Commodities | |
Commodities | |
5589 VIEWS | |
![]() |
Sunday,
December 16, 2018 09.48AM / OpEd By Tope Fasua
NB: I wrote this long article to bring
attention to the need for us to keep thinking of alternatives to our current
reality.
On a whim the other day, I decided to determine what the price per liter
of crude oil is. Of course I had been worried sick that this crude oil thing is
a big myth. This crude oil upon which every calculation is based in Nigeria is
a big mirage. I just spoke with a monetary policy person at the apex bank who
also expressed worry that some of their core calculations are based on crude
oil, and crude oil only. The only assumption that drives our national
budget is also crude oil. The first item on all our plans is crude oil - how
much of it we want to produce in a given year, and at what assumed price we
hope to sell. It is as if the government even budgets for the entire 2million
barrels we drill as per OPEC quota on a daily basis, as if the whole thing
belongs to Nigeria and is not shared with international oil companies. If this
is so, we are living a lie; a big illusion. I also do not see where the cost of
producing crude oil is considered in the calculations. Most Nigerians also
assume that Nigeria sells 2million barrels a day, at the prevailing price, and
pockets all the money. Nothing could be further from the truth.
I don’t know why and how our illusion happened but it needs to be stated
that - Crude oil is not so valuable enough to hinge the very existence of this
country upon it.
According to NEITI, Nigeria gets effectively 36% of all the revenue from
what we produce.
The reason why we may have elevated crude oil to the status of
be-all-and-end all must be that a certain laziness of thought overwhelmed our
leaders at some point, after all we have absolutely no input in the production
of that resource. I mean that Nigeria does not own any aspect of the technology
in the production process. We only try to keep the books and we even fail
woefully in accounting for this resource.
So what exactly are we selling?
I believe this laziness is borne out of the fact that this is one
resource where even though we add no input, we can set up some huge
monstrosities called parastatals like NNPC and run rings around the people while
waiting for millions of dollars that will come from abroad. We do not only have
any input in the technology and processes around crude oil, we have no input in
the pricing as well. 40% of the current price of crude oil is determined by
traders in the spot, forward and futures market for the product. A lot of that
price depends on their whims; what they think will happen in the future. They
also sometimes play the market by making the prices work in their favour.
Is this the kind of product we should base a whole economy on, a product
that has huge repercussions on the environment with a multiplier cost attached
thereto?
In a country where we do not even have scientists who are patriotic
enough to help us identify fake drugs, or fake vaccines, or to even recommend
to us what is healthy to eat and what is not, who is to tell us if there are
serious long-term effects of all the drilling that is going on beneath the
earth crust in Nigeria?
To cap it all, there has been no accounting from that sector for almost
three (3) decades! Yet a president sits as the minister there – No audited
accounts or confirmable proof of actual output!
Let us do some basic calculations
·
One barrel
of crude oil today sells for about N18,300 (this is $60 multiplied by N305)
·
One barrel
contains 159 liters
·
So one liter
of crude oil today, sells for N115
Even at its peak in 2007/8 when crude oil sold for $140++, a barrel of
crude oil in Naira terms then, was around N21,000 as Dollar sold for around
N150 as at then.
This does not look like a very valuable product. It is certainly not the
black gold that we say it is - except the proceeds from its sale is
meticulously managed, and painstakingly aggregated. Those who will enjoy the
proceeds of crude oil must defer their gratification; ensure crude oil proceeds
power other industries. This resource is not what you spend in advance.
Our leaders over time bought a dud. Any reasonable human being should
know this right from the get-go. But this refusal to ‘think’ goes into the ‘we
are blessed’ rhetoric. Our leaders over time and till date don’t see anything
wrong in sitting in office and expecting billions of dollars to drop on their
laps.
How Many Barrels Does It Take?
Check this. At N18,300 per barrel we need to sell 3,300 barrels to buy a
single luxury ‘status’ vehicle for some big Oga in some parastatal. Imagine how
many thousands of those we buy every year? An average phone that some
small girl in one of our universities will reject as a birthday gift from a
‘sugar daddy’ (we have recognized this subsidy cultural attribute to
demonstrate that the system expands to create distortions), will cost at
least 15 barrels of crude oil.
