DECLINING OIL PRICES: Good news,bad or no news?
Since June this year, the price of crude oil in the international market had been trending down. From a high of nearly 110 dollars per barrel at the peak to 86 dollars per barrel for our sweet Bonny light as at this week. To me it is essentially no news and I am surprised it is making the headlines. What is newsy about an event that is cyclical and predictable. First, the prices of all commodities go up and down and you may say this is about 25% decline from the peak. And so what? Have we not had 50% decline! sometimes much more precipitous than this one. In 2008, we went from 140 dollars to 40 dollars in a matter of days! That is about 250% decline, if I can still remember my elementary mathematics . That was newsworthy if you ask me, not 25 % decline over nearly four months.
To be sincere, if it is news at all, then it is good news! From a global perspective, it must be good news that a commodity that generally contributes to the cost of doing business and affects global pricing levels is coming down in prices. This will have a salutary effect on industrial output and temper inflationary pressures. It will stimulate more investments and expand opportunities for job creation. In a global economy where unemployment has been at a high rate since the global economic crisis of 2008-2009, any significant event that will promote job creation must be good news. Indeed all consumers of petroleum products all over the world will find the development interesting because,I do not know anybody who will not feel good to pay less for gasoline and other petroleum products. And to be true, it is not only the gasoline or petroleum products that will go down, many other products and services where significant energy is expended will be benefit from the drop, especially if the decline lasts long enough, which I hope it does.
Now if it is bad news, then it must be bad news for Nigeria and Nigerians. It is a big shame that any time the price of oil drops, even for a week, Nigeria begins to tremble and quake. Governor Fashola announced to us recently that Nigeria is broke and Governor Chibuike Amaechi has amplified it. Actually I was surprised that Fashola was the one to break the news to us. At some government Empowerment programme in Lagos recently, he veered off course to announce to the bewildered youths and women that our Country was broke. Evidence? His commissioner for finance called him or he called his commissioner of finance( which ever) who had gone to Enugu to share the Federation 'booty',who told him that they were asked to go home, that there was no money in the National kitty. Indeed, some rumour had it that those who insisted on taking something home were advised to go the Onyema mines and fill their 'Ghana must go' bags with pieces of coal. I do not know if this rumour was true and as at press time, my 'field reporters ' could not get Governor Chime of Enugu State to confirm or deny the authenticity of the report.
Now the issue of the rumour is by the way. The verifiable story was that the State Commissioners of finance of the 36 states and the FCT( hopefully) were asked to go back empty handed, that there was no money to be shared. The way Governor Fashola broke the news, it is not difficult to figure out that he felt disappointed. Perhaps some government cheques had been written awaiting the 'alert' so they could be signed and released. Now if a state like Lagos State, that is reputed to generate so much internal revenue( IGR),that it can do without the 'Abuja' money would be in this situation, I shudder to think of what would be happening in EBONYI or Taraba States. Just a few days delay! Just a few months of drop in price of oil!
The Coordinating Minister for the Economy( CME) and the Minister of Finance, Dr. Ngozi Okonjo Iweala called a press conference to counter the allegation. He said Nigeria is not broke. I watched on television, as she labored to explain the situation, with parables and anecdotes. As long as we can pay workers salary, Nigeria is not broke. Actually I got really more worried after listening to her tongue-in-cheek explanation. "We have to forgo one or two things, like ice cream or sweets". It is really painful that Nigeria will be talking of forgoing one or two things just because oil price has dropped to 86 dollars, which is still higher than the budgeted benchmark oil price. The CME did not tell us everything . Yes, it is her job to reassure Nigerians to avoid panic. Yes,we may not be broke but we are not buoyant either. And if the truth must be told we could easily get broke if the decline in oil price persists much longer.
All the State Governors who do not want the excess crude account and all those who are fighting the Federal Government for setting up the Sovereign Wealth Fund, should be prepared to tell us how we will survive if the decline worsens or persists. When the CME talks about how we survived the Global Economic crisis(2008-2009),she needed to draw attention to how much we had in the excess crude account then and compare it with the paltry sum we have today. How long will this provide cushion? Perhaps only a few months! What of our distinguished Senators and honourable members who often mix economics with politics. Every year they try their best or should I say their worst to raise the benchmark for oil to unrealistic levels. Their objective being to ensure that all crude oil sales are monetized and shared, with nothing in the excess crude account. And as soon as the money gets to the states, it is quickly gobbled up, with little or no savings. That is why there is apparent panic even in Lagos State for a few days delay in sharing the 'Abuja' money. The 2014 budget was delayed so much largely on account of this . The President who had better advice from his economic team to keep the benchmark at a lower rate was 'blackmailed' and pressurized to give accent to the budget against his conviction. Now they should be getting ready to tell Nigerians what to do as we may soon run short of excess crude savings. With no buffer, they should tell us how to absorb the impending shocks, which may be more than giving up ice cream or cakes( apologies to the CME).
Another reason, this could be bad news for Nigerians is that, unlike most of the World, the fall in price of crude oil may not result in reduction of the pump price of Petroleum products. This is because the prices are fixed. And that is because some Nigerians say we should not fully deregulate the downstream petroleum sector. There is therefore a need for such Nigerians to change their minds and allow the government to complete the deregulation so that the retail prices of Petrol, and Kerosene will respond to the drop in the international price of crude oil and enable Nigerian businesses and consumers take benefit. Perhaps, this may also be the opportunity to discontinue the wasteful subsidy regime and turn the news to good.
The other country that may see this decline as bad news is the United States of America(USA). The USA had had shale gas for many years but have been unable to develop it. The main reason was that it was not economically viable in the face of cheap hydrocarbon or fossil fuels from Africa and the Middle East. So in addition to their desire to build strategic reserves of crude oil, they preferred to focus on importation for many years. But due to several developments in the Global Energy sourcing and particularly the high cost of crude oil, they found economic justification to invest in developing the shale oil. That drastically reduced their imports as domestic production rose, helping to boost economic recovery. So if the prices continue to decline further and may be long enough, the economic realities will change and may imperil the commercial viability of the shale gas exploration.
That could be good news for oil exporting countries especially Nigeria that had lost its biggest oil customer, the USA to Shale gas. But this scenario of possible increased exports may not be sustainable. The reason is that beyond shale gas, hydrocarbons are becoming less favoured as prime energy source of the future. Environmental issues and the campaign against global warming are making the World turn to more environmentally friendly or cleaner and renewable energy sources . So it may take a few years , it may take longer, but let it be known that some day, perhaps sooner than later, we may have crude oil that nobody will be willing to buy. And unlike Palm oil or groundnut oil, we can neither drink the crude oil or cook soup with it. May God not allow us see bad thing. Can I hear a thunderous Amen?Mazi Sam Ohuabunwa OFR