The high cost of crude oil production in Nigeria has emerged as a major source of concern for stakeholders, as the country spends about ₦1.575 trillion per month—equating to ₦18.9 trillion annually—on producing its primary revenue-generating resource. Nigeria has one of the highest oil production costs in the world, with an average of 1.4 million barrels per day (mbpd), which drastically lowers the government’s Revenue from Petroleum exports. Reports indicate that producing one barrel of petroleum in Nigeria costs between $25–$40 to produce.
When compared with other oil-producing countries, production costs in Saudi Arabia, Norway, and the United States are as low as $9 per barrel, $21 per barrel, and $24 per barrel, respectively. The discrepancy draws attention to Nigeria’s inefficient crude extraction practices, which are made worse by issues with security, theft of crude oil, deteriorating infrastructure, and expensive operating expenses. According to stakeholders, Nigeria’s operating costs lack competitiveness, as the country in 2019 had one of the highest production costs with a break-even price for major proposed projects hovering at $48 per barrel, higher than Angola’s $45 and Uganda’s $44 per barrel.
Nigeria’s oil earnings decline as high production costs persist.
Based on the average daily production of 1.4 mbpd, Nigeria spends at least $35 million a day on crude production. This amounts to almost $1.05 billion over a month. If production remains constant, this cost rises to ₦1.575 trillion per month, or ₦18.9 trillion yearly, given the current exchange rate of about ₦1,500 per dollar. The huge spending severely erodes the country’s crude oil earnings. When production costs of up to $40 are taken into consideration, the government and other stakeholders will only have roughly $35 per barrel if, as the nation assumes, worldwide oil sells for $75 per barrel in 2025.
Furthermore, the nation’s oil revenue could suffer a significant setback if pricing prospects are dampened by downside risks associated with possible increases in U.S. shale production. This would diminish the nation’s capacity to optimize the profits from its extensive petroleum reserves. However, according to reports, the NUPRC is trying to bring down the price of oil production from the present range of $25 to $40 per barrel to around $20. The regulatory body aims to accomplish this by offering incentives to oil producers, optimizing operations, and tackling some of the major cost drivers in the industry.
NUPRC targets cost reduction to boost revenue.
If successful, the reduction may increase Nigeria’s revenue margins, increasing the industry’s competitiveness globally. Engr. Gbenga Komolafe, the Commission Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) recently underlined the value of cooperation in overcoming obstacles and improving sector performance, considering that Nigeria’s Economy is still largely dependent on oil earnings. Achieving the optimal unit cost per barrel to increase Government Revenue is one of the Commission’s primary goals and focus areas for 2025, as stated by the NUPRC Chief Executive.
In the meantime, economic experts and industry observers remain concerned over the Sustainability of the current high costs. Stakeholders stress the need for immediate reforms to boost revenue, improve competitiveness, and guarantee long-term economic stability. They contend that despite high global crude prices, Nigeria will continue to face diminishing net revenues unless it solves the issues leading to high crude production costs, such as obsolete infrastructure, ineffective regulatory frameworks, and Insecurity in oil-producing regions. With Nigeria grappling with economic issues, including high inflation, currency devaluation, and mounting debt, stakeholders urge policymakers to prioritize cutting crude oil production costs.
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Lowering the price per barrel to $20 may improve economic stability, strengthen the country’s budgetary condition, and greatly increase government revenue in the long run. Doing so would make the nation’s oil industry become more competitive compared to other global producers with lower operational expenses. Aside from the financial gains, a more productive oil industry may ease the strain on public coffers and minimize the need for excessive borrowing. Reduced production costs would allow the government to keep a larger portion of oil earnings, which may then be directed towards social Welfare initiatives, Infrastructure improvements, and attempts at economic diversification.