Despite the optimism of some stakeholders, crude oil prices remain low in the international market, thereby constituting a serious single threat to major producers, especially Nigeria. In this interview with UDEME AKPAN, the Chairman of International Energy Services Limited, Dr. Diran Fawibe made a strong case for the diversification of the nation’s economy.
Are you worried about the prolonged low crude oil prices in the world market?
I am worried. Indeed, every close watcher of the volatile oil market should be worried at least for a reason. The nation’s 2015 budget was based on the crude oil price of $52 per barrel. As we speak, the prices of many crude oil grades hover at between $63 and $65 per barrel. It should be recalled that the budget reference price was even adopted because of doubts over the state of the market this year.
Are there any strong indications that prices would rise in the short or medium term?
Some analysts have already expressed hope that prices would rise from the second quarter of this year. Take the Organisation of Petroleum Exporting Countries, OPEC as an example. The cartel had predicted that the prices of crude oil would start to leap in the second quarter of 2015. The Secretary General of OPEC, Dr. Abdalla Salem El-Badri at the 19th Middle East Oil & Gas Conference that the global oil market which was oversupplied by about two million barrels per day, bpd should return to balance during the second half of the year.
The OPEC Secretary General said that, over the years, the global oil and gas industry had gone through a number of cycles and changes that had required the industry to adapt and evolve. He said while prices will no doubt rebound, as they have done lately, it is clear that the industry is currently witnessing a landscape that is shifting the global oil industry. He said it was essential to maintain research and development initiatives and to continually develop technologies that could help in discovering, extracting and producing more hydrocarbon reserves in an ever more cost-effective and sustainable manner.
From all indications, the second quarter that he talked about is fast running out with crude oil prices hovering between $55 and $65 per barrel. This is very instructive. While we continue to have hope, we should learn to keep an open mind and not to be over-ambitious because the market would continue to be volatile and speculative in nature.
Do you think the low prices would remain for a long time?
From all indications, the situation may persist for a long time. In fact, prices can drop further as Iran is expected to pump more oil to the market. It should also be noted that members of OPEC have not yet decided to cut supplies because they know that other suppliers also have capacities to influence the market. The development should compel us to diversify the nation’s economy as soon as possible. We have gotten to a point where we cannot afford to depend on mainly crude oil exports. We need to develop other resources, including natural gas, solid minerals and agricultural potentials. A time has come for us to look beyond oil and gas.
What advice do you have for the new administration of the nation?
The message I have for the administration is to diversify the nation’s oil-dependent economy as soon as possible. Crude oil and natural gas have been depended upon to generate the foreign exchange for too long at great risk. In fact, since the 1970s, petroleum has become a major source of foreign exchange. We celebrate when prices rise. We also mourn when prices crash. It is too risky to place our existence on petroleum. The President should work towards boosting investment in the oil and gas industry through the instrumentality of Petroleum Industry Bill, PIB. He should seek to establish proper linkage between the petroleum industry and other sectors of the nation’s economy. For instance, the administration should ensure adequate gas is produced and supplied to generate power. Other sources of energy resources should also be developed, especially as these would go a long way to boosting electricity supply in many parts of the nation.
Do you see any serious linkage between the power sector and other sectors of the economy?
There is a serious linkage because power remains very central to the nation. Once there is adequate power, other sectors, including manufacturing would witness significant expansion. At present, many manufacturers have complained about low capacity utilization mainly as a result of poor power supply and other factors. In fact, most of them have gone into generating their independent power at higher cost. The cost has been passed in form of high prices to consumers. But once there is stability in power supply, the cost of production would be reduced as investors would not need to generate their independent power. There would also be a reduction in the prices of various goods and services. It also expected that locally produced goods and services would become more competitive in the global market.
How optimistic are you that the government can accomplish these in the next few years?
I have much confidence in General Buhari because I worked with him between 1978- 1979 when he was Commissioner (Minister) of Petroleum Resources. He is a man that remains very focused whenever he is committed to a particular issue. He has much experience in the petroleum industry because he was also the Alternate President of OPEC. During that period, we travelled extensively to many OPEC member states for many engagements. We should not forget that he was Minister when NNOC which later became NNPC was newly created, meaning that he initiated many early projects and programmes for the Corporation and industry.
