Energy economists seek escape route for Nigeria over falling oil prices

Petroleum and Energy Economists has painted a gloomy picture for the nation’s economy, canvassing cut in the workforce as well as salary at the Federal, State and council levels to cushion the effects of global economic meltdown.

They argued that fall in oil prices and the deficits in the 2020 budget presents huge challenges for the nation’s economy in the short and longer terms.

Director, Centre for Petroleum and Energy Economics (CPEE), University of Ibadan, Professor Adeola Adenikinju, noted that the development was an opportunity for oil firms to embark on drastic cutting of costs and increase productivity.

Adenukinju argued that there was no need for oil producers in the country to embark on new capital investments or projects, but to consolidate on existing ones.

“It is also not the time to shut in production because the long term costs of shutting down production outweigh the benefits and as long as price exceeds the average variable costs it is okay to continue to produce,” he said.

Adenikinju also urged government to find ways to assist the oil companies to minimise revenue and foreign exchange shortfalls, as well as the impacts of low oil prices on government revenue and the economy.

Also, Founder and Principal Partner at Nextier, Patrick Okigbo charged the Federal Government and its partners to work with modelers to build different scenarios and decide whether or not to shut in oil wells over the falling oil prices in the international market.

With lack of storage tanks globally, high cost of renting vessels and lack of credible estimates on when the world would recover from COVID-19, Okigbo noted that the Federal Government had to make critical decisions.

On his part, a former President of Nigerian Association for Energy Economists (NAEE), Professor Wumi Iledare, noted that in the short term, oil price may continue to fall before it would begins to rise again.

“This would happen when inventory is depleted, but the hope depends on whether the Organisation of Petroleum Exporting Countries (OPEC) reduces production dramatically,” he said.

Iledare added that there was nothing government could do than to revise its budget and prioritise actual spending to stimulate the economy.

“I suggest revisiting salary structure of some agencies and trimming down employment in wasteful areas. Government may also look at unsustainable budget items and bloated overheads,” he added.