by Anna Embuka
The future of Nigeria’s oil economy is under serious threat.The United States of America, USA, has discovered large deposits of crude oil in Baken, Dakota.
The government of India is working on an ambitious plan to cut the country’s oil imports by half in the next seven years, a move that can also significantly reduce the country’s crude oil imports from Nigeria.The oil sand ofAlberta,Canada, which was previously considered too expensive to develop, is now considered the second largest oil reserves, second only to Saudi Arabia. These no doubt spells harsh implications for Nigeria’s future fortunes.
America’s energy independence goal–which had been elusive for decades, becomes more and more achievable against the background of new drilling techniques and technology. The competition against Nigeria’s oil and gas has become stiffer with recent oil and gas discoveries in other parts of Africa:Angola, Cote D’Ivoire, Chad, and Ghana and Niger.
In the last nine years, Nigeria accounted for between 9-11 percent of the total US crude oil imports. However, Nigerian crude has recently dropped to a five percent share of total US crude imports, according to the US import data for the first half of 2012. The September 2012 figures from the US Energy Information Administration,(EIA), the independent statistical wing of the U.S. Department of Energy, shows that only 361,000 barrels per day (bpd) of Nigerian crude made it to the US in July, all the way down from 810,000 bpd in July 2011 and from more than one million bpd in the same period in 2010.
For decades through World War II, the U.S. was a net exporter of petroleum products, with sales reaching a high of 126 millionbarrels in 1944. The country then became a net importer in 1950, and grew increasingly dependent on foreign supply in the 1960s. Net imports peaked just above a billion barrelsin 1973, the year domestic oil prices spiked amid the Arab oil embargo. After falling off in the 1980s and 1990s, net imports spiked again in the middle of the last decade before tapering recently.
However, indications are rife that for the first time since 1949, the US now exports refined petroleum. Several studies now point to the reality that the future of US oil production capacity could overtake that of Saudi Arabia and Russia – the two leading oil producers in the world.
According to a full year trade data from the EIA’s monthly petroleum supply report, the United States in 2011 exported more petroleum products, on an annual basis, than it imported for the first time in 62 years.
The report shows that U.S. petroleum product net exports averaged 0.44 million barrels per day (bbl/d) in 2011, with imports at a nine-year low of close to 2.4 million bbl/d and exports at a record high of nearly 2.9 million bbl/d. The United State’s exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products.
EIA estimated that U.S. total crude oil production averaged 6.4 million barrels per day (bbl/d) in 2012, an increase of 0.8 million bbl/d from the previous year. It further projected that domestic crude oil production will continue to increase to 7.3 million bbl/d in 2013 and 7.9 million bbl/d in 2014, which would mark the highest annual average level of production since 1988.
A fillip to theU.S. exporting strength is that their refineries are more efficient, giving them an edge over older facilities in Europe. New drilling techniques and technology – induced hydraulic fracturing or hydrofracturing, commonly known as fracking, a technique used to release petroleum, natural gas (including shale gas, tight gas and coal seam gas), or other substances previously trapped in deep crevices of the earth and ocean floors for extraction would boost oil production, helping ensure steady supplies of raw material for refiners to process.
The implication of this is evident; it will be a matter of time before Nigeria loses most of its current clients as oil and gas would become readily and cheaply available to all.
The Organisation of Petroleum Exporting Countries (OPEC) has acknowledged that rising domestic oil production in the US would gradually diminish Nigeria’s and other member countries’ exportsto America. OPEC, in its yearly world oil outlook believed this would result in a sharp cut in purchases from African and Middle-Eastern oil producers – most of them OPEC members.
According to India’s Petroleum Minister, VeerapaMoily,the government was already working on a detailed road map to achieve the target of a cut in its oil imports such that its dependence is reduced by 50% in 2020, 75% in 2025 and 100% in 2030.
A recent recalculation has revealed that the amount of oil buried underneath the ground in Northern Alberta was not millions of barrels – but trillions. Alberta’s internationally recognised reserves are now put at 175 billion barrels of crude. Only Saudi Arabia has bigger reserves and these deposits are guaranteed to last for decades, if not centuries.
According to a recent private sector estimates by the EIA, an additional 175 billion barrels of oil could be recovered from resources known to exist in Alberta since the 19th Century. During a briefing at its yearly International Energy Outlook, EIA’s Administrator, Guy Caruso cited a December report in the Oil and Gas Journal that raised Canada’s proven oil reserves to 180 billion barrels from 4.9 billion barrels, thanks to inclusion of the oil sands – also known as tar sands – now considered recoverable with existing technology and market conditions.
This latest estimates puts Canada in second place and ahead of war-torn Iraq, which the EIA estimates holds 112.5 billion barrels and is constrained from raising production for entirely different reasons. The agency estimates Saudi Arabia’s recoverable oil reserves at 264 billion barrels. The EIA further projects that Canadian oil sands could produce 2.2 million barrels a day by 2025 compared with the current level of about 700,000 b/d, which already represents more than a fourth of current total Canadian output of 3.1 million barrel per day.
