Nigeria: Oil Price Slumps to $56 As Coronavirus Spreads Globally

25 February 2020

Crude oil price tumbled by three per cent yesterday, as the rapid spread of a coronavirus in several countries outside China left investors fretting about a hit to demand.

This is coming as a new report by the Nigerian Natural Resource Charter (NNRC) has disclosed that 213 oil blocks are currently unallocated and therefore unproductive in Nigeria.

China, the world's largest energy consumer was the first to be hit by the virus, which has spread globally and affected the demand for crude oil.

Global shares also extended losses as concerns about the impact of the new virus grew, with the number of infections jumping in Iran, Italy and South Korea.

The global benchmark, Brent crude was down $1.78, or three per cent, to $56.72 a barrel while the United States crude futures fell by $1.53, or 2.9 per cent, to $51.85.

Before the current slump in oil prices, the September 2019 attacks on Saudi Arabia's Aramco facilities had briefly pushed Brent above $72 per barrel.

Reuters quoted analysts as saying that the demand destruction for crude oil is likely to intensify as travel restrictions will likely increase as the coronavirus outbreak becomes a global threat and not just contained to China.

Analysts reportedly argued that oil prices will remain vulnerable as energy traders were not pricing for fear that the coronavirus may become a pandemic.

They noted that while some parts of China are seeing improving statistics with the coronavirus, financial markets will remain on edge until we start seeing the situation improve in Iran, Italy, South Korea and Japan.

South Korea's fourth-largest city, Daegu, grew increasingly isolated as the number of infections there rose rapidly, with some airlines suspending flights to the city until March 9 and March 28 respectively.

The country reported its seventh death after raising its infectious disease alert to its highest level.

In Paris, French Health Minister, Olivier Veran said he would talk with European counterparts soon on how best to tackle a possible epidemic, after Italy reported a third death from the flu-like virus and 150 infections, versus just three before Friday.

Iran said it had confirmed 43 cases and eight deaths, with most of the infections in the Shi'ite Muslim holy city of Qom. Afghanistan, Iraq, Kuwait, Saudi Arabia and Turkey imposed travel and immigration curbs on the Islamic Republic.

Oil prices, however, received some support after local health officials in China said yesterday that four provinces - Yunnan, Guangdong, Shanxi and Guizhou - had lowered their virus emergency response measures.

Chinese President Xi Jinping said on Sunday the world's largest energy consumer will adjust policy to help cushion the blow to the economy from the virus outbreak.

As the demand for oil is decreasing, there are increasing production activities, potentially worsening the glut in the market.

For instance, in the United States, the oil rig count, an indicator of future production, rose for a third straight week.

Drillers added one oil rig last week, bringing the total count to 679, the highest since the week of Dec. 20, energy services firm Baker Hughes Co said.

213 Oil Blocks Currently Unallocated in Nigeria, Says Report

Meanwhile, the Nigerian Natural Resource Charter (NNRC) has disclosed that 213 oil blocks are currently unallocated and therefore unproductive in Nigeria.

The NNRC also claimed that the Nigerian National Petroleum Corporation (NNPC) has not enthroned far-reaching transparency in its operations despite its efforts to publish monthly operations and financial reports of its activities.

In its new report - the 2019 Benchmarking Exercise Report (BER) - carried out to provide an assessment of the governance of Nigeria's petroleum wealth, the NNRC explained that out of 387 oil blocks available in the country as at the end of 2018, only 174 were allocated for utilisation, leaving 213 unallocated and idle.

"An examination of the 2018 Nigerian Oil and Gas Industry Annual Report (NOGIAR) showed that there are 387 oil blocks available for development with 174 allocated and 213 unallocated blocks, implying that a considerable resource potential remains untapped," said the NNRC in the report.

It noted that while no new allocations were made within the period under consideration, the country recorded a decrease in the volume of non-associated gas (NAG) reserves she holds from 102.73 trillion cubic feet (TCF) in 2017 to 98.81 TCF in 2018, but made a gain in the reserves volume of associated gas (AG) from 96.36TCF in 2017 to 101.98 TCF in 2018.

According to the NNRC report, Nigeria's guidelines for awarding oil blocks licenses do not conform with any known policy determining the pace and areas of licences awards.

It explained that in absence of major bid rounds and necessary sector reforms backed by legislation, it, "implies that the licensing process could still be abused."

The NNPC it stated has not really transformed itself into a transparently run oil corporation; and still habours elements of opacity.

According to it, the corporation is mandated to by the law establishing it - the NNPC Act 1997 - conduct regular audits of its operations using independent auditors but, "Available evidence suggests that, in the past, the corporation has only subjected itself to these audits at the behest of the federal government, including its only publicly available 2015 audit to investigate allegations of unremitted funds into the federation accounts by the corporation."

It noted that the corporation has failed to embrace inclusive transparency because: "The lack of a culture of openness and disclosure within the system is partly responsible for the poor record-keeping, the lack of checks and balances, ineffective performance reviews and audits, and the absence of transparency and accountability in the NNPC."

"Historically, the government does not seem to value transparency and has not meaningfully sought it from the NNPC or investigated wrongdoing in a way leading to consequences or penalties. This extremely weak transparency and accountability culture means neither staff nor decision makers are incentivised to be transparent," it further explained.

On the impacts of Nigeria's oil resources to local communities, especially host communities of oil assets, the NNRC said that: "No noteworthy changes have occurred since the 2017 BER. Key legislation to ensure the participation of communities, protect the environment, mitigate costs, respect rights, and ensure that communities benefit from extractive projects suffered setbacks in the period."

"EIA and Social Impact Assessment processes are still weak; the government agencies responsible for enforcing compliance with regulations are still performing below average; and the mechanisms to ensure community trust is gained are ineffective. Nigeria's ranking on local impacts falls far below NRC recommendations," it added.

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