Here is the reality. Bonny Light, Brass River and Qua Iboe (Nigeria grades of crude oil) traded at $16.46 per barrel as at 11.56pm on Saturday April 25, 2020. This is surprising as the grades of Nigeria’s crude with low sulphur content is selling less than its equivalent – Brent crude selling now at $21.44 per barrel and WTI crude at $16.94.
The traded price ($16.46 per barrel) as at Saturday for Nigeria’s crude is far below the revised budget benchmark of $30 per barrel and the $23 per barrel estimated cost of production.
Even at that price, Nigeria is not able to sell her crude oil. She has tens of millions of barrels of crude oil in vessels at sea like a gala seller in Lagos traffic, looking for customers. No one is calling; no one is buying. Within the week, Nigeria offered a discount but who will buy when nearly every country is on lockdown? Nigeria has other bigger challenges because it does not have onshore crude oil storage, so the crude oil has to be put on vessels. In the last week, the cost of renting/demourage on the vessels has doubled per day. Do you see the picture?
What of the Brent and WTI crude? They, too, are not selling. Why? China – the factory of the world – is running at a fraction of its capacity. The airlines are shutdown. Farms and factories are shut down. Many analysts are saying that the world may not get back on its feet for a few more months. In reality, we may be stuck in this new world until a vaccine is found for the novel coronavirus and a major percentage of the global population vaccinated. Unknot your tie and roll up your sleeves. We may be in this new but strange world for a while.
Why should we care? The world as you know it has changed but in Nigeria, All state governments except Lagos State depend on allocations from the sale of Nigeria’s crude oil for most of their revenue. The Federal Government allocations to the states started dropping a few months ago. It will get worse.
The governments and the people need to understand that what they saw moving in the distance were not clouds, but a tsunami moving to our direction at breakneck speed.
Nigerian leaders should brace up for a catastrophe that is close at hand but they still have some time to lay the some protective sandbags.
This is the time to get into synergy and emergency mode and plan for the worst. What will be the options if it comes to the stages that salaries cannot be paid due to empty coffers and that the basic minimum public services cannot be supported?
What are the economic choices we have to make today to assuage this imminent catastrophe? What things do we have to cut off today to be able to tide over till tomorrow?
It is therefore time to Set up “war-rooms” quickly and Pull in our best thinkers. It’s time to benchmark other nations who had come face to face with similar incipient quagmire. This is the not time to be partisan. Let us turn this problem into a shared one. Don’t let anyone brand it your problem. This is the time to plan and act. Let us plug the leakages in our system
Act as if you are convinced that the dam will break. It is likely that it would. If it does not, you are still ahead. If it does, you will be ready. Don’t be caught napping. It won’t be pretty. Urgency is required.