Nigeria’s cost of crude oil production has surged to approximately $40 per barrel, according to a recent report released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). This rising cost is posing a significant challenge to Nigeria’s oil industry, affecting its ability to remain competitive in the global market.
This production cost is notably high compared to other major oil-producing nations, especially Saudi Arabia, where the cost per barrel stands at just $10. The difference is staggering—Nigeria’s cost is nearly 300% higher. Industry analysts have pointed out that this large discrepancy puts Nigeria at a disadvantage, as lower production costs in other nations make them more attractive to investors and international oil buyers.
The NUPRC, in its report, noted that rising operational expenses and fluctuating global oil prices have made it increasingly difficult for Nigeria to compete effectively. The commission highlighted that Nigeria ranks among the highest-cost oil-producing nations, with production costs varying between $25 and $40 per barrel. In comparison, countries like Saudi Arabia benefit from advanced production technology and efficient processes, allowing them to maintain significantly lower costs.
Impact on Investment and Global Competitiveness
The regulatory body expressed serious concerns that these high costs could discourage both foreign and domestic investors from putting money into Nigeria’s oil sector. If crude oil sells at an average of $75 per barrel, more than half of that amount is already spent on production, leaving a smaller margin for oil companies and reducing potential profits. This uncertainty makes the sector less attractive for investors who seek stable and predictable returns.
Several factors contribute to Nigeria’s high crude oil production costs. One of the primary reasons is outdated infrastructure. Many of the country’s oil facilities, pipelines, and storage systems are aging and require constant maintenance. Frequent breakdowns and the need for repairs lead to increased operational inefficiencies, driving up costs. Industry experts have long called for modernization efforts to address these infrastructure issues, but progress has been slow.
Additionally, persistent challenges such as oil theft and pipeline vandalism continue to negatively impact the industry. Crude oil theft not only results in financial losses for oil companies but also disrupts operations and increases security costs. Pipeline vandalism, which leads to spills and environmental damage, further contributes to high maintenance expenses. The Nigerian government has acknowledged these issues and has taken steps to combat them, including enacting the 2021 Petroleum Industry Act to improve efficiency and security in the sector.
Efforts to Reduce Costs and Improve Efficiency
In response to these challenges, the NUPRC has initiated efforts to lower crude oil production costs, aiming to bring them down to at least $20 per barrel. The commission has outlined a series of strategic steps aimed at addressing the root causes of high expenses and improving overall efficiency in the industry.
“Since assuming its role as the key regulator in the upstream sector, the NUPRC has actively worked to address these challenges. In 2023, it introduced a 10-year roadmap aimed at revitalizing Nigeria’s oil industry. In 2024, as part of a short-term initiative within this broader strategy, the commission rolled out its Regulatory Action Plan, with a primary objective of reducing production costs to $20 per barrel,” the report noted.
The NUPRC stressed that failure to control production costs could have serious consequences for Nigeria’s oil sector. High production expenses not only limit profitability but also reduce Nigeria’s ability to respond to global market fluctuations. Given that oil revenue accounts for approximately 90% of the country’s total export earnings and a significant portion of government income, unchecked production costs could weaken Nigeria’s economic stability and slow down national growth.
Strategic Benefits of Lowering Production Costs
Reducing production costs would offer multiple benefits for Nigeria’s oil sector, making it more appealing to investors and allowing the country to compete effectively with other major oil producers. If costs are lowered, oil companies would be able to maintain profitability even during periods of declining global oil prices, ensuring long-term sustainability in the industry.
The NUPRC report also emphasized that enhanced profitability would benefit not just oil operators but the entire Nigerian economy. Lower production costs would lead to increased tax revenues and royalty payments, which in turn could boost Nigeria’s foreign exchange reserves. Strengthening the country’s financial position in the global oil market would also create more opportunities for economic diversification and job creation.
The commission concluded by stating that while achieving these cost reductions will be challenging, the long-term benefits—including increased investment inflows, market stability, and economic growth—are too significant to ignore. It urged all stakeholders in the industry, including government agencies, oil companies, and investors, to collaborate in implementing strategies that will lead to a more efficient and cost-effective oil production system in Nigeria.