NNPC Chief Kyari Blames Insecurity For High Cost of Crude Oil Production in Nigeria

The Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), Mele Kyari, on Wednesday attempted to dissect the challenges in the Nigerian oil and gas industry, blaming the high average cost of production per barrel on insecurity and other sundry issues.

Kyari was a guest speaker during the 2024 Faculty of Science Lecture at the Obafemi Awolowo University (OAU), Ile-Ife. He spoke on the topic: “Energy Security, Sustainability and Profitability in Nigeria: Advances, Challenges and Opportunities.”

The GCEO maintained that businesses will always respond to the environment, stressing that no businessman will invest in a place unless value is being created there.

Arguably, Nigeria is regarded as the country with the highest per barrel cost of production, despite efforts by the authorities to reduce it in the last few years. Every year, operators set aside massive budgets for security of assets, settlement of community troubles, multiple taxation, among others.

 “The reality is that the oil and gas industry behaves in such a way that wherever you put your money to create value, a number of things must come into play.

“First, you must have a secure environment. Security means everything to the oil and gas sector. Insecurity doesn’t stop the oil and gas industry from operating. They (oil companies) operate in Afghanistan, any country that you know there’s conflicts, but what it does is that it adds a premium to the cost of production.

“ In our country today, when businesses come here from other countries , they know what would cost $100 in one country, you probably want to add another $30 in this country.

“This is because they think that the risks of exposure to these assets are very high. Secondly, there must be a fiscal environment that supports it. This means that our laws, business of taxation, collection of government dividends from the business, in any form, whether taxes, royalties, company income tax, companies will always sum it up for them to say, “Do I put $100 in this country?”

According to him, these challenges always play out, negatively impacting the creation of the resources required to build infrastructure and by extension prosperity.

He stated that the subsidy removal policy was a good thing since operators are now going back to site, stressing that if these matters are not resolved, achieving energy sustainability will be a major challenge.

“Typically, in our industry, when you invest, capex recovery is a minimum of five years and for you to get all the benefits that you desire from your investment is probably 10 years.

“Therefore, if they (investors) cannot have a line of sight around fiscal stability, political stability for 10 years, people will always doubt whether they should put their money here. And when they do, they will put a premium beyond what you expect because they don’t have to wait for five-10 years, because they can do it in three years.

“And therefore, you will see a continuous decline in investment. And that is also connected to the continued inability to provide energy for the people,” he added.

But he stated that things were changing with the new operating environment, from a situation where if 100 barrels were produced only 10 got to the terminal, stressing that if that condition prevails, no new capital will come into the country’s oil and gas sector.

Kyari also called for collaboration between the academia and the oil & gas industry towards addressing the challenges of energy sufficiency and sustainability.

He highlighted the important role academic communities, such as OAU, play in safeguarding national energy security through research and collaboration with the industry.

While pointing out the challenges hindering energy security in Nigeria include rapid population growth, pipeline vandalism, and crude oil theft, Kyari identified energy conservation, diversification, and efficiency measures as major avenues for enhancing energy security.

The GCEO observed that the issues have impacted NNPC’s operations, stressing that the establishment of a command-and-control centre had aided the detection and destruction of illegal refinery sites, removal of illegal connections, thereby addressing vandalism across operating corridors since 2021.

“The centre provides livestreaming of surveillance data to security forces, contributing to the detection and destruction of over 5,686 illegal refinery sites and the removal of 4,480 illegal connections from 2021 to the present,” the GCEO added.

Acknowledging the severity of vandalism and oil theft, Kyari hinted at a strategic shift, focusing on increased product trucking and storage in underground tankages at NNPC filling stations nationwide.

He highlighted NNPC’s expanded retail assets, making it the largest single downstream company in sub-Saharan Africa after acquiring OVH retail stations and associated downstream infrastructure in 2021.

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