What Nigeria must do to reduce barrel of crude oil unit cost
Federal Government’s desire to cut down production cost in the oil and gas industry is seen by industry analysts as a welcome development. However, industry analysts and operators have expressed doubt how quickly this could be achieved in view of the prevailing conditions in the Niger Delta. According to them, the issues that contribute to high cost of crude oil production which is about $23 per barrel are still very much around the industry.
For instance, the issue of insecurity, especially kidnapping of oil workers, is still rampant in the Niger Delta region. To release any victim of that act, a huge sum of money is paid to the militants. Because of this, the insurance cover for each worker has become very high.
Wumi Iledare says the government knows what to do if it wants to reduce the cost of production of a barrel of crude oil. He said the government should address the issue of security. According to him, “a situation where an oil company would maintain a litany of armed police and army at their operation facilities just to secure workers cannot make the cost of production go down”.
Operators in the oil and gas industry told BusinessDay that it is not by words of mouth that the government would cut cost of production, rather it should take practical steps to reduce the incidents that are responsible for the high cost of production.
Contracting cycle is another major cause of increase in the production cost. Because of long contracting cycle, contracts are taken over by inflation which is also a critical component of the cost.
Ibeh Kachikwu, minister of state for Petroleum Resource, had spoken about government’s efforts at addressing concerns of production costs, saying, “we are determined on reducing cost of oil production”.
While raising concern on high cost of oil production, he said the federal government was determined to ensure lower prices working with international oil companies.
“Oil production in Nigeria continues to be extremely high and one of the highest among quite frankly some OPEC countries.It is important that our focus on dragging down cuts must not just be driven by the government and other stakeholders,but must be driven by business sense.”
Kachikwu said,”We have seen production costs go down to $22 per barrels but our aspiration is to ensure it goes down further to $15.Because countries are pushing down their production costs and targeting $8. We need to drag it down further”
He said,the the Ministry of Petroleum resources would soon come up with Template to ensure companies doing business in Nigeria reduce production costs.
The the Ministry of Petroleum Resources would soon come up with Template to ensure companies doing business in Nigeria reduce production costs.
“Unbelievable costs of production impacts on the revenue stream of the country negatively.”Kachikwu noted.
Nigeria currently has 36.18 billion proven reserves of crude oil and condensates, as on first quarter of 2018, and her current production level of 2.15 million barrels per day is encouraging us for a production that is stable,” the minister said
Government aspiration is to ensure it goes down further to $15.Because countries are pushing down their production costs and targeting $8 per barrel.
Oil production in Nigeria continues to be extremely high and one of the highest among some OPEC countries. It is important that the focus should be on dragging down cuts and this cannot not just be driven by the government but by other stakeholders and it must be driven by business sense.