This has imminent implications for tax administration in Nigeria and the FIRS. When you cumulate discoveries of oil in Angola, Cote D’Ivoire, Chad, and Ghana the portents are worrying.
An analysis of the revenue collection from 2004 to 2011 shows that the Service has only been able to surpass the non oil collection target in 2006, 2007, 2008 and 2010. The best non oil collection performance was in 2006 being 187%where the Service recorded a total collectionof N513.7b as against the target of N273.5b. A total collection of N 911.3b against the target of N738b representing 123%was recorded in 2008, 118% representing N 714.9b as against a target of N605.8b was recordedin2007, 104% representing N1358.94b as against the target of N1304.1bwas recorded in 2010 and N 1557.87b as against the target of N1623.24b representing 95.97% was the total non oil revenue collected in 2011.
Oil collections for the period under review have been on a steady rise, recording only two lows- the lowest being 48% in 2006 where the Service recorded a total collection of N1, 352.5b as against the N2, 780.6b target for the year. A further analysis of the collection average puts oil revenue for the 9 year period at an average of 64% and non oil at 36%.
Nigeria is known ‘to catch cold when the prices of oil coughs’. The discoveries and events in oil and gas around the world is an indicator thatNigeria may be steering into a long economic winter without realizing it.
The implication for the taxman consists in unending pressure from the authorities to scoop revenue from the neglected and under-developedand underperforming non-oil sector.
It might not be out of place for the Service to rattle the sabre by paying more attention tomap out strategies of harnessing revenue from the non-oil sector. This should be done not only by having goals that states the desire to increase the non-oil revenue but by taking constructive and proactive steps to get more taxpayers registered via constant education and sensitization, having incentives for taxpayers andpriming the FIRS to up the ante by catering to taxpayers needs like any global institution.
The Service mustensure that it constantly advises and proposes to government new ways of opening up the informal non oil sector of the economy.
It is high time Nigeria aims at significantly improving the ratio of its non-oil export to Gross Domestic Product (GDP), by finding ways to efficiently explore the non-oil mineral resources for their full potential export value as well as that of the agricultural sector.
It is doubtful if the country can support a 12-month import if there was a sudden loss of income from oil exports. In addition embracing countries like China and India to keep revenue flow steady, the government must take steps to invest in sustainable export-based industries as well as maintain significant savings to cushion any unexpected shock, as some countries have done.
Paul Collier, a Professor of Economics at Oxford, in an article titled, ‘Priorities for Prosperity’, expressed concerns about the future of Nigeria’s oil economy. According to him, Nigeria’s economic fundamentals are that of its natural asset, oil is gradually being depleted, and so this depletion needs to be offset by the accumulation of other, more productive assets. He called the first step in this process ‘saving’ and the second he called ‘investing well’. He opined that if all the oil revenues are used to finance consumption, then the economic path for the country is unsustainable.
Yet in Nigeria, the opposite is always the case. Nigeria mono economy diminished any chance for a positive and liberal approach to a sustainable and reliable economy. Nigeria boasts of all the ecological and agricultural capacity to provide for both domestic and external needs of its citizens and even provide a surplus to cushion the effects of long years of dependency on oil revenue.
Wheat yields in Northern Nigeria is said to be as good as in other parts of the developing world. In rice production, Nigeria accounts for half of the production of West Africa. But, the irony of it all is that in 2003 alone, Nigeria was rated second largest importer of rice, spending well over $800million.
Nevertheless, for Nigeria to experience meaningful and sustainable development, it must adopt an efficient way of utilizing its resources and pursue excellence in management at all levels of its operations. Government has to address the problems of productivity that reflects the small scale nature of farming such as, deterioration of soil due to over cropping, tree-felling, climate change that causes loss of valuable topsoil, as well as provision of modern day farming equipment to tally with modern farming methods and loss of farm produce to post harvest loss on account of poor preservation/processing.
Diversification of our revenue base could be attained through a deliberate, conscious and continuous effort to support,advise and carry alongsmall scale farmers on how to increase productivity is bound to attract foreign investors. More so, governments’ at all levels in the country should and must restructure other sectors such as industries and tourism among others, and fully utilize and harness available resources to meet the demands of the present time.
But beyond just saving and investing, it matters greatly how the investment is done. Although the decision to save is politically difficult, it is economically easy- just don’t spend. Investment is a decision to spend on something specific: it matters what, and it matters how. Nigeria in the 1970s spent a fortune on domestic investment but there was very little to show for it.
The nation cannot afford to repeat those mistakes. In harnessing the potentials of oil, the priority is to build the capacity to make good domestic investments- investing-in-investing. The government must make deliberate efforts to steer the country away from the economic path of blackgold towards the flourishing path of greengold.
AnnaEmbuka writes from Abujaann_embuka@yahoo.co.uk