Uche Cecil Izuora
The Nigerian National Petroleum Company Limited (NNPCL) says current oil production cost in the country is negatively impacting investment opportunities.
According to the Group Chief Executive Officer of the Company, Bashir Ojulari, the country’s high oil production cost is due to massive security investments aimed at safeguarding crude oil pipelines in the Niger Delta region.
Ojulari, who spoke in an interview with Bloomberg on the sidelines of the 9th Organisation of Petroleum Exporting Countries International Seminar in Vienna on Thursday, said Nigeria’s current cost of crude production had surged to as high as $30 per barrel, more than double the global average.
This is 200 per cent higher than the cost of producing the same crude in Saudi Arabia, which is $10 per barrel. Our correspondent reports that if crude sells for an average of $70 per barrel, it means a producer might have spent almost half of the price on production.
He said, “The cost of crude production is divided into two: the capital cost and the operating cost. The operating cost right now in Nigeria is hovering over $20 per barrel, which is quite high. Part of the reason for that is because of the investment we have had to make in terms of the security of our pipelines, which is now 100 per cent available. That came out of a significant investment.
So we believe that with time and stability, the cost would start going down, but for now, it is between $25 and $30 per barrel.”
However, the new figure is less than the $40 per barrel quoted by the Nigerian Upstream Petroleum Regulatory Commission as Nigeria’s cost of producing crude oil earlier this year.
He, explained that the government had to overhaul crude infrastructure security, working closely with government agencies and local community surveillance groups to safeguard critical oil infrastructure.
Ojulari insisted that the new model, which replaced the former reliance on policing, had yielded more sustainable results in pipeline availability.
He added, “I can give a lot of assurances concerning our pipelines because where we are, we have come a long way. It wasn’t a quick fix. It took several years to get the government policies aligned. We have now gotten the government security agencies also working with local surveillance groups, who are from the communities, providing sustainability and jobs for the community.
“What we have now is a bit more sustainable. In the past, it was around the use of policing, and it was very clear that policing alone wasn’t going to work. We needed to create a sustainable means of livelihood and interdependency with the community. So my confidence is built on the premise that today’s security is driven by the communities, far more than what we had before. So I am quite optimistic.”
The NNPC helmsman also addressed questions on crude supply to the Dangote Refinery. According to him, the company will not be compelled to buy local crude by government policy, stressing that all transactions would remain commercial.
“First of all, Dangote refinery is a commercial investment, and I think it is very important to keep that in mind. It is a commercial investment and not a national investment. So the refinery has the flexibility to be able to import crude for its survival, and also has the flexibility to serve all customers.
“If we look at it commercially, yes, we would have to do more to ensure that there is a balance in terms of the crude coming from Nigeria. We are working on that, and it will improve. But what we want to do is move away from government domination on private sector businesses. We want the private sector to have the freedom, and that is what the government has been doing. So if Nigeria is going to supply more crude to the Dangote refinery, it will be on a commercially willing buyer, willing seller basis and not because it is a policy.”
Providing updates on the country’s oil output growth strategy, Ojulari said Nigeria was ramping up production with a medium-term goal to hit 2.06 million barrels per day by 2027.
“We have started growing. In March, we were producing about 1.56 million barrels per day, and we’re now at 1.63 million, including condensates,” he noted. “By the end of the year, we are hoping to clock 1.9 million barrels daily.”
On gas production, he added that Nigeria also plans to raise output from 7 billion cubic feet to 10 billion cubic feet by 2027. Ojulari also hinted at a possible overhaul of the state-owned refineries, admitting that the existing strategy had encountered challenges.
“On the state-owned refineries, we have made quite a number of investments over the last several years, and we have brought in a lot of technology. We have been challenged; some of those technologies have not worked as we expected so far, but also, as you know, when you are refining with a very old refinery that has been abandoned for some time, what we have found is that they are becoming a little bit more complicated.
“So we are reviewing all our refinery strategies now. We hope to conclude this review process before the end of the year. That review may lead us to do things slightly differently.”
On whether the review could lead to the sale of refineries, he said, “I can’t say that now, but what we are saying is that sales is not out of the equation. All options are on the table to be frank, but that decision will be based on the outcome of the review we are doing now.”
On the global oil market, Ojulari stressed the need for greater equity and investment in the Global South, especially Africa, where over six million people still lack access to reliable energy.
“In Africa, many women and children still use wood or charcoal, leading to major health problems. We need to look at the world as one system where there is equity and balance,” he said.
He also linked the global energy supply tightness to delayed investments caused by the energy transition push. “Over the last several years, there has been a lot of drive towards energy transition. Quite a number of activities were delayed, and investments were also delayed. Those investments are now coming back up,” he said.
“The overall progress with respect to renewables has been slower than we expected, yet energy demand remains. That lag is what you’re now seeing as recovery.”
Ojulari supported OPEC+ decisions to rebalance the market, saying, “It’s all in the broader interest of both consumers and suppliers. I think it was the right thing to do.”