Oil projects above $17 per barrel not sustainable, says NNPC

New and existing oil projects that exceed $17 per barrel are not sustainable at the current average crude oil price of about $50 per barrel, says the Nigerian National Petroleum Corporation (NNPC).

 

Speaking at the 2015 Oloibiri lecture series and energy forum (OLEF), Timothy Okon, group coordinator, corporate planning & strategy, NNPC, said that beyond 33 percent cost-price ratio, the industry will suffer, adding that low cost-price ratio must be adhered to so that operators can make profit and pay government entitlements and taxes.

Okon identified four factors that affect crude oil prices which include politics, environment, technology and economics.

“These factors apply direct pressures on demand and supply which in turn affect oil prices”, he said.

“Since 2011, oil prices have been relatively stable and traded in the $90 to $120 per barrel band until June 2014 when abundant supply and weak demand led to a drastic decline in oil prices in the past four months”.

According to Okon, “The oil and gas industry will have to adapt to new realities affecting project break-evens and cash flow as lower oil prices combined with recent CAPEX overspend will put company cash flow under threat”.

He recommended that Nigeria and NNPC’s response to the low oil prices should include passing the Petroleum Industry Bill (PIB), removal of subsidy on petroleum products, delivering natural gas and liquefied natural gas projects, review of CAPEX spending, domestic refinery optimisation, restructuring public finance and exploring Asian markets.

In her own presentation, Elizabeth Proust, chairman of Oil Producers Trade Section (OPTS)/ managing director of
Total, said that “the low crude oil prices we are experiencing today are having severe and adverse impacts on both producers and host governments globally”, adding that if oil prices average $53 per barrel as against $77.50 in 2014, Nigeria’s oil and gas revenue will decline by at least $10 billion which will lead to slowing or cancelling many infrastructure projects that Nigeria desperately need.

“Low crude oil prices have significantly reduced the level of investable funds at a time when competition for investment funds is sharpening. Even within Africa, Nigeria has formidable competitors for the increasingly scarce investment funds”, Proust said.

Proust advised that to mitigate the effects of the low crude oil price, industry needs to challenge and optimise its costs, redouble efforts to improve capacity and efficiency of existing facilities and prioritise projects and investments.
She called for adequate Joint Venture (JV) funding, adding that due to competing national needs, it has become difficult for government to meet its JV funding obligations.

Emeka Ene, chairman, Society of Petroleum Engineers (SPE), Nigeria Council, in his welcome address said that OLEF has evolved over the years to become a policy development platform, “bringing together the shared thoughts of leading stakeholders in our industry on how to solve our national oil and gas industry challenges”.

This year’s lecture series titled ‘Global Oil Price Dynamics: Impact and Strategic Solutions for Nigeria’, according to Ene, “is aimed at analyzing the impact of global oil prices on the Nigerian economy and to also proffer lasting solutions towards insulating the Nigerian economy from falling oil prices and our corporate bodies from the effect of creeping operational costs”.