Imagine how many phones are used in Nigeria where we buy the latest and
the best that they don’t buy in the countries where phones are
manufactured?
The new headquarters of EFCC, which Mr Magu boasted was built at a
bargain cost of N24billion, cost Nigeria a tidy 1,312,000 barrels of crude,
even before we start to consider the cost of drilling.
In Nigeria today, it still costs over $30 to drill a barrel of crude (I
hear Kachikwu is trying to see how they can crash the cost to $20 but in spite
of his faults I have seen how the man has been frustrated by Buhari at every
step).
The crude oil trade in this country is what Yorubas call ‘agbana’ (a
cursed trade where you hemorrhage money faster than you make it). Only a
totally irresponsible person will spend the proceeds of crude oil the way we
spend it, or build such a life of Byzantine grandiosity the way we have - among
politicians and top government functionaries.
Anyone reading this is free at this point to calculate everything we use
and buy in terms of crude oil. Note that if we want to actually get the impact
properly, we need to only consider our PROFIT on crude oil, not the gross sale
value. The closest estimate of our profitability that I came across is from
NEITI, whose report early this year showed that out of every one Naira we get
from our crude oil, we have to pay the international oil companies 64Kobo
in terms of cost and other agreements. Pathetic!
But I have good news for us; PALM OIL IS A MUCH MORE PROFITABLE PRODUCT.
That’s right!
Take a walk with me on this:
·
A metric tonne of palm oil sells currently
around $500 in the international market
·
A tonne of palm oil is almost like a tonne
of water, which is 1,000 litters (Palm oil density is 0.93 compared to water -
almost the same)
·
Therefore one liter of palm oil in the
global markets sells for about $0.50
·
$0.50 is equal to at least N150 - higher
than one liter of crude oil at N115, and costs far less to produce (certainly
not $30 per barrel)
Our ancestors have been producing palm oil on their own and trading
globally since at least the year 1300. We need little foreign assistance if we
can think ourselves.
It takes very little technology, but we can scale up like the
Indonesians and Malaysians who got most of their palm seeds from here in Africa
and each individually produce at least 25 times what Nigeria does today.
The Malaysians and Indonesians have gone ahead to build sophisticated
markets and even developed advanced financial instruments based on palm oil.
Nigeria imports palm oil from Malaysia/Indonesia. Palm oil market is
equally elastic (and also a little less volatile compared to crude oil),
because it is a product useful for many industries. Palm oil grows in the wild
in Nigeria and is naturally sub-optimized.
The last time I bought palm oil around Owo, Ondo State, I recall it sold
for something like N2500 for a 4 liter jerry can. That is like N625 per litre.
At peak, palm oil sold in global markets for up to $1500 a tonne, or
$1.50 (N450) a liter. The highest price of crude oil is approximately N280 per
liter (in 2008 crude oil sold for $145 per barrel. Even at today’s exchange
rate of N305, a barrel was worth N44,225. A barrel contains 159 litres)
So perhaps we are better off propping up palm oil as our chief export
product…yet to fully answer that, we must ask about what is happening to
research on palm oil from NIFOR and elsewhere?
Is it lack of patriotism that is wrong with Nigerians or do we have a
breed of Nigerians sworn never to allow Nigeria make progress? We have land
mass and a weather that is very amenable to the grow the produce en masse. Our
locals will benefit more from such a drive. We would not need to depend so much
on foreign ‘investors’ or technology. It will be less injurious for our
environment. Indonesia and Malaysia have made so much progress on palm oil,
that some western activists are even trying to slow down the cultivation of
palm oil. They said orangutans are suffering because more land is being taken
for palm oil cultivation. Look at us here!
Anyway, I don’t intend to start a palm oil plantation. There are
probably many more products that will give us less stress on which we can also
focus here. We certainly shouldn’t be putting our people through this
suffering.
