Nigeria in dire straits with crude production levels

Guardian Nigeria

Watch Nigeria in dire straits with crude production levels - Guardian Nigeria on Dailymotion

Transcript

00:00Oyemi Oker, a partner at AO2 Law, believes the ripple effect from a failed Naira for

00:05crude deal will impact the stability in petroleum product availability and pricing in Nigeria.

00:11In a chat with CNBC Africa, he stresses that Nigeria's crude production volume must be

00:15sustained amid the recent sabotage of pipelines.

00:18Take a look.

00:19It's a good thing that we've gotten feedback that the committee of the Federal Executive

00:26Council is now in talks with the refinance with regards to the Naira for crude transaction.

00:35But my concern is that perhaps this came a little bit too late.

00:40Six months did not jump on all of us.

00:43Six months started counting as far back as October.

00:46And the concern is why did we have to wait up until what I will call the time beneath

00:52a few days to the end of March before these conversations were open.

00:58But nonetheless, I think it's good that the conversations are on the way.

01:04And the understanding we have is that both parties, particularly the NNPC, is looking

01:10to extend the Naira for crude arrangement.

01:13So I think it's a good thing for us as a country generally.

01:18With regards to the potential impact, if we do not have a deal, what this means is

01:24that considering the fact that the Dangute refinery is a free zone, it has the freedom

01:33to be able to sell the petroleum products in USD, but what that means is that the marketers

01:41would have to take Naira to the markets to go and look for USD in order to purchase the

01:48product.

01:49And ultimately, this would reflect on the pricing at the pumps, which what I'm saying

01:56perhaps in so many words is that there is a possibility of an increase in pump prices

02:02if we don't have a renewal of the deal.

02:05Now, one of the things which is causing concern is also the issue of balancing the interests

02:13of the federal government with regards to forward sale contracts that have already pledged

02:19crude to the creditors of Nigeria and also ensuring that there is sufficient and consistent

02:28supply to the Nigerian market.

02:30Do not forget that there's been even reports before now that there's been inconsistent

02:36supply from the NMBC up until March.

02:44And talking about the inconsistencies here now, some of the data we've also had is that

02:50the forward oil sales had hit about $21.5 billion in the last six years, that's since

02:572019.

02:58And in terms of the sanctity of these contracts and ensuring that we don't have defaults here,

03:03the ripple effects, in terms of pressing forward the near-term outlook, how do you

03:08see the picture getting, especially on the back of concerns around whether or not Nigeria

03:13can sustain its production volume at this moment?

03:18At this point, we have no choice but to ensure that we do everything possible to ensure that

03:24our production volumes are sustained.

03:27Unfortunately, looking at some of the events that have happened in the course of last week

03:33with regards to certain sabotage of pipelines, this would also count negatively towards output

03:42and oil production.

03:45But we should, as much as possible, ensure, as a country, that security issues with regards

03:51to production or anything that can affect production is highly curtailed and highly

03:57minimized.

03:58And if we do not do that, then perhaps we may be running a risk of not meeting our credit

04:06obligations to our financiers on the various forward sale contracts.

04:12And what would happen would now be some of the concerns which we are getting with regards

04:18to lack of consistent supply for domestic refining capacity.

04:23So what I'm saying essentially is that we are in dire straits with regards to our production

04:30levels and we shouldn't allow anything negatively affect it because it would affect us, one,

04:37economically as a country, and as individuals also we may see inflationary trends as a result

04:43of potential increasing fuel pump price if we do not have consistent domestic supply

04:49of crude oil to the refineries.

04:51And some estimates have it that we might likely see pump price hit about 930 Naira per dollar

04:56if we see things not necessarily move favorably for us under this deal.

05:02But now talking about timelines here and how do we also boost our refining capacity here

05:08in the country, this shifts my attention a little bit towards the concept of modular

05:12refinery, the government strategy towards this, and then the local players here, and

05:17then the timelines for the rehabilitation or modernization of our refineries, Port Harcourt,

05:23Kaduna, these definitely continue to come, make the news, however, hitting the ground

05:29running and producing still remains a concern here.

05:33Your take around the timelines, how we've paced ourselves so far, and the concept around

05:37investment in modular refineries?

05:41I think you've lumped up various issues.

05:43You have the issue of the modular refinery on one hand, you also have the issue of the

05:49ongoing rehabilitation of government-owned refinery.

05:54With regards to the modular refineries, I think one of the things we should also still

06:00or we still have to talk about is the issue about supply of feedstock.

06:05Now, maybe apart from maybe one or two refineries that have feedstock from their upstream businesses,

06:18what we will have is that the other refineries will still have to purchase feedstock from

06:25upstream producers.

06:26The question would be, do we have sufficient feedstock from these upstream producers, particularly

06:35because usually what happens is that the nature of crude oil sale contracts is not, I mean,

06:42there are a few times where you have spot sales.

06:45Most times what happens is those contracts are either on the forward sale agreements

06:51or prepayment agreements, which are already locked in.

06:54So, the success of modular refineries would also largely depend on feedstock.

07:01The operators of modular refineries as at today, I think those that are recorded success

07:07as at today is on the back of the fact that they have upstream operations that can easily

07:13give them feedstock.

07:16And even at that, I'm aware that some of them even still enter into contracts with

07:20local producers to get more feedstock too.

Category

Transcript

Recommended