OPINION: Nigeria has suspended plans to borrow $22.7 billion to fund its ambitious 2020 budget, endangered by falling oil prices and a collapsing market for oil and gas exports as coronavirus hammers the global economy.
The Opec nation desperately needs to refocus on developing a non-oil economy and prioritising capital outlay for job creation, albeit deferring “non-critical expenditure” until markets stabilise, Finance Minister Zainab Ahmed told a recent convention in Abuja.
Fifty cargoes of Nigerian crude are wandering the ocean looking for off-takers, while a dozen liquefied natural gas tankers are at sea “with no hope of finding buyers” as demand crumbles, said Nigerian National Petroleum Corporation managing director Mele Kyari.
With Persian Gulf oil producers offering discounts and Opec in disarray, Kyari is forced to admit that in this market only those with low operating and production costs will survive — a tough pill to swallow for a country that produced for a competitive $5 per barrel just two decades ago.
Saudi Arabia on average pumps crude for under $5 per barrel, while Kyari calculates Nigeria's cost at $17, and that figure is plainly rising.
The cause? Corruption, ineffective regulation, an infrastructural deficit, oilpatch insecurity and asphyxiating bureaucracy — that is the opinion of Minister for Petroleum Resources Timipre Sylva, who last October reckoned the cost of getting oil out of the Niger Delta at $35 per barrel.
The solution is clear — slash paperwork and speed up approvals, revise laws penalising the deep offshore and allow whatever mergers and acquisitions are proposed to entice foreign capital back.
Last weekend’s tragedy in Lagos, where a gas explosion destroyed an entire neighbourhood, taking more than a score of lives, serves to emphasise the pitfalls of poor safety planning, yet the country must now move swiftly.
Getting out of this fix will take grit if Nigeria seeks to restore borrowing capacity, reassure bond markets and keep the currency from freefall. Now may be the time to rally investors, open the taps and pump.
(This is an Upstream opinion article.)