Let us first deal with our membership of OPEC, and the
relationship of quotas to the POPULATION and OIL RESERVES of the various
countries. If we were to do a correlation (or factor) analysis among all the OPEC
countries with QUOTA as dependent variable and current POPULATION and OIL
RESERVES independent factors, we will
find that the current quotas of Nigeria and those of the other OPEC countries
need considerable tweaking.
Although these quotas are technically “voluntary” and arrived at
reportedly “by consensus”, with the OPEC
members reserving the right to their sovereignties, “peer pressure” seems to
make them to work hard to stick within these quotas, and “feel guilty” when
they are breached (as often they are, but generally within a 10-20%
over-quota). If,
as it seems to be, keeping the international price of crude oil as “up” as
possible as well as a stable supply of the commodity are the most important
issues for OPEC, then that depends mostly on the TOTAL PRODUCTION of oil put
out by that group.
Today,
the total quota for all the 11 OPEC countries is 24.5 million barrels per day
(see Table 2), meaning that all things being equal, this should be 2.23 million
barrels per day per OPEC country. So
except for historical and deep political reasons, why Saudi Arabia with a
population 22 million (about 4% of OPEC total population) has a quota of
7.093 million barrels per day (almost 30% of the total crude oil quota),
while Nigeria with a population of 133 million (25% of OPEC total, that is
according to OPEC data!) has a quota of 2.018 million barrels (8.2% of total
quota) per day remains to be explained.
Even UAE with a population of just over 3 million people (0.5% of OPEC
total population) has a higher quota (2.138 million or 8.7% of total quota)
than Nigeria!
Saudi
Arabia is thus in a strong political position to use its commanding oil
presence to create a glut and/or scarcity all by itself and as it pleases. It has used changes in its production or its
threat to get much of its way within OPEC.
For example, its daily production has been as high as between 8 – 10
million barrels per day in the time frames 1974 – 1981 and 1991–2001, and as
“low” as for example a sudden “drop” to 7 million barrels per day in 1975, or
in the range 3.4 – 6.5 million barrels per day in 1982-1990.
Certainly,
a more EQUITABLE re-distribution (while keeping the total output quota fixed)
based on some rational metrics can be done AMONG the nations without
dis-equilibrating the international oil market.
The new quotas would be subject to the ability of countries to produce
their assigned amounts. If they cannot,
then they can assign their own QUOTAS to other OPEC (and even non-OPEC) nations
as they see fit until they can redeem those quotas.
Here
is what I mean by using Table 2: assuming that we keep to a total quota
of 24.5 million barrels per day, then based on population alone, Nigeria should
have a quota of 6.2 barrels per day (three times its current quota) and Saudi
Arabia 1.02 barrels per day (one-seventh its current quota). Based on proven reserves, Nigeria should
have 910,000 barrels per day (under half of its current quota) and Saudi Arabia
should have 7.6 barrels per day (just a little over its current quota). Similar
calculations can be done for each of the other nine countries. If these two variables are the most important
– Table 3 shows that proven reserves ranking correlate much better with the current quota than population - then the true
quota should lie somewhere in between the figures given, consistent, for
example, with the estimated years to exhaustion of current proven reserves of
each country’s energy strategy. Countries that cannot or do not wish to produce
as calculated can then horse-trade their un-fulfillable quotas away to more
able countries.
There
would also be a time limit: the agreed re-negotiated quotas would be in
effect for 5 years at a time, and would
not be adjusted up or down by more than (say) 10% at any given time.
Finally,
there is another issue not much talked about with respect to OPEC: the existence of another parallel 10-nation
organization called OAPEC (Organization of Arab Petroleum Exporting Countries. http://www.oapecorg.org). Formed by Kuwait, Libya and Saudi Arabia on January 9, 1968, it now
also has seven more members: Algeria (1970), Bahrain (1970), Qatar (1970), United Arab
Emirates (1970), Iraq (1972), Syria (1972), and Egypt (1973). Tunisia joined in 1982 but pulled out in 1986. So eight of the eleven members of OPEC are
also members of OAPEC, and one wonders whether the agenda of the
Vienna/Austria-based OPEC is actually set or not in the Safat/Kuwait-based
OAPEC.
