Dr. Babajide Agunbiade is one of the world’s leading offshore production expert, an investor, businessman and Director for Houston-based National Oilwell Varco, the largest oilfield equipment manufacturing company in the world. In that role, he has completed over 2 billion USD worth of offshore production projects in the Gulf of Mexico and Sub-Saharan Africa.
In this interview, he outlined how the increasing global oil prices affect Nigeria and Nigerians. Excerpts:
Oil now sells for $110 per barrel. Are there chances it will rise further and would this impact economic growth in OPEC countries?
Oil tops over $100 per barrel, the highest seen in more than seven years following the 2014 recession, Russia – Saudi Oil war, and Covid-19 pandemic, among others. Higher projections are anticipated due to the ongoing Russia-Ukraine tension, which has already further driven up international crude oil prices. The invasion of Ukraine has heralded concerns about global energy supplies at a time when global economic recovery is still fragile, and inflation is surging.
The gradual recovery from the two-year Covid-19 pandemic hit and high oil prices will likely translate into higher pump prices which inadvertently will have an enormous economic impact on economies dependent on imported oil. However, the impact of higher oil prices on economic growth in OPEC countries would depend on various factors, mainly how the unexpected gain in revenues is managed.
What is the implication of this on Nigerian economic performance?
Oil prices remain an important determinant of Nigeria’s economic performance as it has a significant effect on Nigerian foreign exchange earnings. It is the basis upon which government budgeting, revenue distribution, and capital allocations are determined (Musa et al., 2019).
Hence, an increase in oil prices leads to an increase in foreign exchange earnings. Conversely, a decline in oil price leads to shortened revenues in dollars, causing exchange rate volatility, and rightly so as Nigeria’s economy is monolithic with crude oil as the major source of foreign exchange earnings.
Thus the cascading effect of an increase in oil prices cut across the entire economic ecosystem and food chains, as highlighted in this article.
How does these affect operators and service companies?
This price increase provides additional incentive to produce more oil so as to maximize profits and plug shortages, which will increase investments in the exploration and production of Oil and Gas. This bears good news for EPCI contractors and other Servicing Companies who can profit from the increased investment with proper positioning.
Key services that are expected to get more jobs to include Maintenance and Repairs to improve efficiency and output on already existing facilities, Retrofits, and Upgrades which will be focused on increasing the capacity of facilities as well as well-drilling and appraisals.
What are the impact on jobs and workforce retention?
The oil price crash of 2020 triggered layoffs and an increase in unemployment. With the new $100 per barrel outlook, capital projects which have been suspended over the last 2 years are coming back alive, and increased employment in the Oil and associated Industry is envisaged.
Does this translate to good news for the government in terms of financing the budgets?
Higher oil prices will favour oil-producing countries such as Nigeria and Ghana as they have higher revenues and can utilize the additional income to increase national reserves as well as budgetary spending. These funds can be used to finance investments in critical sectors of the national economy such as healthcare and education, as well as for infrastructure projects such as roads, rail lines, and ports to facilitate trade. Investment in infrastructure will improve quality of life, create jobs and opportunities, and help build more robust economies. This will also reduce the burden associated with borrowing and financing loans and can help strengthen the national currency in the foreign exchange market.
The current global energy mix depends on oil and gas, which supplies about 60% of global energy consumption required for manufacturing, transportation, and various other key sectors. The effects of shortages and increased prices present new difficulties for various industries that will seek to remain profitable and increase prices. The effects on the Nigerian economy, which relies solely on imports for the supply of petroleum products despite being an oil-producing country, will be damning as this reliance on imports can drive inflation figures higher and further weaken her economy and the buying power of the citizenry.
What is in this for ordinary citizens, households, and small businesses?
Sub-Saharan’s power sector is significantly underperforming. This has necessitated the dependence of ordinary citizens, households, and businesses who need electricity on PMS or AGO to power their homes and business.
For decades, in Nigeria, trillions of naira have been spent on the subsidy of petroleum products, and the apparent will of the present administration to stem the continuous theft of government funds through subsidy has been defeated by widespread agitations from labour and many civil society organizations who dread the consequence of a free market where the prices of these petroleum products will rise with oil prices, and personal expenses will skyrocket and lead to further hardship for the common man.
But in actuality, now happens to be the best time for the subsidy removal to maximize the gains of the additional income and not lose this to the payment of subsidies which in practice benefits few elite Nigerians who smuggle these products through porous borders to neighbouring African countries for personal gain.