THE United States of America can finally convert Shale rocks into oil, thanks to hydraulic fracturing. (www.nigeriaschool.com.ng)
United states, a net importer of oil has become a net exporter and also the largest producer of oil after overtaking Saudi Arabia and Russia.
This development, no doubt will end the country’s partial economic recession as they head towards recovery. With 11m barrels daily production and local consumption rate of 7m barrels, the country has an excess 4m barrel to market thereby causing a supply glut in the global oil market. This supply glut has become Nigeria’s nightmare.
From records, Shale oil started gaining prominence just before the world war 1 owing to the mass production of automobiles and trucks and the supposed shortage of gasoline for transportation needs. Between the two world wars, oil Shale projects were begun in several countries.
After the world war II, oil Shale industry declined due to increased accessibility to the conventional crude oil. This is because cost of producing oil Shale is higher compared to conventional crude.
The citigroup energy analysts noted that oil Shale industry will go out of business if oil prices fall below $35 per barrel. Cost of producing one barrel of Shale oil ranges from $95 to $25 per barrel.
If not for the reduction in Libya’s oil production coupled with the Iran’s sanctions, our nightmare would have been worse. Saudi Arabia and the major producers in the OPEC cartel have refused to reduce production quota so as to increase price a bit.
Infant, Saudi Arabia pointed out that they will keep producing their present 8m barrels daily quota even when price fall as low as $20 per barrel. Ironically, even if member countries of OPEC agree to production quota cut, can Nigeria survive with such reduction ? Presently, we produce 2.26m bpd, Saudi Arabia, venezuela and Kuwait can afford a 50% production cut. I doubt if Nigeria can manage 1.13m bpd amid the increasing oil theft in the region.
It is no longer a theoretical hypothesis that the fall in oil price has a multiplier effect on the economy and living standard of Nigerians. We are witnessing a forced devaluation of the naira, the CBN has responded by altering the CRR and MPR, these nevertheless, are palliative measures.
Palliative to the extent that there is a strong correlation between the value of a country’s currency and her terms of trade. If Nigeria keeps having a deficit balance of payment, there will be much demand for the dollar at the mercy of the naira. Simple law of supply and demand relationship.
Our light sweet crude has little value in the world market thereby reducing the strength of our terms. The CBN can not stop the devaluation of the naira for long if this recent trend persists.
It is a common knowledge that the bulk of Nigeria’s private sector depends on government patronage. Banks survive with public sector fund, construction firms are dependent on government contracts so also is the commercial service sector. The effect of government insolvency on these economic players are better imagined than explained.
Civil servants maybe at the receiving end of this mid day nightmare as majority of us didn’t celebrate the Christmas with our december salary.
Saving for the rainy day has been the minister of finance national anthem each time she appears before the national assembly. To this end, a budget benchmark of $72 and $75 per barrel in the 2013 and 2014 appropriation year were proposed respectively.
Our expensive lawmakers preffered a higher benchmark of $79. moreover, oil sold at a price of $116 per barrel during the good days, this means that for every barrel sold, Nigeria has a gross savings of $37 and a daily gross savings of $8.362b, which goes to the excess crude account.
The excess crude fund would have been our fall back plan if the illegal assembly of Governors tagged nigeria governors forum did not put pressure on the president to share the bounty.
Our welfare didn’t increase a bit even when the bounty was shared, instead their daughters started celebrating elaborate weddings and government house banquet became a daily ritual. Today the same governors are accusing the president of embezzling the excess crude account .
We have this dream that nigeria light sweet crude will keeping laying the golden egg until america Shale oil changed this dream to a nightmare. The end to this nightmare is not even in sight as projections have it that united states oil production will hit 13m barrels per day in 2019.
OFN, green revolution, SAP, NEEDS, SEEDS and the recent transformation agenda are economic restructuring programmes aimed at diversifying our mon-product economy. These programmes succeeded in making nigeria a proud member of the league of under-developedcountries. Though we are yet to see the end of the transformation journey.
When we eventually wake up from this nightmare, we will realise that the path to economic boom is to stop the disguised unitary system of government we are operating and practice true federalism. National economy moves along with political system.
Our tribal rivalry can be skewed to achieve a healthy economic competition like the old days. If only oil deposit will cease being the cause of our divinity as it may become if the price keeps falling, then the north will remember her groundnut pyramid, the west her cocoa farm and the east her oil palm. We had this oil supply glut experience in the past, we survived it without learning any lesson.
Selling crude oil and distributing its proceeds to Nigerians won’t gear up economic development. A national grows when every able bodied citizen is producing something, provide the enabling environment and stimuli for hardwork, we Nigeria youths will definitely surprise the world.
Article by Ubaka Chukwuka Maximus.