COVID-19: As Oil Giants Stir Price Towards $20 Per Barrel, FG–Senate Set To Cut Production Cost!

  • Saudi Arabia’s Production Cost: $5 to $9 a barrel; Nigeria’s;  $17  to $30 per barrel…

By Hamilton Nwosa (Head, The New Diplomat Business and Data tracking desk)

Following reports that the global community may soon run out of storage space to store its extra oil with Saudi Arabia gearing to increase its production even as global demand for energy supplies continues to crash on account of Covid-19, international experts have warned that Oil price might crash to $20 per barrel in the coming weeks.

Demands for Oil have continued to falter in recent weeks. The Federal government revealed that Nigeria currently has about 50 cargoes of crude oil that have not found landing, which indicates  that there are no off-takers for them for now due to sharp drop in demand.

Managing Director of Nigeria National Petroleum Corporation (NNPC), Mallam Mele Kyari said at a forum organized by the Central Bank of Nigeria(CBN) “that there are over 12 stranded LNG cargoes in the market globally. It has never happened before. LNG cargoes that are stranded with no hope of being purchased because there is abrupt collapse in demand associated with the outbreak of coronavirus.”

The NNPC boss added that because of Covid-19 pandemic, Oil producing countries such as  Saudi Arabia are  currently offering a  discount of about $8 to their off-takers in some jurisdictions. According to him, the implication is that when crude oil sells at $30 per barrel, “countries like Saudi Arabia is selling at $22 per barrel…”

However, with Nigeria’s sad production cost standing  at $17  a barrel(according to Kyari), the consequence is that  should Nigeria emulate Saudi Arabia,  the country would be earning only a marginal $5 on a barrel, a reality that has jolted many into realization that Nigeria’s relatively high production cost is unsustainable.

The New Diplomat’s country by Country Production data sourced from statistics by

Even more worrisome, data tracked from, a global oil data firm show that production cost in Nigeria’s Deepwater may be higher than $17 per barrel, as it ranges from $25 to $30 a barrel. Miffed by this reality, sources hinted The New Diplomat that the Presidency and the leadership of the National Assembly are already stirring actions to ensure a drastic reduction in production cost. This according to the source would be  in line with global standards, as well as international production algorithms in many other global jurisdictions.

Said an insider: “It is something the National Assembly was already going to examine because the production cost is really too high. If it is not reduced, there will be no funds to even pay salaries in the long run…But for this Coronavirus, it would have been a major subject for deliberation at the National Assembly…”

Presidency sources revealed that the leadership of the National Assembly and the Presidency are in great synergy on the subject matter, and  are  both  “ looking at reducing the high cost because we know some don’t like it but  our country is more important to all of us .”

The New Diplomat data showing downward trend in Oil price.

The New Diplomat’s data show an un-pleasant down-ward reduction in Oil prices since February, 2020.
Experts maintain  that if a drastic policy action backed by an act of  Parliament (National Assembly) is not followed through quickly, Nigeria may be heading for serious economic challenges. NNPC’s GMD, Kyari, said this much warning that with crude oil price falling down to as low as $22 per barrel, high-cost oil producing countries like  Nigeria should naturally see themselves as  exiting the global Oil business: “So, when country’s crude oil is selling for $30 per barrel, and circumstances are forcing the country to drop the price by $8, it means in the market the country will be selling for $22 per barrel. That’s a massive problem. When crude oil price has gone down to $32 per barrel and you are producing at $30, you don’t need a soothsayer to tell you, you are out of business already.”

This is further compounded by Oil storage levels across global storage facilities which  have climbed to about three-quarters full on average since January this year following shutdown of major refineries in China’s industrial heartlands to stem the Covid-19 pandemic. Energy analysts posit that “the Oil industry is expected to keep filling oil storage with crude in the weeks and months ahead as the pandemic’s economic contagion spreads through the rest of the world, cutting demand for natural resources including oil.”Thomas Liles of Rystad Energy, a global energy consulting  says, for example, Canada, a major international Oil producing country  may be days away from running out of storage for its domestic oil production, and the rest of the world may follow suit in a few months.

