84 Million Barrels of Oil Stranded at Sea While Nigeria Suffers Revenue Shortage

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SWITZERLAND, MAY 04 – An estimated 84 million barrels of Nigerian crude oil is currently stranded at sea as Nigeria runs out of storage due to low global demand and plunging oil prices.

The economic shutdowns ordered by many industrialized countries as a response to the COVID-19 pandemic, coupled with an earlier price battle between Russia and Saudi Arabia has led to record low oil prices as oil producing nations scramble for buyers.

In a recent report, the Wall Street Journal said cargo ships filled with Nigerian crude had nowhere to go and Nigerian oil companies were competing to fill the “last few empty tankers still left at sea”.

The tankers are reported to be coming from production fields managed by Royal Dutch Shell and Exxon Mobil.

According to experts, it would be risky to shut down production in some oil fields as the wells are “too old to be restarted once they go idle”.

According to the Wall Street Journal, a tanker was turned back from the US Gulf Coast and it returned to the Canary Islands, where other Nigerian-hired ships are idled.

This is a distressing situation for Africa’s largest economy as it loses desperately needed revenue that could have come from oil sales at a time it is battling with increasing COVID-19 cases.

Today’s Echo gathers that Nigerian authorities may turn to local private storage facilities to mitigate the impending massive loss from the wastage of oil.

Private companies such as Petrolex, Aiteo, Rainoil and Sahara Energy operate some of the largest tank farms in Nigeria. Most of these facilities were built to store petroleum products but will now be critical in Nigeria’s struggle to save its crude.

Economic Cost

Nigeria’s break-even oil price is the highest in the world at $133 per barrel, according to the Fitch Rating Agency, With Bonny Light trading at below $30 for months now, the country is already making huge losses.

According to a report on Bloomberg, the ongoing oil price crash threatens to bankrupt Nigeria, Africa’s largest oil producer.

“The Nigerian government depends on oil for 60% of its revenue and 90% of its foreign exchange. But with prices for several oil benchmarks falling below zero, Nigeria is generating massive losses for every barrel it produces. Add this to a rising debt load, bad economic policies, and political instability, and you have a recipe for disaster,” Bloomberg said.

Furthermore, Nigeria’s 2020 budget was created with an oil benchmark of $57/barrel. Now oil prices have fallen far below that for a long time now, rendering implementation impossible.

 The government has reacted by cutting down the 2020 bugdet by N320 billion from the N10.59trillion passed by the National Assembly to N10.27trillion. Capital expenditure was also reduced by N155 billion from N2.78 trillion to N2.62 trillion while recurrent expenditure was reduced by N25 billion from N4.49 billion to N4.46 billion.

 Also, the government has slashed the oil benchmark from $57 per barrel to $30 per barrel. But these may not be enough. With the alarming trend, analysts are worried that the Nigerian economy may suffer a terrible fate, similar to Venezuela.

 “We are suffering the effect of our overdependence on oil. I must warn that there are terrible times ahead and we are already seeing the effects of this with the frequent government borrowing and reduced allocation to states,” an oil consultant told Today’s Echo.

The indices are bad. The International Monetary Fund(IMF) has already declared that Nigeria is in recession with GDP growth set to decline to -3.4 percent in 2020 and now there are fears of a depression.

“If Nigeria enters depression, we are all dead.” Bismark Rewane, a member of Nigeria’s Economic Advisory Council said in a recent TV interview.

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