Kunle Kalejaye 02 March 2016, Sweetcrude, Lagos – Indications have emerged that the decline in crude oil prices might force some indigenous oil and gas companies operating in Nigeria to close shop by 2017.
Making the assertion at the 13th Aret Adams Lecture in Lagos, the Managing Director of Seplat Petroleum, Mr. Austin Avuru, said declining crude oil prices has negatively impacted the operations and profitability of oil companies, especially the indigenous players.
According to him, market forces would determine crude oil prices and would shut out companies that could not measure up while keeping only those that could produce what the world needed.
Explaining what’s going on in the international oil market, Avuru said: In the past, especially in the 90s when total global oil demand was 75 million barrels per day, once we had a million barrel glut and there was a drop in oil prices, OPEC would withdraw one and a half million barrels and stabilise the price.
“When this current situation occurred, people expected OPEC to do the same, but OPEC, led by Saudi Arabia, reasoned that they don’t have to lose their market share, because they produce 30 million barrels while world demand is 95 million barrels a day. Remember, when world demand was 75 million barrels a day, OPEC was producing same 30 million barrels a day.
“So, with 20 percent increase in world demand, OPEC has not increased its own share of production. The thinking was, therefore, why would OPEC reduce production to shore up prices, taking it to the same level where people who ordinarily should not compete with OPEC, would come into the market.
“OPEC decided to allow the glut to continue while world demand is 95 million barrels per day. But there will be an equilibrium price at which production will be equal to or less than 95 million barrels a day. Clearly, it is not $30 per barrel, it may not be $100, it may be $60 or $70.
“When we get to that equilibrium price, the market will shut out those who cannot survive and keep those who can produce what the world needs”.