Buhari’s diplomatic shuttle and OPEC politics

Following Nigeria’s dwindling fortunes amidst the low price of crude, President Muhammadu Buhari recently embarked on a diplomatic shuttle to meet his Saudi and Qatari counterparts with the agenda of pushing for stability in crude oil prices according to presidency statement.

The President first met with King Salman Bin Abdulaziz Al Saud and senior officials of the Kingdom of Saudi Arabia before flying to Doha to meet with the Emir of Qatar, Sheikh Tamim bin Hamad Al Thani.

During the Middle East diplomatic shuttle, President Buhari said that the Organisation of Petroleum Exporting Countries (OPEC) needs to take action to stabilise the oil market because crude prices have fallen to “totally unacceptable” levels.

“The current market situation in the oil industry is unsustainable and totally unacceptable,” Buhari was quoted as telling his Qatari counterpart during a meeting in Doha.

Buhari also highlighted the need for cooperation between OPEC and non-OPEC producers both within and outside the respective organisations to find a common ground to stabilise the market.

Nigeria, Africa’s number one oil producer, like other oil-dependent countries, is sliding into economic depression from the plunge in world oil prices. The slump has squeezed government revenue and severely weakened the naira – Nigeria’s currency. Inflation is rising and stringent foreign exchange controls have hurt business. Salaries are delayed, many construction projects have been suspended and layoffs have begun. The government and central bank have come under repeated pressure to devalue the currency.

Despite some diversification in the past decade, Nigeria remains highly vulnerable to the fluctuating price of oil. It is dependent on oil and gas for 95 per cent of its export earnings, 35 per cent of its GDP and three-quarters of government revenue.

While the President’s move is commendable, such tasks should have better been left for Emmanuel Kachikwu, the Minister of State for Petroleum Resources to handle as there are other pressing issues begging for the President’s attention on the home front.

The reality of Nigeria’s dwindling crude oil fortunes is that it is beyond OPEC politics and crude oil prices. The quickest way forward for the nation’s economy is diversification from crude oil resources.

The issues of crude oil theft and pipeline vandalism need more attention. It is estimated that an average of 250,000 barrels per day is lost to oil theft and vandalism. According to NNPC annual statistical bulletin released recently, pipeline vandalism increased by 4.54 per cent in 2014 over the previous year with a total of 3,732 line breaks reported on NNPC pipelines out of which 3,700 was as a result of vandalism, while 32 cases were due to system deterioration resulting in a loss of 355.69 thousand metric tons of petroleum products worth about N44.75 billion. Also 1.08 million barrels of crude oil worth about N14,846.71 million was lost in the same period.

The country’s crude oil reserves have also declined. The nation’s oil reserves slumped from 38.5 billion barrels in 2008 to 31.81 billion barrels as at December 2014. The country’s reserves are showing a sign of decline as exploration drilling has hit the lowest level ever experienced. The reports of new discoveries are few and the reserves are getting smaller. Thus, the country need to grow its reserves by making new oil finds.

Nigeria has been struggling to find buyers for its crude oil for some years now without success making the case, more than ever before, for in-country refining.

President Buhari also should work with the National Assembly to ensure speedy passage of the Petroleum Industry Bill (PIB) which can boost investment in the oil and gas industry in Nigeria.