Babs Omotowa, managing director, Nigeria Liquefied Natural Gas (NLNG) Limited, at a conference organized for Contract and Procurement Managers in Nigeria, has disclosed that the price of crude oil would remain low for at least two years and could even drop further, depending on the outcome of events in Iraq, Iran, Libya and other oil-producing countries that are currently facing crisis.
He stated that although crude oil prices appear to be stabilizing around $65 per barrel, it had fallen to as low as $40 per barrel, which is more than 50 per cent fall from the over $110 per barrel in June 2014.
He said the drop in crude oil prices has a severe impact on the economy of oil-producing countries such as Nigeria, which derives 80 per cent of its revenue from oil and gas earnings and which do not have the deep financial reserves of the likes of Saudi Arabia of several hundreds of billions of dollars.
The NLNG boss noted that many oil and gas producing nations are taking various steps to respond to this challenge.
He stated that while Egypt and Indonesia are reducing subsidies, Russia is cutting government expenditure by 10 per cent, with Venezuela and Iran cutting budget by $3 billion and liquidating assets, respectively.
Omotowa also disclosed that many companies are also swiftly reacting by cutting capital expenditure (capex), postponing projects and reducing overhead.
According to him, BP is cutting 20 per cent Capex, Conoco 32 per cent, Aramco 20 per cent and Shell is reducing $15 billion capex in three years.
He further stated that BP and Conoco are reducing 1,000 staff in United Kingdom, with Gazprom laying off 25 per cent staff, while Schlumberger and Baker Hughes are laying off 9,000 and 7,500 respectively.
Speaking on Nigeria’s response, Omotowa said agreements are being renegotiated for up to 40 per cent reduction in the cost of projects being executed by the NNPC joint venture companies.
“Although some analysis may highlight that Nigeria has a relatively lower cost of production when compared to other basins ($20–$30 for onshore and $50–$60 for offshore compared with LTO (light-tight oil) and oil sands of $60–$80), however these cost are significantly high when one recalls that Nigeria onshore cost used to be $8–$10,” Omotowa said.
Citing Mckinse’s recent analysis, he noted that oil and gas companies globally were not any more profitable during the high oil prices than they were at low oil prices.
The analysis shows that returns were actually much better in periods when oil prices were about $50. Omotowa said this situation was created by the fact that the era of the high oil prices led to higher costs, declining productivity and industry complacency.
“Our LNG trains 1, 2, 3 when built from 1995 to 2002, cost about $1.5 billion each, but a similar Train today will be closer to $8 billion. Similarly, government expenditures have gone up significantly both in overheads and also in projects. For example, a kilometre of road in Nigeria now costs over N1 billion, and if it is in swampy terrain with bridges, it could even be up to $3 billion per kilometre,” he explained.
He said it was important for governments and companies to diversify to increase revenues, adding that it is equally important to recognise that cost is a big challenge.
Omotowa called on contract and procurement managers to come up with solutions that would enable the sustainable reduction of the cost of goods and services and the delivery of more value for less, for the economic growth and prosperity of Nigeria and companies.

Folashade Olubayo
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