as Exxon, Chevron report record profits

Nigeria is failing to benefit from higher oil prices as oil firms (some of which) have major operations in the country, report record profits.

International Oil Companies (IOCs) ExxonMobil and Chevron reported record profits on Friday, reaping tens of billions of dollars due to a major surge in prices fueled by the conflict in Eastern Europe and a months-long Western sanctions spree on Russia, a major global exporter.

Issuing their quarterly earnings reports on Friday, the petro-giants have both come out ahead, with Exxon seeing a 273% jump in profits compared to the second quarter of 2021, and 247% for Chevron.

Exxon reported $17.6 billion in profits, nearly double what it brought in for the first quarter of 2022, while Chevron placed the number at $11.4 billion, a 74% jump over Q1.

“The reality is that we are producing about 2 mbpd oil but over 600kbpd is stolen by various militias, backed by cabals end-to-end, including military, politicians, community leaders, paramilitary etc,” the CEO of a major financial services firm told MoneyCentral.

“The windfalls the IOCs are reporting is not from Nigeria. As a matter of fact, if the current democratisation of oil theft continues, you would not see any IOC operating onshore or shallow water fields any longer in the next 5years as they would limit their operations to deepwater which is less vulnerable to theft. It is a democratised model of theft. Any IOC investing in fields is wasting money and they would dare do that. Any local buying marginal offshore or shallow water field assets is wasting funds.”

The shortfall in Nigeria’s oil production due to oil theft, is resulting in a loss of crude oil export earnings valued at over $50 million per day ($1.5 billion a month), which also indicates a shortfall in government revenue from crude oil royalty.

This means Nigeria is not maximizing additional oil revenue associated with the surge in crude oil prices in the international market since Russia’s invasion of Ukraine, according to the members of the Central Bank of Nigeria (CBN), Monetary Policy Committee (MPC).

Nigeria’s external sector is characterised by low foreign exchange inflows resulting in low external reserves and pressured exchange rate.

Nigeria’s Central Bank of Nigeria (CBN) reserves are flat at around $39 billion over the past 1 month despite the increase in oil prices. The Naira has plunged in the parallel market to N720/$ while domestic and foreign firms operating in the country are facing a shortage of dollars.

In March this year, several Nigerian banks announced the reduction of the monthly spending limit to US$20 from US$100, while some temporarily suspended the usage of the naira-denominated debt cards for international transactions.

Analysts say dependence on imported refined products for local consumption has also continued to reduce Nigeria’s benefit from the high global oil prices.

In the past, higher oil prices had improved Nigeria’s fiscal and external positions, boosting exports and government spending.

It also had spillover effects on the non-oil economy, particularly services and manufacturing sectors.

However, in contrast to the past episodes of high oil prices, Nigeria is unlikely to reap full benefits from higher oil prices now for two reasons said MPC member Salisu Mohammed Adaya.

“First, oil production is far below Nigeria’s full capacity and the OPEC’s quota; and secondly, the higher crude oil price leaks into higher cost of imported PMS leading to higher PMS subsidy. So long as fuel subsidy is in place, it will continue to erode the revenue gains associated with higher oil price,” Adaya said.

Nigeria’s oil sector which makes up some 10% of GDP and 40% of government revenues has shrunk by 26% since 2018 alone, according to data by Afrinvest West Africa.

Sources tell MoneyCentral that even if the government conducts marginal field licensing today, it would sell at peanuts and many of the bidders would just buy to hold the paper but not develop the field anytime soon under current dispensation where it is cheaper to slug your way into free oil without having to invest so much in production.

“It’s like the case of Sierra Leone gold mining but perhaps this is even worse, because in Sierra Leone, the cabals mine it themselves and pay the cost but in this case, the cabals wait for you to mine and bear the cost but take the output. Worse still, they are not repatriating the funds back home, they leave it abroad and only bring trickles when need be. They seem to have perfected the model end-to-end, from bunkering to export logistics to money laundering…it’s a big racket that would really be difficult for any government to checkmate…because the actors are everywhere; from South to East to North…and they are stupendously rich to buy over anybody and crush anyone. It has been allowed to fetter too long and has grown too big to burst…it would really take a dogged fighter who is ready to make huge sacrifices to checkmate it and that still doesn’t guarantee he/she would succeed,” another source told MoneyCentral.

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