A Review of the Nigerian Energy Industry

Crude oil drops $2 to five-year low on OPEC decision

09 December 2014, News Wires – The decision of the Organisation of Petroleum Exporting Countries (OPEC) not to cut crude oil production so as to curb the glut in the market has continued to take its toll on the price of the commodity as Brent crude oil fell further than $2 per barrel on Monday to a new five-year low on predictions that excess supply would keep building until 2015.

This is coming as a United States investment bank, Morgan Stanley, said in a report released at the weekend that oil prices could fall as low as $43 a barrel next year.

Oil prices dropPredictions that the price would drop further have forced the federal government to slash the 2015 budget benchmark by about 11 per cent from $73 per barrel to $65, the second time in a month the benchmark was cut.

The price, which had hit $115 per barrel in June, fell to a fresh four-year low last week, after OPEC refused to cut output, despite what was seen as a supply glut.
A one-day drop last week was the biggest since May 2011, after the price had hit a record high of $147 per barrel in July 2008.

The bank cut its average 2015 Brent base-case outlook by $28 to $70 per barrel, and by $14 to $88 a barrel for 2016.

However, the US shale industry has not been affected by the falling crude oil prices as Baker Hughes said at the weekend that three new US oil-drilling rigs had been added in the last week.

The US investment bank’s analyst, Adam Longson, said: “Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015.”

Brent crude for January was down by $2.22 at $66.85 a barrel, having fallen $2.30 to $66.77 – its lowest since October 2009.

US crude was down by $1.60 at $64.24 a barrel, after hitting a session low of $64.14.

The US contract, also known as West Texas Intermediate, touched $63.72 last week, its lowest since July 2009.

At a meeting last month, top oil exporter Saudi Arabia resisted calls from poorer members of the OPEC to reduce production, driving a further slide in prices, which have lost more than 40 per cent since June.

Analysts had expected OPEC to cut output by about one million barrels per day but the cartel maintained its production level of 30 million barrels per day.

Meanwhile, the Inter Ministerial Task Team (IMTT) set up by the federal government to trace and recover outstanding proceeds due to it in various forms of revenue from operations in Nigeria’s oil and gas industry has so far made recoveries worth $2.4 billion.

The IMTT, which acts on outcomes of audit reports of operations in Nigeria’s hydrocarbon industry by the Nigeria Extractive Industries Transparency Initiative (NEITI), said yesterday in Abuja that the sum of   $540 million was earlier recovered  in August from companies who were found in NEITI’s audit reports to have underpaid the government of its statutory income from their operations, and that brings  the total recovered sum to $2.4 billion.

NEITI’s Executive Secretary, Mrs. Zainab Ahmed, said at an interaction on the status of actions taken so far by the IMTT to remediate extant oil and gas revenue anomalies discovered in NEITI’s audit reports, that the efforts of the task team were gradually yielding results, notwithstanding the somewhat slow pace in addressing the issues raised in the reports.

Ahmed was represented by the Community Outreach Leader at NEITI, Obiageli Onuorah, at the meeting which was organised by the Civil Society Legislative Advocacy Centre (CISLAC).

She explained that since its reconstitution to include high-ranking officers of relevant government agencies such as the Nigeria National Petroleum Corporation (NNPC), Department of Petroleum Resources (DPR) and Federal Inland Revenue Services (FIRS), the IMTT had so far recorded some good progress with its mandate.

She noted that in this regard, the task team had now concentrated its efforts on key remediation issues such as bid rounds and signature bonuses, sale of government crude oil, and accounting for transactions on government crude oil, amongst others.

According to Ahmed, the IMTT has in this regard received support from the World Bank on these priority areas. She also noted that proposals on standard practices in managing government’s share of crude oil revenue had been put forward for adoption in this regard.

Some of the proposals, she said, include an insistence that the NNPC must apply the official exchange rate approved by the Central Bank of Nigeria (CBN) in invoicing domestic crude allocation to it, formalisation and approval by relevant parties for NNPC to deduct from source all subsidy claims using extant templates that would be provided as well as the ring-fencing of cash call money to fund Joint Venture (JV) operations in order to reverse its falling allocations.

These issues are often controversial in NEITI’s audit reports, with agencies and oil companies such as the NNPC constantly indicted for falling short in remitting and reporting of incomes due to government from their operations.

The IMTT, Ahmed added, had also recommended that the federal government should consider a review of the daily allocation of 445,000 barrels per day (b/d) of crude allocated to the NNPC for domestic refining to the level of available local refining capacity to obviate the gaps in the process.

On delays in NNPC’s payment to the federation beyond the 90 days statutory period from the bill of lading date, the IMTT has also proposed that a monitoring framework be jointly developed by relevant agencies to ensure that payments are made by NNPC as at when due.

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