Nigeria spends a staggering amount of money on producing crude oil, estimated at around 1.57 trillion naira every month. This adds up to approximately 18 trillion naira each year. Many people in the oil industry believe that this is an excessively high expense. Reports from various sources, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), reveal that the minimum cost for oil producers to extract a barrel of crude oil in Nigeria is about $25.
Currently, Nigeria produces an average of 1.4 million barrels of crude oil each day. This means that the country spends roughly $35 million daily on oil production. If we calculate this over a month, that would amount to about $1.05 billion. When converted to Nigerian currency at an average exchange rate of 1,500 naira to the dollar, this translates to approximately 1.575 trillion naira monthly.
If Nigeria continues to maintain its average production rate, it could end up spending around 18.9 trillion naira annually on crude oil production. This high production cost significantly affects the revenue the country earns from oil sales.
The cost of producing crude oil in Nigeria can vary between $25 and $40 per barrel. This is considered quite high compared to other oil-producing countries. For instance, in Saudi Arabia, the cost is only about $10 per barrel. If Nigeria’s cost were to reach $40 per barrel, the monthly expenditure on crude production would soar to 2.52 trillion naira.
In 2024, James Faleke, the Chairman of the House of Representatives Committee on Finance, expressed his concerns, stating that Nigeria has one of the highest crude oil production costs in the world at $48 per barrel. For comparison, he noted that the production costs in Saudi Arabia, Norway, and the United States are significantly lower, at $9, $21, and $24 per barrel, respectively.
Faleke emphasized that the rising production costs are hurting Nigeria’s revenue. He explained that if crude oil sells for about $80 on the international market, only $32 would be left for the government after covering production costs. He highlighted the importance of understanding how these costs impact the government’s ability to fund its programs.
He also mentioned that the Federal Inland Revenue Service has reported an average production cost of $48.71 per barrel for calculating taxes, which has been increasing over the years. In 2024, Nigeria’s crude oil revenue reportedly reached about 50.88 trillion naira, but if the production cost was indeed $48 per barrel, this would mean that Nigeria spent around 29 trillion naira on producing over 408 million barrels of oil.
Mele Kyari, the Group Chief Executive Officer of the Nigeria National Petroleum Company (NNPC), attributed the high production costs to issues like insecurity. He noted that while oil companies can operate in other conflict zones, insecurity in Nigeria adds extra costs to their operations.
The NUPRC has plans to reduce the production cost to $20 per barrel by 2025. They have identified various factors contributing to the high costs, such as outdated facilities and the impact of oil theft and pipeline vandalism. The commission is focused on modernizing infrastructure to lower production costs and make Nigeria’s oil sector more competitive globally.
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In a 2017 report, it was noted that Nigeria had one of the highest oil production costs in the world, with significant differences compared to countries like Saudi Arabia. The production cost breakdown indicated that a considerable portion of the expense comes from capital spending, taxes, and administration.
The NUPRC has recognized that rising production costs, along with fluctuating global oil prices, make it increasingly challenging for Nigeria to attract investment and compete internationally. They stress that high production costs limit profitability for investors, especially when global oil prices are low.
Experts in the industry have commented on the situation. Billy Gillis-Harry, the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria, believes the production costs should be much lower. He argues that high production costs negatively impact the economy and that a thorough review of the actual costs is essential.
Professor Segun Ajibola pointed out that Nigeria’s unique challenges, such as security issues and difficult terrain, contribute to higher production costs compared to countries like Saudi Arabia. He emphasized that resolving security problems and modernizing infrastructure are crucial for reducing costs.
Professor Dayo Ayoade also highlighted that Nigeria has the highest cost of oil production, which affects profit margins. He called for the government to address issues like oil theft and insecurity, as these are significant challenges for the economy.
In summary, Nigeria’s high crude oil production costs pose serious challenges for the country’s economy. The government and industry leaders are aware of these issues and are working towards solutions to lower costs, improve competitiveness, and ultimately bolster Nigeria’s economic stability.
