The lingering decline in crude oil prices, which has greatly affected Nigeria’s revenue from crude oil exports, has taken another dimension in recent months. About 35 million barrels of the country’s crude oil remained unsold at the international market as at December 2014.
Sales have been low this year as the fortunes of August and September deliveries remain uncertain, even as oil prices continue to hover on the lower band of $50 a barrel. As it stands, the nation is on a financial cliff and can fall off except a miracle happens.
The one commodity that provides life support for the economy has not only seen its price at the international market fall to as low as $48 per barrel, the volume sold is shrinking as well. There is no sign that things will get better soon. The International Energy Agency (IEA) has even predicted that crude oil prices may fall to as low as $20 per barrel.
As a result of the above oil market scenario, the federal government will have a herculean task running the country effectively. The country is financially vulnerable and the government may have to resort to heavy borrowing to meet its daily obligations.
This certainly will not be in the best interest of the nation. We note with concern that already many states are not able to pay their bills. Same goes for some federal agencies. To avert the financial disaster that falling oil price portends for the nation, the Federal Government should consider offering longer days credit facilities of up to 90 days to oil consumer countries, as a way of helping Nigeria to wriggle out of the current falling oil price debacle.
Furthermore, Government, through the Nigerian National Petroleum Corporation (NNPC) should refrain from selling its crude in the spot market and negotiate for longer term contracts to boost its revenue drive. We believe that this is the right time for Nigeria to look inward more and begin to refine its crude instead of depending on exports alone. We should aim to start exporting refined products.
To achieve this government should encourage more private sector participation in refining by creating a level playing field for both government and private refinery outfits. This will include repositioning the NNPC to make it either a regulator or an oil marketing company.
It can no longer operate under its current, discredited model of doing business. Furthermore, the oil sector should be deregulated and the Petroleum Industry Bill (PIB) passed into law to change the oil industry holistically. It is time to take radical actions in the oil sector and protect the economy from its frequent downsides such as the one we are going through after a 16-year boom.
