Following global apprehension over likely economic collapse, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, has predicted that a drastic crash in global crude oil price will persist for the next three months or more.
He, therefore, advised Nigerians to prepare ahead for tough time as the situation would have adverse effects on the economy.
The GMD stated this yesterday in Abuja at a Consultative Roundtable with the CBN Governor, themed: “Going for Growth 2.0.”
Kyari, while dissecting possible scenarios confronting the economy as the 7th world’s largest oil producer in the face of current massive slide in crude oil price, noted that while competitors produce oil at a relatively cheaper cost, Nigeria’s production cost is still on the high side.
This is just as the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, pledged the apex bank’s resolve to intervene heavily in health sector following the outbreak of COVID-19.
Emefiele listed areas the apex bank will intervene to include diagnosis and surgeries.
Kyari described Monday’s crude oil price crash as black Monday and painted a gloomy picture of what is ahead.
Kyari said the development had left products stranded.
He explained that about 12 Liquefied Petroleum Gas (LPG) cargos got stranded globally because they had no hub due to abrupt collapse in demand associated specifically with coronavirus.
According to him, with the oil market slump on Monday, the reality on ground is beginning to dawn on the country.
He said that when the oil market collapsed, everything would collapse completely; adding that oil was the only commodity whereby when the price goes up, beneficiaries would panic.
His words: “Today, there over 12 LPG cargos stranded globally because they have no hub because of the abrupt collapse in demand associated specifically with coronavirus. It is obvious and it has also hit other sectors from the production stage, which is the liquid crude. And as at today, Nigeria crude has 50 cargoes that have not found landing, it means the traders have purchased it, but they don’t know how to take it.
“Iraq dropped their prices by $5 and Saudi Arabia by $8 in some locations. So, when your crude oil sells at $30 and you’re dropping it by $8, it means that in the market, you’re selling it at $22. That’s a huge problem that can be accommodated in some production environment like in Saudi Arabia.
“Today, the best of our production system is $15-17 a barrel. There are many countries whose cost of production is $30 and we’re one of them. So, when the price now goes to $22 and we’re producing at $30, we’re out of business. Beyond that also, we have competition. With the oil market slump on Monday, the reality on ground is beginning to dawn on us,” he added.
Speaking further on the challenges over the oil price crash, the NNPC boss said: “For the oil market, we heard of the Black Monday and how the oil price crashed. It signifies the importance of the oil market. Oil market can collapse in two ways. It can collapse via low prices like we have today. It can also be caused by very high prices, which caused the global recession of 2008/10.
“It happens in cycles and a lot of factors cause this. This is the only commodity the beneficiary will panic when the prices go up. We have expectations and we have plans. The belief is that we can shift our reserves from 37-40m barrels in the next two to three years.
“In as much as our expectations are high, we must produce them today even at low prices. The market operates in such a way that we don’t know what tomorrow will bring.
“The assumption for this year was $60 per barrel as an average; now we are faced with sub-$30 and potentially, we haven’t seen the bottom. We hope we’re not seeing the bottom and if it is not, it’s a huge challenge that creates a cycle of problems for us and difficult to manage. It will affect all sectors,” he said.
Speaking on the capacity of Nigeria’s financial institutions to finance oil and gas industry, Kyari said the sector hasn’t gotten full capacity to bankroll oil and gas industry.
“We don’t have the capacity to finance the oil and gas industry in this country. If we don’t do this and with the competing needs and resources across the world, what it means is that we cannot compete because nobody will want to put his money,” he said.
On her part, Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed, noted that sudden and unexpected drop in crude prices to just over $30 came as a shock and great surprise.
She added that it presented best opportunity for Nigeria to brace for reality about compelling need to diversify the economy.
“These strong headwinds would reinforce the wake-up call to a life without oil. But that should not spread panic and speculation in our economy.
“We need to put our hands together to weather the storm. We need to work together to take the opportunities provided by this very harsh reality.
“We are working as government to strengthen our macroeconomic fundamentals.
“There is no doubt that the combination of crude oil price crash and coronavirus will put severe strain on our budget revenue, forex and many sectors. We are drastically reviewing the budget as well as redoubling our effort to raise revenue and plug the leakages and intensify engagement and support of sub-national entities and the private sector in our economic recovery and growth programmes,” she said.
Meanwhile, in an earlier opening remark, the CBN governor said the bank was ready to intervene heavily in the health sector.
Emefiele explained that the CBN had decided to support the government by helping to develop specialist hospitals across the country.
He said the bank’s intervention would be in the area of diagnosis and surgery, pointing out that this would reduce foreign trips being embarked on by Nigerians in search of medical attention.
“Giving the impact of coronavirus, I heard some countries are trying to ban export of some pharmaceutical products, we must look inward at this time.
“CBN is also working to support the pharmacy and pharmacology industry,” he said.
On why Nigerians do not patronise local hand sanitisers, Emefiele urged people, owners of patent outlets and pharmacies to buy products produced in the country.
He said the apex bank would soon add sanitisers to the lists of products on foreign exchange restriction.
He said the country must take advantage of this development in ensuring diversification of the economy being driven by the present administration.
According to him, a situation where the country’s 80 per cent foreign exchange earnings is from oil, as well as such product constitutes 60 per cent of government’s revenue, makes the country’s economy to feel the impact of the coronavirus.
He said relying on crude oil since 1970s had become a problem for the country, hence something must be done to change the trend.
Emefiele disclosed that the findings that would be generated from the roundtable discussion would be immediately presented to the president at the end of the event.
He commended President Muhammadu Buhari for his emphasis on diversification of the economy.
In attendance at the event were President of Dangote Group, Aliko Dangote; Founder of Zenith Bank, Mr. Jim Ovia; Minister of Transportation, Rotimi Amaechi; Minister of Works and Housing, Babatunde Fashola; Managing Director, Nigeria Sovereign Wealth Authority, Dr. Uche Orji and CEO, African Finance Corporation, Samaila Ahmed, amongst others.