Senate fumes over high cost of oil production

The Nigerian National Petroleum Corporation yesterday came under fire in the Senate over the cost of crude oil production in Nigeria.

In the revised 2020 budget, the cost of crude oil production is pegged at $21.2 per barrel; while the oil price is benchmarked at $25, resulting in marginal profit of just $3 per barrel for the country.

Members of the Senate Committee on Finance, at a meeting with Minister of Finance, Budget and National Planning, Zainab Ahmed and other heads of revenue-generating agencies, expressed worry that crude oil production in Nigeria was among the most expensive in the world.

They said it was difficult to understand its economic benefit for the country if the government could only get $3 as its returns on investment.

NNPC Chief Operating Officer (Upstream) Yemi Adetunji blamed the high production cost on security challenges, oil theft, pipeline vandalism and administrative cost.

The chairman of the committee, Senator Solomon Adeola, said the Senate was beginning to be concerned about why Nigeria was channelling all its efforts to the oil and gas if the return on investment was nothing to write home about.

According to him, while cost of oil production in Saudi Arabia is $4 per barrel and $3 per barrel in Russia, it is $21.2 per barrel in Nigeria.

He said: “I begin to look at the oil revenue and the mineral revenue as proposed in the MTEF that has dropped from almost N8.86trn to N3.33trn, are you saying that it is worthwhile investment for us as a nation.

“Going by the fact that the cost of producing one barrel is $21 and the benchmark is $25 and all these costs you have listed, who determines them. How do you ensure that Nigeria is being charged the right cost on each barrel of oil.”

Adeola’s position was reechoed by other members of the committee.

However, Adetunji said the NNPC was working with relevant stakeholders to reduce the high production cost which, it said, historically had been $30 per barrel.

He said: “We know that these costs are high that is why we’ve decided to go from even the initial approved of $25 per barrel in the earlier approved budget to $21 per barrel.”