The Minister of Finance, Dr Ngozi Okonjo-Iweala, has stressed the need for genuine diversification of the economy, like a warning given to a cripple before an impending war, but nothing has been done to develop other mineral resources, agriculture and the huge human resources that the nation is endowed with among its African brothers.
The GDP rebasing showed the growth of the economy but the oil sector remained a significant contributor to the growth. According to analysis, the non-oil sector growth should swap place with the oil sector in terms of contribution to the nation’s economy for a more realistic growth to be recorded.
In an overview of GDP in Q2 by the Nigerian Bureau of Statistics, the price of crude in the international market stood at $112.25 slightly above what it was in Q2 of 2013 -$104.3, but the harsh reality facing us today is that the current market price of crude is slightly hovering above $80, something that should give the government concern before things get out of hand.
Realities against hopes of possible rise in price
Crude oil prices were lowered more on October 24, as worries about excess global supplies lingered despite a modest decline in Saudi Arabia’s shipments last month.
Crude oil futures for December delivery are down USD0.66 or 0.80% at USD81.44 a barrel.
Reports that Saudi Arabia has cut its crude output and some upbeat corporate earnings and economic data lifted oil prices from 27-month lows.
According to reports, Saudi Arabia shipped 9.36 million barrels a day last month, down 328,000 barrels a day from August. However, Saudi Arabia’s oil production was up slightly last month, at 9.70 million barrels a day.
OPEC had earlier indicated the cartel would maintain its output without any cut in production, with some member countries preferring to slash prices in order to gain share of the market.
There are reports that OPEC member countries are unwilling to cut crude production, since most of the countries, especially in Africa depend solely on crude sales for revenue.
Nigeria, since July, has not exported a single barrel of crude to the US-based refineries as a result of the Shale oil development that has taken over the place of crude oil.
The US was a major buyer of Nigeria’s crude and since the US stopped importing from Nigeria, the Nigerian government said that it had discovered more buyers in Asia – China and India.
Most African countries that now produce crude are also targeting the Asian market which is gradually getting flooded with many countries targeting it.
The Shale revolution
The SHALE revolution has come with it, an outstanding reversal in the need for the known crude oil and its effect even to the climate, as its environmental effect could be addressed with the use of technology, although that will be in the future. The shale oil is in abundance around the world, something that may motivate many countries to consider producing oil locally to create jobs while reducing money spent on importation of crude.
The production of shale oil in the US has led to the drop of oil price in the international market.
In the US, pump price has dropped; something that is a sure motivation for more development and production of the Shale oil.
The shale industry is the product of innovative technologies, namely hydraulic fracturing and horizontal drilling, American entrepreneurism, and some fortunate geology. Not only is America blessed with vast shale resources rich in oil and natural gas, but those resources mostly lie on private land.
The development has forced some members of OPEC, such as Iran and Venezuela, to call for the cartel to take emergency action to cut production and prop up the price of oil, but it remains unclear if OPEC will act – not every member wants or needs to cut production – but what is now abundantly clear is the impact that the US oil production is having on the price at the pump.
The Asian market that Nigeria has accessed for new buyers is looking to spring a surprise, as there are indications that some Asian nations are beginning to consider the development of Shale oil.
On November 7, which is the World Shale’s Asia Pacific Day, Asian countries, in a meeting, will focus on unlocking the potential of Asia Pacific shale by identifying solutions to key challenges, highlighting investment opportunities and building dynamic partnerships.
The development of Shale in Asia may spell doom for Nigeria and OPEC as a whole, considering the fact that sale of crude will drop further, forcing price to go lower.
This calls for commitment from the Nigerian government and other African countries to genuinely begin development of other sectors of the economy.
Agriculture still holds huge potentials of growing any economy, creating jobs and reducing poverty level in every nation. This is because the farmers get the money from sales and leave the government with only taxes.
The Harsh Reality
If the Asian Pacific begins Shale oil production in the coming years, the revenue generated from crude sales by countries that depend solely on crude as source of revenue will drop.
In the case of Nigeria, there may be possible job loss in the public sector as the government, which is currently the highest employer of labour will not be able to pay the salaries of its staff.
Ahead of this imminent circumstance, the government has started the process of cutting excess expenses, by putting up a system that has helped it save millions of Naira paid to ghost workers. But more stringent decisions will come in few years.
If you are reading this post and you are a Nigerian, it will be wise to begin to consider seeking other means of income to create a soft landing should these projections come to pass. Let it not take you unawares.
The diversification of the Economy is something that should be carried out swiftly, but the Nigerian government seems to lack the political will needed to reverse the imminent trend.
Corruption is still high and the judicial system may not genuinely implement needed reform in the next few years.
These speculations may be wrong but the cards are on the floor and the Shale oil revolution has come to stay since it is environment friendly and cheaper to process.
NP/Contributed by Williams Osewezina