Members of the Senate Committee on Finance on Monday queried the Nigerian National Petroleum Corporation (NNPC) over what they described as “very high cost of oil production in Nigeria”.
The Senators made this known while hosting the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed and other heads of revenue generating agencies, to defend the revised 2020-2022 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) submitted to the National Assembly last week.
The Senators expressed worry over a situation where the cost of oil production was put at $21.2 per barrel and the price of crude oil in the revised budget was put at $25, which suggest a marginal profit of $3 for the country.
At the meeting, the Chairman of the Committee, Senator Solomon Adeola (APC – Lagos West), sought explanations as to why the cost of oil production is far higher than those of other oil producing countries. For instance, he noted that oil production in Saudi Arabia is $4/barrel and $3/barrel in Russia, while in Nigeria, the same cost $21.2/barrel.
According to him, this indicate that the country only earns a very poor marginal profit of about $3/barrel based on new oil price benchmark of $25/barrel in the revised 2020 budget.
Responding, NNPC’s Chief Operating Officer (Upstream), Yemi Adetunji, who represented the Group Managing Director, Mele Kyari, attributed the high cost of oil production to peculiarities ranging from insecurity to crude oil theft. His response was, however, not accepted by the law makers.
A member of the Committee, Senator James Manager (PDP – Delta South), contended that the security issues referenced by Adetunji were not tenable as similar problems exist in other oil producing countries without leading to high cost of production in such countries like it is in Nigeria.
Another member of the committee, Senator Shaibu Gumau (APC-Bauchi South), insisted that the existing $21.2 per barrel high cost of oil production and $25 per barrel oil price benchmark does not make any economic sense. “How could we expect a situation where cost of production of oil per barrel is $21.2 and the revenue is $25 per barrel? Yet, in other countries, there is no one that their cost of production is even up to $10 per barrel,”Gumau said.
Adetunji assured that the NNPC was working hard to bring down the fixed cost.