The collapse of crude oil prices and the oversupply of the commodity in the global market amid shrinking demand may force some producers in Nigeria to shut down their oilfields, ’FEMI ASU reports
Given the high cost of producing a barrel of crude oil in Nigeria, the current market turmoil caused by the coronavirus pandemic and exacerbated by the price war between Saudi Arabia and Russia is taking a huge toll on producers in the country.
Industry analysts have said the downturn in the global oil market might lead to the suspension of production by some operators in the country.
he Chairman/Chief Executive Officer, International Energy Services Limited, Dr. Diran Fawibe, said the loss to be incurred by the companies if they shut down production might be more than the loss caused by the crash in oil prices.
He said, “The situation is bad enough, but if you shut down, it is not at zero cost. So, do you now shut down and start to incur the costs associated with non-production? If you are producing, even though it is not economical, you may then have a reduced level of production.
“There are various scenarios about oil production level in the country depending on what happens. If the situation worsens and the price goes below $20 per barrel, then we will be talking about a new scenario completely. And I believe the government is monitoring the situation very keenly with a view to taking appropriate measures.”
The US oil producers were said to have shut 40 rigs last week alone, according to a review from engineering group Baker Hughes, the biggest one-week drop since the last oil market downturn battered the US shale industry in 2015.
Goldman Sachs estimated that global oil demand had fallen 25 percent in the wake of the coronavirus outbreak and the price of Brent crude could fall to lows of $20 a barrel.
A Norwegian consultancy, Rystad Energy, said last week that oil prices could fall as low as $10 a barrel if the economic impact of the coronavirus dents global oil demand by 16 million barrels of oil a day.
Last week, a major Nigerian independent oil and gas firm, Seplat Petroleum Development Company Plc, said it was looking to cut costs by at least 30 percent to counter a crash in crude prices.
Its Chief Financial Officer, Roger Brown, said Seplat’s western Nigeria assets could continue producing even at oil prices below $20 per barrel, as revenues from gas help shield them from the downturn.
He said other projects, such as the Gbetiokun oil field, which produced its first oil in July, would struggle to remain profitable if oil prices stayed close to $25 per barrel.
“At some point, you would shut it in if the oil price stays below that level,” he added.
Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue. Oil production in the country has continued to hover between 1.9 million barrels per day and 2.2 million BPD in recent years.
The 2020 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.