In
any case, let us take a look at Figure 1 showing price trends mapped against
some major events in the Middle East and the world. The first decade plus of OPEC (1960-1973)
actually saw a consistent fall in the real (inflation-adjusted) price of oil.
Then, an upsurge in oil prices followed the Yom Kippur War which started
October 5, 1973 and triggered an Arab/OPEC oil boycott/threat of drastic
reduction by 5% per month in oil production (but not inventory) “until Israel
withdrew from occupied territory”. The embargo
against the US and Netherlands itself began 16 October, 1973 and ended 18 March
1974, but the cutbacks ended in November 1973 (no cutback in December following
Saudi Arabia’s reneging) for a total of about 340 billion barrels. Next,
we had the 1979 Iranian
Revolution (started January/February 1979), the Iran-Iraq war (22 September
1980 – 20 August 1988), the Gulf War (16 January – 28 February 1991), 9/11 (September 11, 2001 demolition of New
York World Trade Center twin towers, and
attack on the Pentagon by Al-Qaeda operatives)].
Figure
1 and Nigeria’s own oil production and net export patterns [Figures 2 and 3
respectively] show that the application of the laws of supply and demand
brought about by regional crises have dictated the cost of crude oil more than
any concerted effort by OPEC (except in 1973).
Not shown is the effect of the continuing US invasion of Iraq that began
19 March 2003, further disrupting oil shipments from Iraq. Even the most recent
jump to over $36 per barrel was a result of a serious explosion at a refinery
in Skikda, Algeria on January 19, 2004, killing at least 20 people.
Whatever
be the case, I believe that Nigeria should be in the forefront of demanding a
more imaginative re-negotiation of OPEC terms - or else it re-consider its
membership. This is an opportunity that
we should have seized when Nigeria own Alhaji Dr. Rilwanu Lukman (and until
recently President Obasanjo’s Special Advisor on Petroleum) was
Secretary-General of OPEC from January 1, 1995 until December 3, 2000.
I
am for membership of OPEC. In fact I am for any solidarity agreement among
so-called “Third World” or developing countries as a counterfoil to the
reflexively exploitative tendencies of Western powers - but not at any price.
OPEC’s present price band mechanism which stipulates that a
10-consecutive-trading-days sustenance of oil basket price above $28 per barrel
will trigger a 500,000 barrels per day increase in OPEC total quota, and a
reduction by 500,000 barrels per day (0.5 million barrels) if the
basket price falls below $22 for 10 days is rather anemic. At a total baseline quota of 24.5 million
barrels per day, that is an adjustment of 2% for 11 countries – or an average
of 0.18% per country. For Nigeria, that
would translate to an adjustment of about 3,600 barrels of crude per day – far
less than what is lost by official and unofficial “leakage” every day in the
Niger-Delta!
NIGERIA AS SIMULTANEOUS
PRODUCER/CONSUMER NATION OF CRUDE OIL
All
nations require energy (for heating and cooling, transportation, running of machinery
etc.) and refined/petrochemical products (refined products such as kerosene,
gasoline, diesel, liquefied petroleum gas (LPG), naphtha, gas-oil, fuel oil and
asphalt - see Figure 4; petrochemicals such as plastics, fertilizers, synthetic
fibers and rubbers, detergents,
etc.). Crude oil is an essential
input raw material for both needs, with natural gas as alternative or
supplementary. Nigeria is blessed with
both, and is in fact considered a gas province with an oil rim: reserves of about 31.5 billion barrels for crude and 124 Trillion
cubic feet (Tcf) for natural gas. [In energy terms, one barrel of oil is roughly equal to 6,000 cubic feet of
natural gas; or 1 billion barrels of oil is roughly 6 Tcf of natural gas; more
like 5.66 – 5.75 actually, depending on the heating value of the
gas].