He said: “Compounding the situation is the near-certainty of a steep reduction in crude-by-rail exports this year, as well as deferral of spring maintenance at several key oil sands mining projects…the global oil industry may increasingly look to offshore oil tankers to store their extra crude oil, but for this to be economic it would require oil prices to fall further. The global oil price fell to lows of $25 a barrel a last week, from more than $65 at the start of the year, and remains below $30 a barrel. That is why we have warned the industry that the oil price may fall to $10 a barrel this year.”

Rystad experts explain: “The hunt for affordable oil storage will be made more difficult after Saudi Arabia’s “vessel booking spree”, which has pushed freight rates “through the roof” in the past three weeks. The world’s oversupply of oil is expected to balloon next month when an agreement between the OPEC Oil cartel and Russia to hold back oil production is due to end. The collapse of the deal allows Saudi Arabia, OPEC’s de facto leader, to race Russia ,  to increase oil production in a bid to grab a greater share of the market. The oil price war is expected to raise the world’s oil production by more than 2.5m barrels of oil a day, which would outpace demand for crude by 6m barrels of oil a day.”

Paola Rodriguez-Masiu of Rystad Consulting said:  “the world  all over has about 7.2bn barrels of crude and products in storage, including 1.3bn to 1.4bn barrels onboard oil tankers at sea’’ adding that “at the current storage filling rate, prices are destined to follow the same fate as they did in 1998, when Brent fell to an all-time low of less than $10 per barrel.” But other experts insist that Rystad didn’t put some dynamics into consideration in arriving at the conclusion.  One, the likelihood of Russia and Saudi Arabia returning to the negotiation table may restore oil price to normalcy, thereby boosting oil prices globally. Two, China is likely to return to normal Oil production  facilities  at the end of Covid-19. Analysts aver this has a likelihood of pushing up prices.

But Where Do We Go From Here?

The NNPC’s GMD  Kyari says Nigerians should gear up for tougher days ahead with crashing crude Oil prices. The Federal government in its response has adjusted its 2020 budget estimates to align with current realities. Minister of Finance, Budget and National Planning, Zainab Ahmed, said the federal government will implement a 50 per cent cut in revenue from privatization proceeds while announcing a drastic reduction in crude Oil  benchmark price from its initial $57  to $30, with crude oil production remaining at 2.18m barrels per day.

Farewell to Cowboys Oil Business

With this latest development, analysts insist that it’s bye-bye to the era of brief- case cowboys which seems to have characterized the tenure of former controversial Petroleum Resources Minister, Diezani Allison-Madueke.  Recall that Diezani’s business ally and promoter of Atlantic Energy Brass Development Limited and Atlantic Energy Drilling Concepts Limited, Mr Jide Omokore had allegedly used his companies to reportedly ripped-off the Federal government to the tune of about $1.6bn in an alleged crooked SAA-NNPC deals. Under the said arrangement purportedly endorsed by Diezani both the NPDC and Atlantic Energy entered into a Strategic Partnership Operations on OML 56. With Diezani’s exit, Omokore has been facing a nine-count amended charges of alleged criminal diversion of funds to the tune of $1.6billion alleged to be proceeds of petroleum products belonging to the federal government.

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Hamilton Nwosa is an experienced, and committed communication, business, administrative, data and research specialist . His deep knowledge of the intersection between communication, business, data, and journalism are quite profound. His passion for professional excellence remains the guiding principle of his work, and in the course of his career spanning sectors such as administration, tourism, business management, communication and journalism, Hamilton has won key awards. He is a delightful writer, researcher and data analyst. He loves team-work, problem-solving, organizational management, communication strategy, and enjoys travelling. He can be reached at:

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