I wrote a piece a few minutes ago where I quoted a Wall Street banker, noting that Nigeria’s break-even point for oil, is $133 per barrel. Some people have asked questions via comments. Let me throw more lights on that number.
Nigerian generates about 60% of its revenue from Oil and 90% of foreign exchange. Nigeria is generating massive losses for every barrel it produces. Nigeria spends 4X as much money subsidizing fuel as it spends on schools, healthcare, etc. Nigeria’s breakeven is at $133 per barrel! Cost to produce is about $17 per barrel. Millions of barrels are sitting around unsold. Nigeria is losing $35M a day in unsold inventory. Country debt stands at $84B, and 2/3 of its revenue goes towards servicing it, and China holds the majority of it through bilateral agreements.
The $133 per barrel break-even point is the number for Nigeria to get any sustained value in oil. Some banks model fraud, leakages, subsidies, opportunity cost, loss of value of assets, etc to arrive at that. That is different from the typical break-even point for accounting ( the point at which total cost and total revenue are equal, i.e. “even”). This one focuses on developmental economics of commodities which tracks opportunity costs lost.
So, you can produce at $17 crude oil, sell it at $30 but import it back via 4-6 different products with massive subsidies, steal some parts of that $30, refuse to invest some parts of that $30 for the future, etc, they think you need to sell at $133 to breakeven on that stupidity to compensate! It is different from typical accounting where selling at $30 could deliver breakeven, after adding other costs to the cost of production. That accounting breakeven does not include the future opportunity costs of that lack of visioning which has characterised Nigeria for decades. The developmental breakeven captures that!
Simply, unless we sell at $133, oil cannot save Nigeria’s future.This number saves you from all wastes before the oil wells drop, using estimated reserves and when they will run dry. If you are not selling at $133 per barrel now, oil has not served you!