Nigeria’s economy on the brink of collapse, ACN warns

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The Action Congress of Nigeria (ACN) has alerted the nation to an
impending collapse of the Nigerian economy, unless
the Federal Government cuts the astronomical cost of running a bloated
government and takes urgent measures to diversify
the economy and shore up the production of oil, which remains the
mainstay of the country’s economy.

In a statement issued in Lagos on Sunday by its National Publicity
Secretary, Alhaji Lai Mohammed, the party warned that if
the listed measures were not taken, the government may not be able to
pay its bills, including workers’ salaries, within the next
few years.

”Contrary to what the FG may say, this warning is not about crying
wolf but is actually borne out of a patriotic fervour devoid
of politicking, which is the usual refrain of this government when
alerted to its shortcomings,” it said. ”We will like to be proven
wrong, but this will depend on uncommon and monumental effort, rather than on
the basis of the usual canned response from the government.”


ACN said the red alert was based on four empirical evidence: The cost
of oil production which has skyrocketed from 4 dollars per
barrel in 2002 to 35 dollars presently; the massive corruption in the
oil sector, with oil theft and sabotage leading to lost production
and costing Nigeria some 6 billion dollars annually in crude theft;
the sharp fall in the discovery of new oil and gas reserves due to
the low investment in the sector, and the most serious of all, the
challenge posed by alternative sources of global supply of oil and
gas.

The party said the cost of oil production rose from only 4 dollars per
barrel in 2002 to 7 dollars per barrel in 2005 and, from
the 12 dollars per barrel at the onset of the Yar’Adua/Jonathan
Administration in 2007 to 35 dollars per barrel in 2012, according to
the just-concluded Nigeria Oil and Gas Conference in Abuja, where the
mind-boggling cost hike was attributed to the cost of security
in the Niger Delta (put at 16 dollars per barrel), it said.

”In other words, the gains recorded from ending militancy in the
Niger Delta due to the Amnesty Programme have been wiped off
by the cost of maintaining the ‘peace’. Here is how Shell Nigeria MD
Mutiu Sunmonu described the situation: ‘Operating in the Nigerian
oil and gas environment can be long and tortuous with costs at the
high end of the global scale. There are a multitude of security
related issues that have to be dealt with on a daily basis.

”’In the recent past, militancy has simply been replaced by
INDUSTRIAL SCALE oil theft and sabotage(emphasis ours). We, and
others, have had to shut-in significant production; spend huge amounts on
replacing and repairing hardware and deploying massive resources
to clean up spills’.”

On the discovery of new oil and gas reserves, ACN said the
disastrously-low level of exploration activity in Nigeria is supported
by the statistics released by the US Department of Energy for deepwater
discoveries from 2009 to 2011 in which Brazil alone contributed some
40 new discoveries or 20 percent of the global total, US and Australia
contributed 10% each, countries like Ghana making nine new discoveries
or 5% of the global total, while Nigeria had only 4 discoveries or 2%
of the global total during this period.

This paltry discovery of new oil and gas reserves is due to the low
investment in the sector, which needs to attract 15 billion dollars
annually in capital investment, up from the present 3 billion dollars, in order
to remain a significant global oil supplier and a respected player in
OPEC, the party said.

It said, however, that all those challenges pale into little
significance when placed against the challenge posed by alternative
sources of global supply of oil and gas seriously – that is Shale oil and Shale gas!

”Here are the facts: The US has more than doubled its estimates of
recoverable domestic Shale-gas resources to some 827 trillion cu. ft.
(23 trillion cum), more than 34 times the amount of gas the US uses in a year.
Together with supplies from conventional gas sources, the US may now
have enough gas to last a century at current consumption rates.

”Last month, the agency released a similar announcement in respect of
Shale oil to the effect that California’s valleys alone hold as much
as 15.4 billion barrels of Shale oil, which companies were hitherto unable to
reach because the oil exists in pockets of rock that were expensive to
reach before the present advancements in fracking technology. Similar announcements
are being made in Europe and parts of Asia.

”For the first time in nearly a decade, the US has regained the
position of being the world’s largest producer of natural gas and soon
also oil. Thus, in less than five years, the US has gone from seeking new sources of oil and
gas overseas to being self-sufficient. Industry experts believe that
Shale oil and Shale gas will revolutionize the industry—and change the world—in the coming
decades. It will prevent the rise of any new cartels and alter oil
geopolitics.

”The announced objective of the US Government is to drive down oil
prices from the current 100 dollars per barrel to 50 dollars per
barrel within 2 years. If this happens, which is very likely in view of the alternative
sources, Nigeria, with a cost of production of 35 dollars per barrel,
would immediately go out of business, with dire consequences for an
economy that thrives largely (if not solely) on oil,” the party said.

It said the signs of imminent trouble are already visible for those
who are willing to see: The Brass LNG Project is unable to take Final
Investment Decision (FID) because of the collapse in the US LNG market and rising
costs; and a similar situation faces the Olokola LNG Project.

ACN therefore called on the Federal Government to put on its thinking
cap in order to rise to the challenges listed above and save Nigeria’s
economy from collapse, adding that any delay could mean that those in
charge of the country’s affairs would not have enough time to change
course as the ship of state heads for the rocks.

 

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