Economy, local currency policy and petroleum self-sufficiency

No one can fully comprehend the level and magnitude of international politics going on in the global energy industry. This invariably makes the benefits expected to be gained through established fundamentals of petroleum economics look complex in our clime (the Nigeria’s oil industry). Until we frontally attack the challenges dragging our economy down, by our own very selves, we may not likely overcome those economic bottlenecks and hindrances working against our economic emancipation; and the general poor growth rate from the activities in the oil industry.

Examining the oil sector of Nigeria’s economy, the financial stagnancy that greets the entire value-chain of hydrocarbon businesses in the country, as against its expected normal growth rate, obviously has strong external interferences that are contributing to keep the economy down. The identified corrupt practices within the oil sector, notwithstanding.

Now, the backward integration policy on local refining is about to begin with, first, the launch of the world class Dangote Oil Refinery and Petrochemicals in Lekki, on 22nd of May, 2023. This hydrocarbon business project that has a nameplate capacity of 650,000 barrels of crude oil per day (BPD) is capable of meeting the nation’s domestic demands of refined products. This domestic supply service can only be possible if the management of Dangote Group magnanimously decides to sell or supply without taking out any product for export operation that could fetch them foreign exchange earnings, which is extremely attractive when compared with our local currency characterized by weak conversion values. Every decision shall be in accordance with the dictates of the Dangote Group’s management because it is a private business entity, and, also, it is operating in a free trade zone (with options on who or where to sell her products).

With the latest information that crude oil will be sold to this oil refinery in our local currency (in naira denominated rate and value), not in foreign currency value (the United States); Nigeria is good to go! The reason is that Nigeria, as an oil producing country, can “internally” decide for herself how she wants to give out its rich naturally endowed minerals; if capital stock of hydrocarbon base is sourced as fossil fuel, so long as the country does not violate the terms of agreement (on daily quota) with the multilateral oil producing bloc she belongs to – the Organisation of Petroleum Exporting Countries, OPEC. This group of oil producing nations has a strong influence over what happens in the international oil market, and in a wider scope, the politics of the global energy business (with respect to pricing and supplies pressure attached to locations or distribution formula prevalent in the circumstantial global politics in that continent or region of the planet).

With specifics on finance, coming to terms here, entails engagement and application of some financial strategic policies. The nation’s annual budget oil benchmark (as the major source of foreign exchange earnings, for instance), is a handy economic tool that could be strategically utilized internally. Whatever pricing that prevails at the international oil market should not have influence, nor affect the local supplies’ price of crude oil to the local refiners (Dangote Refinery and any other among the rest of 22 identified modular refineries within the country; in addition to the federal government-owned moribund refineries with a total capacity of 445,000 BPD). As long as the annual budget oil benchmark is not violated, the federal government and its agencies (NNPCL) responsible for fixing the price of crude for internal/local refining is advised not to be influenced at any time by the bullish or bearish pricing effect (in foreign currencies) at the international oil market. The local supply pricing in naira to the indigenous refiners ought to be completely domesticated and never to tamper with the annual budget oil benchmark (especially when it is bullish at the global oil market).

Once this strategy pulls through (without politics and corrupt manipulations/discriminations among all local refiners), the issues of self-sufficiency (by import substitution policy) manifesting within the economy; petroleum subsidy brouhaha alongside the pump price hikes for PMS, AGO, DPK, LPG, CNG and the rest of other energy products; the strength and status of the local currency (the naira being weak or strong) exchange rate; shall all, to a large extent be put to rest. Now that the nation is going to rebound on the path of local refining of crude oil in full blast (with just one entity taking up 650,000 BPD), there is high hope for future growth in the nation’s economy. What the nation must do for the economy is that the diversification strategy on non-oil exports should get more attention. The economy should gradually get on with deeper commitment and engagement on energy transition and renewable energy technologies, for the future global economy that is compliant with the climate change mitigation measures.

• business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com