e Price: Stakeholders Urged to Face the lenges
Diezani Alison-Madueke, Hon Minister of Petroleum Resourcesos
Following declining crude price at the international crude market, stakeholders in the oil and gas industry have been urged to prepare for greater challenges ahead.
Speaking at the recently concluded Nigerian Oil and Gas conference in Abuja, the Mrs. Diezani Alison-Madueke, Minister of Petroleum Resources, noted that globally, oil prices have been sliding to levels last seen during the peak of the financial crisis in 2008 resulting from a weak global economy, strong dollar as well as an over supplied oil market. She maintained that crude oil prices have dropped by 60 per cent from about $110 per barrel in June 2014 to $40 per barrel by January 2015. The Minister remarked that Brent is currently trading at between $50 and $60 per barrel and there is limited visibility as to how this will evolve going forward.
“Most analysts agree that as oil producers, we should brace up for extended periods of lower prices and increased price volatility. The resultant effect is that companies are slashing capital spending in 2015 as a response to this dramatic collapse in oil prices. According to Wood Mackenzie, relative to 2014, a total of $120 billion, 24 per cent, has been cut from the 2015 upstream budgets of some 116 companies. This can go up to as much as 40 per cent,” she added.
The Minister remarked that it is obvious that many oil producing countries including Nigeria are facing declining government revenues due to low oil prices and this will pose challenges to funding of projects. She observed that the state of our industry is one that is responding to the dramatic events mentioned above.
Alison-Madueke stressed that in the Nigeria Upstream sector, there is a renewed impetus in managing cost, compressing contracting cycles, vigorously addressing the menace of pipeline vandalism and associated crude oil theft as well as the pursuit of the passage of the PIB.
“In the Midstream, new gas pipelines are being constructed in furtherance of the government’s gas development initiatives. Furthermore, the oil product pipeline network is being rehabilitated whereby critical segments that were once not in use are now operational. In the downstream sector, products supply and availability has been sustained. NNPC’s Retail network has continued to expand in order to improve product availability. However, all of these accomplishments are now been challenged by the current low oil price environment which is characterized by dramatic revenue declines. This means that flexibility in capital expenditure and funding in general will be further constrained in 2015,” she added.
She added that the persistent depressed oil prices may limit industry scope to maneuver in growing long term production and reaching the target of 4.0Million barrels of oil per day. The Minister said that under a sustained low oil price, industry must challenge itself to raise funding for projects in order to meet these targets. She maintained that this will call for radical changes in the cost environment, improved contract/project management and innovative financing mechanism.
“In the event of moderate oil prices recovery, we would still require innovative funding and greater private sector involvement across the hydrocarbon value chain. Nevertheless, at a high oil price, we must maintain a prudent and incentive based fiscal environment that will prevents the return of high cost of production currently experienced in our industry,” she stressed.
She remarked that the passage of the PIB remains critical. The Minister noted that the government is committed to ensuring a clear and transparent fiscal rule of general application with appropriate incentive to the investor and commensurate economic rent to the state. She added that with this balance of objectives, Nigeria can grow production to meet its target of 40billion barrels of oil reserve and 4million barrels of oil per day by 2020.
“Furthermore, Nigeria’s commitment to fiscal stability in its oil and gas sector remains unflinching especially as our historical antecedents clearly demonstrate this. The current market reality of low oil price presents opportunity for us to improve efficiency in our operations. As we deliberate on this and other issues in this year conference, I would like to assure you of Nigeria’s commitment to a vibrant oil and gas industry,” she maintained.