LAGOS – The former Minister of State for Petroleum Resources, Ibe Kachikwu, has advocated a long-term solution to the fall in oil prices at the international market.
Kachukwu, who supported the cut in oil production to mitigate the drop in the price of crude oil, however, said durable solutions would come through regional focus.
He added: “Each country must look within its immediate region to see how it can satisfy those immediate demands so that at least oil can go to places that are shorter in distance and much more dependable as markets”.
The former minister maintained that oil price would not likely get to $57 a barrel this year on account of the unprecedented falling prices globally.
He predicted that there is likely to be a rebound in terms of prices over the first or second quarter of next year.
“However, it is even doubtful whether we will get to the $57 benchmark early next year, for many reasons. For example, a lot of countries with huge financial resources like China and America built huge initial stockpiles of oil in the initial months of COVID-19 when prices were low. So, even when the pandemic is over, there is going to be a lot of pressure on prices,” he added.
He spoke on effects of low demand, high supply, and minimum storage of crude on local producers, and said Nigeria has been particularly badly hit because we have very limited storage inland.
He emphasised the need to address storage, create storage obligations among oil producers, as well as address the issue of diversification in terms of our product lines into petrochemicals and gas, so that the country can get a lot more out of oil.
He added that Nigeria needs to massively grow our refining capacity to create room for a consumer pattern that is locally based.
He stated that there was need to create rewards for those producing at very low cost to address the challenge of huge production cost of crude oil in Nigeria.
He said if there are incentives for producers who meet certain benchmarks on cost reduction, everyone will follow suit, adding that there should also be a penalty for producers who produce at a very high cost.
He added: “The first thing to do if you’re not getting a good return on your investment, in terms of cost versus pricing, is to shut down such products and look for fields that have better margins, to enable you to compete.
“Above all, when all this is over, we will need to continue to address the cost element, I think that was one of the high points of some of the policies that we made when I was in Government. Under the leadership of the President, we began to focus very heavily on the cost of production and set benchmarks.
“We achieved about $15pb cost of production in some fields and we were aiming over the next 2 to 3 years to pull the cost of production for most fields down to about $10-$11pb and thereafter go downwards from there”.
He spoke on the value the country would derive when Dangote refinery and other private refineries come on stream in the country, saying storage, consumption, and pricing, will reduce substantially because Nigeria will not be selling crude oil as crude oil