Nigeria’s Unit Economics

Nigeria’s Unit Economics

The near-term future of Nigeria is tethered on crude oil because oil still generates more than 80% of our foreign earnings. So, to improve Nigeria, you need to look at the business of crude oil production, distribution and marketing. Because Nigeria as a nation is more connected at the production level, a big component becomes how much does it take to produce a barrel of crude in the nation. We have no control on how much it sells!

Nigeria’s junior petroleum minister, Timipre Marlin Sylva, noted thus: “Currently, the average total cost per barrel is below $30/barrel for Joint Venture (JV) agreements & below $20/barrel for the Production Sharing Contract (PSC). We need to optimise our unit cost of production in order to sustain our way of doing business”.

In the startup world, we talk of unit economics; it describes a business model’s revenues and costs in relation to an individual unit. If the unit economics does not look great, the business model could be imperiled irrespective of the execution capabilities.

Looking at Nigeria, our business model runs through crude oil. So, the question becomes what is our unit economics since the unit economics of crude oil could be extrapolated to the national unit economics. Pure and simple, Nigeria must not relax at $30 per barrel when it costs Saudi Arabia less than $9 to produce a barrel.

Nigeria needs to modernize and improve security, transportation, logistics and technologies to ensure that Nigeria’s crude production drops below $12 per barrel. If that happens, we will extract more $billions from waste to fund the future. That is the biggest opportunity to bring efficiency in Nigeria but the nation must be ready to invest to make that happen.

People, Nigeria needs to improve its unit economics with the fierce urgency of now.

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One thought on “Nigeria’s Unit Economics

  1. “Currently, the average total cost per barrel is below $30/barrel for Joint Venture (JV) agreements & below $20/barrel for the Production Sharing Contract (PSC). We need to optimise our unit cost of production in order to sustain our way of doing business”. Sylva

    So, who will do cost optimisation? The people we ask to do a job are also looking for who could do the job. Buhari is the senior minister and Sylva is the junior, so between Buhari and Sylva, who knows a thing about cost optimisation and how to go about it?

    Just last year, the NNPC told us that production cost was around 25 dollars, but they sort of working to bring it to 20 dollars, as if the latter was good enough. This was when barrel of oil was still hovering around 40 dollars. And in 2021, we are now hearing cost of production being ‘below 30 dollars’, take note of that. They didn’t say below 25 dollars, but rather below 30 dollars, it means what they promised to bring down has even gone up.

    Just small increase in oil price, but those producing oil have cornered everything as production cost, so at the end of the day, the small guy doesn’t notice any difference whether oil sells for hundred or fifty dollars.

    Our criminality and incompetence are just dizzying.

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