Nigeria cannot afford to live with the vagaries of the global oil market so should set five year prices for her petroleum product exports

By Ayo Akinfe

[1] Global crude oil prices have been dancing Atilogwu over the past few weeks as the prospect of war between the US and Iran looms. Donald Trump threatened to attack Iran, blaming them for the attack on the Saudi oil facility. Personally I doubt he will be able to get US backing for an attack, know the effect it will have on the world economy

[2] Anyway, after weeks of going up and down, the price of Brent crude, odentical to Nigeria's Bonny Light Crude has settled at $70 a barrel today. As most of you know, Nigeria''s 2019 budget is predicated on us selling 2m barrels of oil a year at a price of $60 a barrel

[3] We are never going to meet our budgetary targets as for starters, our Opec quota is only 1.68m barrels and for large portions of the year, prices have been below $60, so it will take a miracle for Nigeria to raise the $28.8bn upon which the 2019 budget was based

[4] Given the limited amount of information available on the Nigerian oil industry, we do not even know how our oil is sold. The NNPC has never come out to tell us if they forward sell or if our crude is sold on a spot basis. However, I cannot believe that buyers will not hedge their risks and forward buy because volatility is simply not something industrial economies can afford. It is thus fair to assume that we forward-sell our crude oil

[5] This is where I believe Nigeria needs to take a leaf out of Mexico's books. During the heady days of high prices when our President Goodluck Jonathan's regime was racking in between $100 and $140 a barrel, Mexico fixed the price of it crude at $55 per barrel. Agreements were signed over five year periods, meaning that even when prices dropped to $40 a barrel, Mexico was still selling for $55 a barrel

[6] This consistency has allowed Mexico to forward-plan based on guaranteed revenue. Nigeria needs to do likewise in my opinion, so the government has freed-up capital to not only embark on much needed infrastructural development programmes but more importantly, to diversify the economy

[7] As things stand, Nigerian crude generates about $50bn a year, of which about half of that comes to the country. Our joint venture partners get about 50% of all proceeds but they can get away with it because they add value to their produce and the huge mark-ups will always cushion the effects of any problems at the downstream end of the market

[8] President Buhari is actually due to present his 2020 budget later this month. I think when presenting it, he should fix the crude oil sales price at $70 a barrel whatever is happening in the global crude oil market. Nigeria also should try and sell this vision to Opec as it protects producers from volatility

[9] Buyers, especially the US want to purchase their crude for $5 a barrel but we know they are just being racist. If they were the producers, we would purchase crude at $200 a barrel. You just need to see that the price of many of their finished products like automobiles, aircraft, battle tanks, ships, etc, have remained high, even when the prices of the raw materials used to manufacture them crashes. We have to learn to stand up for ourselves

[10] What I have in mind is a five year set price. At the end of this period, we should move on to a point where we no longer export crude, with every export having some added value. After 10 years, we should be looking to wean the Nigerian economy off crude oil. Petroleum should just be a means to and end and we need to set a finishing line after which we are no longer interested in crude.