For instance, the merger of NNPC and the Ministry of Petroleum which had Chief Sunday Awoniyi and Permanent Secretary was aimed at reducing cost of operations. It should be noted that there was not enough funds because of oil recession which culminated in the introduction of austerity measures in the economy. However, prices started to leap between 1978 and 1979 because of measures adopted by OPEC and other stakeholders. Indeed, Gen Buhari did a lot during his tenure as Minister. For instance, he supervised the construction of Kaduna and Warri refineries. He also laid the foundation for the nation’s pipeline network. With these and other records, I am optimistic that Gen Buhari would make positive impact. But he should guide against being derailed by sycophants who may seek to destabilise him.
How do you assess the performance of past administration?
Expected, the last administration did well in some areas. There are indications that significant impact has been made in the area of agriculture. With increased production of various crops in some parts of the nation, it is obvious that the country recorded much progress in agriculture. But the same cannot be said of some sectors, especially manufacturing. Many manufacturers, especially small scale industries suffered mostly because of lack of constant electricity. They generated their power which added to total cost of their operations. The Federal Government claims that Nigeria is the biggest economy in Africa. The government has many data to illustrate its position. But these data does not show the reality on ground. The reality is that such data does not reflect on the standard of living of Nigerians. In other words, many citizens remain unemployed, poor as well as lack the basic comforts of life. These might have shown in the result of the just concluded elections when many people decided to vote out the President Jonathan-led administration.
Was any serious impact made in the oil and gas industry?
Yes! Some milestones were made in the area of local content development. In fact, significant boost has been made in the past five years. Many indigenous companies have gone in to invest in exploration, production and export of petroleum. Many of them have also invested in the area of providing specialised services. But the government failed to succeed in many areas. For instance, it failed to pass the Petroleum Industry Bill, PIB into law despite several attempts and promises.
Specifically, did the administration record any significant achievements in the gas sector?
I don’t think much was done to develop the sector. There is no doubt that the nation has a gas master plan which aims at harnessing the nation’s huge gas reserves for the development of power and other sectors of the economy. But much effort was not made to boost the development of the sector. In fact, the execution of many gas projects was stalled during the period. That partly explains why the nation failed to supply adequate gas to power plants. The gas sector remains very promising. The example of Nigeria’s LNG shows that the LNG can be used to generate substantial foreign exchange for the nation. But we have not been able to go beyond train six. If train seven and others such as Oak and Brass LNG projects are completed, they would go a long way to adding much value to the nation. Even, in the domestic economy, gas can be used to establish petrochemical plants in many parts of the nation.
Can you comment on oil theft and pipeline vandalism which still happen in the nation?
It is sad that the nation has witnessed frequent oil theft and pipeline vandalism. Already, the nation has lost a lot of resources as a result of oil theft and vandalism. For instance, whenever a pipeline is vandalised, we lost not only crude oil or petroleum products; the operators also incur huge cost in maintaining their facilities. This partly explains why cost of operations remains very high in Nigeria compared to other countries. While it cost much to produce a barrel of crude oil in Nigeria because of some factors, it cost only about $20 to produce a barrel of oil in Saudi Arabia.
What is the state of downstream sector?
The downstream is very important especially as it is expected to assist the nation in meeting domestic demand. The truth is that domestic refineries that have the capacity to refine 450, 000 barrels per day have not been able to meet domestic demand. Commercial quantity of petroleum products, especially petrol are still imported from the international market. Consequently, the Federal Government pays so much funds as subsidy to petroleum marketers involved in importing products into the nation.
What can be done to ensure the nation meets its domestic needs?
The government needs to deregulate the sector. The policy is important as it would open the sector for massive local and foreign investments. Already, the Dangote Group has started work on its plant. Others should be encouraged to do so in different parts of the nation. Specifically, the government should remove all constraints that discourage investors to establish new refineries. For instance, it would be imperative to deregulate the sector. If the sector is deregulated, many investors and other stakeholders who need to invest and recover their investments would be attracted to invest in the sector. At present, they have not been encouraged invest in refineries because the government pegs the prices of many products.
Source: National Mirror