Of recent, the government is trying to justify their hope-denying budget
under the pretext of declining crude oil prices; even as the level of research
done by me to date would indicate that the tethering of our economic fortune to
crude is totally unnecessary.
Another research outcome says that indeed we did not suffer from the
‘dutch disease’ because more money was spent on agriculture after we had
discovered crude oil.
We suffered instead from the speed with which people looted whatever was
budgeted - in every industry.
If one considers it appropriately it will be hard to have respect for so
many of the old people who have run Nigeria at any level; as they simply laid
this land to waste.
If this was a curse, we can un-curse the nation with ‘thinking and
execution’.
What is happening now is that this current scenario is totally
unacceptable. Can we have new thinking please somebody?
Recent
Articles From The Author
4.
How To Un-Break The
Nigerian Society And Economy
5.
The Illogical
World of Nigeria’s Oil And Gas Industry
6.
A Petition For
Action – Increase The 2019 Budget To A Minimum Of N15 Trillion – Tope Fasua
7.
The Greatest
Conspiracy Against Nigeria Youths
8. A Federal
Republic Of Inequality And Oppression
9.
The Revolution
of Ideas: My Manifesto – Tope
Fasua – Proshare
10. ANRP
Presidential Candidate Tope Fasua Speaks On The State Of The Nation
About the
Author
Tope Kolade Fasua is a
Nigerian businessman, economist and writer. He is the founder and CEO of Global
Analytics Consulting Limited, an international consulting firm with its
headquarters in Abuja, Nigeria. He is the presidential candidate of the
Abundant Nigeria Renewal Party (ANRP), which he founded. He can be contacted
via e-mail at ceo@global-analytics.co.uk
Related
News
1.
Nigeria Accounts
For A Meagre 0.01% of Global Salt Production
2.
Okro Output in
Nigeria Estimated At 1.98mn Tonnes
3.
Nigeria’s Melon
Seed Output Remains Suboptimal In Spite of Its Market Dominance
4.
Increased Global
Cocoa Demand Would Push Prices Up And Boost Nigeria’s Export Earnings
5.
How Blockchain
Will Transform Agric in Nigeria-Quan Le, CEO Binkabi
6.
Nigeria Is The
Second Largest Producer of Tubers In The World
7.
Sugar Prices
Down 2.66% After The USDA Projected A Sharp Increase In India’s Sugar Output
8. NSE Partners
Corporate Farmers to Host Maiden Financing Agric Commodity Value Chain Seminar
9.
Coffee
Consumption in Nigeria Rose By More Than 20% Between 2010 and 2015
10. Projected
Increase in Russia’s Wheat Exports Could Push Prices Further Down
11. AFEX,Binkabi and
STERLNBANK Announce Integration Partnership Streamlining the Agri-Financing
12. Overall Balance
of Payments Swung Into Deficit of $4542.08m in Q3 2018
13. Weekly Economic
and Financial Commentary – WE 14th Dec, 2018
14. 7 Key Takeaways
From The November 2018 Inflation Report
15. Nigerian Economy
in Perspective 2019 - Dysfunctional Policies and Structural Rigidities
16. Headline
Inflation Increases By 11.28% YoY in November 2018; 0.02% Higher Than October
2018 Rate
17. President Buhari
to Present 2019 Budget to NASS on December 19, 2018
18. Capital
Importation Q3’18: FPIs Move To Money Market
19. Sluggish
Agricultural Output and Contracting Oil Sector Weigh on Growth
20. Total Value of
Capital Imported Into Nigeria Stood At $2,855.21m in Q3 2018
21. Nigeria’s
Merchandise Trade Rose Significantly in Q3, 2018
22. Monthly Economic
and Financial Market Outlook - Will Crude Oil Market Receive the Required
Stimulus?
23. Nigeria Gross
Domestic Product Q3''18: Weak Growth Momentum Continues in Q3
24. Nigeria’s GDP
Grew By 1.81% YoY in Real Terms in Q3 2018 From 1.50% in Q2 2018
25. Nigeria: Macro
Economic Report for November 2018