Nigeria’s Economy Will Collapse In Two Years With Falling Oil Price, ACN warns

Channels Television  
Updated February 24, 2013

Opposition party, the Action Congress of Nigeria (ACN) has raised an alert of an impending collapse of the nation’s economy, unless the Federal Government cuts the ‘astronomical cost’ of running governance and takes urgent measures to diversify the Nigerian economy and shore up the nation’s production of crude oil.

The party in a statement issued in Lagos by its National Publicity Secretary, Alhaji Lai Mohammed, warned that if the listed measures were not taken, the government may not be able to pay its bills, including workers’ salaries, within the next few years as the developed nations are currently working out modalities of crashing the crude oil price.

According to the statement, “the red alert was based on four empirical evidence: The cost of oil production which has skyrocketed from 4 dollars per barrel in 2002 to 35 dollars presently; the massive corruption in the oil sector, with oil theft and sabotage leading to lost production and costing Nigeria some 6 billion dollars annually in crude theft; the sharp fall in the discovery of new oil and gas reserves due to the low investment in the sector, and the most serious of all, the challenge posed by alternative sources of global supply of oil and gas.”

Crashing Crude Oil Price With Alternative Energy

ACN warned that all the challenges pale into little significance when placed against the challenge posed by alternative sources of global supply of oil and gas (Shale oil and Shale gas), which is now being discovered in massive quantity across Europe, Asia and the US.

”For the first time in nearly a decade, the US has regained the position of being the world’s largest producer of natural gas and soon also oil. Thus, in less than five years, the US has gone from seeking new sources of oil and gas overseas to being self-sufficient. Industry experts believe that Shale oil and Shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels and alter oil geopolitics.”

”The announced objective of the US Government is to drive down oil prices from the current 100 dollars per barrel to 50 dollars per barrel within 2 years. If this happens, which is very likely in view of the alternative sources, Nigeria, with a cost of production of 35 dollars per barrel, would immediately go out of business, with dire consequences for an economy that thrives largely (if not solely) on oil,” the party warned.

The party noted that the signs of ‘imminent trouble’ in the nation’s oil sector are already visible for those who are willing to see.

“The Brass LNG Project is unable to take Final Investment Decision (FID) because of the collapse in the US LNG market and rising costs; and a similar situation faces the Olokola LNG Project” as it alluded to some of the lingering challenges in the nation’s oil and gas sector.

High Cost Of Operation in Nigeria’s Oil Sector

Citing the just-concluded Nigeria Oil and Gas Conference in Abuja, the party noted that the mind-boggling hike in the cost of oil production in the last decade was attributed to the cost of security in the Niger Delta.

”In other words, the gains recorded from ending militancy in the Niger Delta due to the Amnesty Programme have been wiped off by the cost of maintaining the ‘peace’.”

ACN also quoted the Managing Director of Shell Nigeria, Mr Mutiu Sunmonu, who described the situation as, “operating in the Nigerian oil and gas environment can be long and tortuous with costs at the high end of the global scale. There are a multitude of security related issues that have to be dealt with on a daily basis.”

The party further emphasised that ”in the recent past, militancy has simply been replaced by industrial scale oil theft and sabotage.

It lamented the poor level of discovering new oil and gas reserves compared to other countries, stating that the “disastrously-low level of exploration activity in Nigeria is supported by the statistics released by the US Department of Energy for deep-water discoveries from 2009 to 2011 in which Brazil alone contributed some 40 new discoveries or 20 per cent of the global total, US and Australia contributed 10% each, countries like Ghana making nine new discoveries or 5% of the global total, while Nigeria had only 4 discoveries or 2% of the global total during this period.”

The party blamed the paltry discovery of new oil and gas reserves on alleged low investment in the sector, which it claims, “needs to attract $15 billion annually in capital investment, up from the present $3 billion in order to remain a significant global oil supplier and a respected player in OPEC.”

ACN therefore called on the federal government to put on its thinking cap in order to rise to the challenges listed above and save Nigeria’s economy from collapse, adding that any delay could mean that “those in charge of the country’s affairs would not have enough time to change course as the ship of state heads for the rocks.”

The opposition party urged the ruling party and federal government not to see the warning as political rhetoric but a patriotic fervour devoid of politicking. ”Contrary to what the FG may say, this warning is not about crying wolf but is actually borne out of a patriotic fervour devoid of politicking, which is the usual refrain of this government when alerted to its shortcomings” it said.