So since this year, the price of crude has fallen from around $110 to $79 today. About a quarter of OPEC is going ballistic, another half are shifting in their seats while the minority are wearing a poker face and calling the world’s bluff.
Non-OPEC countries have taken a lead in oil production for a while now, driven mostly by Russian reserves and American shale. Anyone could have seen this coming. As an intern with one of the US oil majors, I could see from my monthly reports that the deluge was coming. Eagle Ford, Bakken and a couple of Dakota fields were growing so fast, they were outproducing all other US fields combined. The supply was growing rapidly. But at the time, China was stop-gapping America’s falling demand for global crude, so it looked as if it was all good. Prices were climbing even.
Till this year, when China stopped booming. 15% decline so far, and likely to continue, if the analysts at Goldman Sachs are right.
What does this mean for Nigeria?
The good part is that the government’s benchmark for the 2014 budget was $74 per barrel. With oil prices at $79, or just $5 above that, it’s also the bad part. There’s little to no wiggle room. And of course, it could fall further. Yikes.
Our top minister, Mrs. Okonjo-Iweala has said that we only have three months cushion in our excess crude account. Beyond that then, we might be looking at a definite slowdown at best, massive spending cuts and borrowing at worst. And there are presidential elections in 2015. Double yikes.
There’s a couple of ways we could play this. One way is to sit on our thumbs, hope we have enough resilience to take the massive hit, and hope oil prices eventually climb again.
The second would be to push through an emergency fund and partner with Dangote and other investors to fast track the refinery being built to meet the balance of our domestic demand. We can still take the hit, but within some years at least insulate our domestic economy from global crude prices. While the government will get less foreign revenue, overall energy prices within the country will be cheaper because it’s only affected by the economics of production within Nigeria alone. And cheaper energy is a boost. We might even get something good out of it.
for now, it’s still $5 above our benchmark rate. We often don’t like to do anything until the shit has landed on our doorstep.
It’s not my decision.
What do you think we could do, or what all this means for Nigeria? Let me know in the comments section. Thanks.