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Since the
1980 great recession, the price of crude oil in the New York
Mercantile Exchange, one of the markets where international
crude oil is being traded, has been on the increase with
fluctuations fuelled basically by speculations, forces of
demand and supply, climate change and price of substitutes.
The price of crude oil rose to its peak in the 1990s when
the Gulf war broke out and the Middle East suppliers used it
as a tool for frustrating America. Ever since, the price of
crude has been on the increase with emerging economies like
India and China helping to drive up the price as their
demand for fossil fuel surpasses the supply in the market
presently.
In the advent
of the last global economic recession, industries in the
developed nations such as America started closing shop and
fast growing economies like China started faltering and this
caused a drop in the demand for crude oil. On the other
hand, oil producing nations like Nigeria in their bid to
reap bountifully from the hike in price kept flooding the
market with crude oil. This imbalance forced the price of
crude oil to fall freely without succor from a record high
of $147.27 per barrel in July 11, 2008 to as low as less
than $40 per barrel in the first quarter of 2009. This
scenario took its toil on producing nations who were caught
unawares in the euphoria of the hike in price.
Nigeria was
worst hit with the fall in price of crude oil. First of all,
Nigeria is dependent on fossil fuel as the major source of
income. As a matter of fact, earnings from oil and gas
contribute about 80-85% of the gross national income. Oil
being the main stay of the economy, it was benchmarked at
$67 per barrel in the 2010 budget though the Federal
Government has asked the National Assembly to review this
benchmark. Making a comparism of the present market price of
crude oil with the budget benchmark, it is only natural and
reasonable to infer that a budget deficit is certain. This
will take its toll on the Government and her programme for
the people. It is obvious the Federal Government has
embarked on an austerity measure to stem or at least contain
the impact of this deficit budget spending by cancelling all
offshore trainings for government personnel. Analysis have
argued that such measures are capable of crippling the oil
and gas industry presently plagued with inadequate skilled
labour and shortage of manpower with little or no succession
plans for the fast ageing workforce.
Another
aspect of the crash in price of crude oil on the Nigeria
economy is the aspect of shortfalls in cash calls. The
Federal Government through the state owned oil company –
Nigerian National Petroleum Corporation is in joint ventures
with seven international oil companies and have production
sharing contracts with forty four others. Most of Nigeria’s
proven resources are in the deep and ultra deep waters, with
pockets of projects to explore oil in the deepwaters such as
Chevron’s Agbani Field, Shell’s Bonga Field, Exxonmobil’s
Erha, have shown that such offshore exploration and
exploitation projects are cost intensive with a nation in
crises, fired by the fall in price of crude oil. It is
evident that the Federal Government can no longer meet up
with her counterpart funding obligations. This will
invariably put a halt to further offshore deepwater
exploration activities and in turn make it difficult to meet
the nation’s aspiration of increasing production from the
present 2.1 million barrels per day to a set target of
4.0million barrels per day by 2010.
It is
pertinent to note that developing alternatives to fossil
fuel is also of great concern to the Federal Government in
collaboration with the oil companies. Projects such as wind,
solar, nuclear, hydropower, biofuel are all good sources of
alternative energy that are in the pipeline for development.
However, since these projects are cost intensive if they
must be developed for commercial purpose, neither the
Government nor the oil companies are in anyway, at least not
at the moment, indicating or renewing their interest in this
important aspect of energy plan. It is argued by experts
that a generational gap in the development of renewing
energy could worsen the alarming climate change.
Governments
of oil producing nations have started withdrawing from their
reserves to meet their social responsibility to their
citizenry. During the oil boom of 2005 to 2008, most oil
producing nations kept their excess earnings for the
‘raining day’. Most of these nations especially Nigeria has
started drawing down on her reserve. With the rise in price
of crude oil not in view, it is mind blowing to think of
what could happen when the reserve is exhausted. OPEC (Organisation
of the Petroleum Exporting Countries) of which Nigeria is a
member, had made conscientious efforts at driving up the
price of crude oil by embarking on cut in production by her
12-member cartel but this has had little or no effects on
the price. Nigeria will find it increasingly difficult to
continue with such social programmes as fuel subsidy and
also embark on infrastructural development, education aid,
health care and job creation at the same time. It is only
reasonable to predict that this will result in unrest, union
agitations, industrial actions and total grinding of
government programmes. Hostilities and militancy may likely
mesmerize the oil rich, highly volatile Niger Delta region.
Oil companies may lay off some workers under the disguise of
downsizing and rightsizing. All these are the consequences
of the free fall in price of crude oil.
There is need
to set a more conservative benchmark for our budget, develop
non oil resources such as agriculture, sport, tourism,
education and create a more business-friendly environment
for businesses to thrive. Science and technology,
infrastructural development and human capital should be
developed as a matter of emergency to thrive like Japan and
Israel in the face of a highly dynamic global economy.
Finally, let
us as a people stand up to build a virile nation. If we
rekindle the flame of hope, if we reawaken our consciousness
to make the economy work, who can say anything is
impossible?
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Published
September 22nd, 2010
