Crunch forces govt to drop oil reserve target
By Yakubu Lawal
DEVELOPMENTS in the oil and gas industry within and outside the country may have forced the Federal Government to jettison its earlier plan to raise the nation's oil reserve from the current level of 35 billion barrels to 40 billion barrels by 2010.
Petroleum Resources Minister, Dr. Rilwanu Lukman, at the just-concluded international seminar of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna, Austria, told The Guardian that the prevailing low oil price does not encourage investment and that investors are taking stock of their portfolios and have put on hold going into new frontiers.
Lukman said: "Nigeria will also not invest as a producing country under the present situation. We will not invest. Why should we invest heavily when we have the capacity to produce three million barrels per day (mbpd) and having shut-in of about one million bpd? Why should we invest in more capacity and more reserves that we cannot produce? It does not make sense."
According to him, the downturn in oil prices now hovering around $40 and $50 per barrels, does not help in taking investment decision for future growth. He stated that with Nigeria's production capacity of over 2.3 million barrels daily, the country is producing about 2.1 million barrels under the current situation.
He, however, praised OPEC's decision to roll over its production quota of 27 million barrels per day, saying: "The decision is necessary because Nigeria has no power over the price of crude oil in the international market."
There has been consistent reduction in demand as a result of the global economic crisis.
Lukman noted that when there is decline in new investment with the low oil price, sooner or later, the demand will catch up with the supply and there will be too little oil in the market and then the price will shoot up.
He also admitted that the crisis in the Niger Delta is slowing down activities, but added that government is tackling the issue since the low revenue from oil is not only affecting the Federal Government but also the monthly allocations to states in the federation.
He explained that the percentage of shut-in of crude oil production due to the Niger Delta crisis is 50 per cent of the total shut-in while the balance can be traced to technical reasons, including low prices of crude oil in the international market.
"If anybody will ask me of the appropriate price of crude oil that will encourage investment, I think that $140 per barrel is good.
"What we are trying to do now through OPEC is to try and help move the prices of crude oil up. It is unfortunate that we are producing crude oil and selling it in the international market that we cannot dictate the price to buyers," the minister lamented.
"If we are producing three million barrels per day and the price is $20 per barrel, it will not help us to achieve the revenue projection of the budget. Our main consideration as a nation is to do everything we can to ensure that the prices of crude oil move up rather than produce more oil into the market at a low price. What is the use of producing more oil and earning less revenue?" he queried.
According to the minister, government will have to look at the shortfall in crude oil production below the budget level of 2.2 million bpd projection for the 2009 budget as a result of the quota restriction by OPEC in the light of other commitments to examine the reality of the situation.
Lukman said that Nigerians should focus on having the right price and not the volume of production.
The minister said considering the implications of OPEC's quota for Nigeria's oil revenue projection for the year, what the government should concern itself with is to limit itself to the cartel's quota with a view to attracting higher prices rather than large volume with low price.
"We cannot force the prices of crude oil in the international market higher individually as a country. We have to take what the price is and do whatever we can do to move the prices higher. Our main interest now is to ensure that the prices do not drop further than what it is now," Lukman said.
The Executive Director, International Energy Agency, Nobuo Tanaka, advocated increased investment by oil-producing companies despite the low price level, stressing that this is the only way to shore up reserves.
Tanaka also suggested that governments of oil consumer-nations should force banks to improve credit facilities to the energy sector to boost funding of new projects.