With
respect to being both a producer nation (of a raw material: crude oil) and a
consumer nation (of refined products), we in Nigeria have ONLY OURSELVES to
blame for problems associated with that.
Unfortunately, not only have we been flaring our gas all of these years
(current government policy agreed with the oil companies operating in Nigeria
is to reduce this to zero by 2008), but our refineries have not been working as
they should due to technical incompetence, sabotage or both, neither have we
devoted enough resources to the large-scale development of our petrochemical
industry. Furthermore,
internally-deployed crude oil is ALSO counted as part of OPEC quota, as OPEC
limits not just the quantity of crude oil that each country offers on the
international market, but the total production rate by each country. That unwelcome situation was compounded
further recently when condensates (such as Nigeria’s Oso condensate) began to
be considered as part of the total quota.
Nigeria
should work hard to change these two particular stipulations within OPEC.
As
we can see from Table 2, only Indonesia has a refining capacity that comes
close to its production rate (94%), followed by Algeria (63%) and Kuwait
(51.5%). Nigeria’s figure? 24.7% at refining capacity – or more
realistically more like 10% since we are hardly more than 40% operational with
respect to refining.
It
is simple logic to understand that no matter the international price of our own
crude oil, provided we depend to a large extent on imported refined oil, we
will continue to pay a higher price for that than if the needed crude had been
refined within our country. In fact,
according to figures by OPEC released on its website, in absolving itself of
being responsible for high cost of refined products, it stated that between the
years 1996 and 2000, the OPEC countries received $850 million revenue from sale
of crude, cost of finding, producing and transporting the oil not included.
On the other hand, the G7 countries (USA, UK, Canada, France, Germany,
Italy and Japan) received $1.3 trillion outright from oil taxation. OPEC’s Secretary-Generals have stated repeatedly over the years that high gasoline prices are due to taxation
by Western countries and speculation by their markets.
The
current situation of percentage accrual back to OPEC countries is at least
better than in the 1960s, when the price of oil was about $1 - 3 per barrel,
the netback value from this barrel in the final consumer market was roughly
$30, which was shared in the order:
major oil companies (42%), governments of importing countries through
profits and direct taxation (52%); and producer countries received just 6% in
the form of royalties.
The solution to the price spiral for refined
products for Nigeria is simple: Table 2
shows that Nigeria has enough crude oil to serve our refined products
needs. Therefore we should not only get
those refineries that we have to work by hook or by crook, but also streamline
and speed up the licensing process for those possible eighteen new private ones
(four belonging to companies floated by Rivers, Akwa-Ibom, Ondo and Lagos
states are reportedly in an advanced state) that might wish to join the
refining fray: no “ands, ifs or buts.” That is the true deregulation, as
different from the hackneyed mantra of privatization that we read from
government in which investors are literally being begged to kindly buy the
refineries off government hands.
OILASNIGERIA’S MONOCULTURE
Looking
at Tables 2 and 3, Nigeria ranks highest in contribution of petroleum products
to country exports, and third highest in terms of its contribution to the
GDP. Despite loud government commitments
to reduce this dependence on oil, its annual budgets, inscrutably always
denominated in the foreign currency of dollars rather than in the local
currency of Naira, with oil as the major “financier”, have reflected an
increasing dependence on oil, not less.
In fact, oil has reduced Nigeria to a trading company - Nigeria Oil
& Gas, PLC - with the president as CEO, the state governors as
non-performing members of the board of directors, and citizens as grumbling
shareholders to whom “dividends” are reluctantly declared periodically.
This
should not be. A return to agriculture
with a good associated road and rail transportation network; a comprehensive
energy policy with renewable and non-renewable sources in the mix, and stable
electricity as a critical factor; a viable iron-and-steel industry with
intermediate tool-and-die facilities;
the promotion of small- and medium scale enterprises; and a
more-than-nodding acknowledgement of information technology (including
re-training of personnel and the use of
free/open source software) are absolutely essential to our rapid
national development .
MANAGEMENT OF OUR OIL WEALTH – A
FAILURE OF LEADERSHIP
There
is no arena more glaring in disclosing the lack-luster performance and
sometimes downright fraudulence of our Nigeria’s leadership over the years
than in the management of our country’s oil wealth.
Nigeria
under colonial Britain discovered crude oil in 1959, and did not really become
an oil country to be reckoned with until about 1970 when it produced for the
first time on average more than 1 million barrels of crude per day, up from
about 0.02 million barrels per day in 1960.
By that time, Nigeria had found itself under military rule since January
1966 after six years of flag independence from Britain in October 1960. Nigeria then joined OPEC in July 1971 (daily
production average of 1.53 million barrels per day in 1971) not long after the
1967-1970 Biafra-Nigeria civil war.
Looking
at Figure 1, the Arab boycott and its attendant oil price increase in 1973
suddenly made Nigeria to be awash in so much oil money that General Yakubu
Gowon (1 August 1966 – 29 July 1975) once declared in a Caribbean country that money was not Nigeria’s problem but how
to spend it – and promptly paid the salary of all the civil servants of that
country for that year during his visit.
International oil prices rose through the regimes of Generals Murtala
Mohammed (29 July 1975 – 13 February 1976) and Olusegun Obasanjo (13 February
1976 – 1 October 1979), and hit its peak during the civilian regime of Alhaji
Shehu Shagari (1 October 1979 to 31 December 1983), when Nigeria really reached
its depth of financial profligacy, resulting in the clogging of our seaports by
mainly useless imports due to corrupt “contractocracy”.
During
Shagari’s rule, Nigeria’s oil production fell precipitously from 2.30 million
barrels per day in 1979 (the highest ever) to 1.24 million barrels per day in
1983, the lowest since Nigeria joined OPEC in 1971 (when daily production was
1.53 million barrels per day). Although
as evident from Figure 1, oil prices were highest in history during the Shagari
regime, unfortunately they also fell dramatically during that same period,
precipitating a crisis that led to his deposition by General Muhammadu Buhari
[31 December 1983 – 27 August 1985], who in turn was deposed by General Ibrahim
Badamosi Babangida [27 August 1985 – 26 August 1993]. During his rule, IBB reaped an “oil windfall”
of about US$12.2 billion during the Gulf War crisis that still causes ripples
because it has been unaccounted for as disclosed by an adverse Okigbo report of
1994 that has now gone “missing” from official records. The oil prices never really recovered in a
stable fashion under the reigns of Chief Ernest Sonekan (26 August 1993 – 17
November 17 1993), Abacha (17 November 1993 – 8 June 1998), or Abdusalami
Abubakar (8 June 1998 – 29 May, 1999), but under former General but now Chief
Olusegun Obasanjo (29 May 1999 to date; re-elected for second four-year term
beginning May 29 2003), it has recovered somewhat as a result of a series of OPEC cuts, 9/11, the Iraq crisis
and other contemporary circumstances.
By
convoluting Figures 1 and 3, we would discover that it is not far-fetched that
Nigeria must have earned up to $340 billion in all of our more than forty-four
years of discovering oil. Yet, in all of
these leadership changes, an oil wealth that should have been parlayed into
substantial and sustained economic development has instead resulted in very
costly internecine strife (for example in the Niger-Delta), a 70%-dollar-a-day
citizenry, and in many instances a
culture of official corruption within a distorted economy.
CONCLUSION
Without
a successful policy of adding value to our crude oil, and rapid weaning away
from our monoculture, our country will continue to face the paradox of “oil,
oil everywhere, but occasionally no single drop of petrol to put in our gas
tanks!”
That
is absolutely untenable, and the skeptical cynic would be excused if he or she
asked what assurance there was that the additional money that might be obtained
from an upward revision of our quota for oil by OPEC would be wisely spent..
This
essay is not an argument for Nigeria to leave OPEC. Rather, it is a call that an imaginative and
strategic re-thinking in this crucial sector as absolutely necessary in our
country – and that OPEC might just be the first forum for us to begin to
demonstrate that new paradigm.
I
rest my case.