February 10, 2025/CSL Research
Nigeria, Africa’s leading crude oil producer and one of the world’s largest, faces significantly higher production costs compared to other major oil-producing nations. According to a report from the Nigeria Extractive Industries Transparency Initiative (NEITI), the cost of crude production in the country ranges between US$25 and US$48 per barrel, far exceeding the OPEC+ average of around US$10 per barrel.
Several interrelated factors contribute to this high cost. Inadequate infrastructure is a major challenge, with aging pipelines, limited storage capacity, and frequent operational disruptions significantly impacting efficiency.
Additionally, sabotage and oil theft lead to increased maintenance expenses and unplanned downtimes, further driving up production costs. These challenges not only reduce Nigeria’s competitiveness in the global oil market but also hinder the sector’s long-term sustainability.
In 2024, James Faleke, Chairman of the House of Representatives Committee on Finance, raised concerns over Nigeria’s crude oil production cost of US$48 per barrel, describing it as the ighest in the world. This high cost puts a significant strain on Nigeria’s revenue. The lower the cost of extraction, the more revenue the government can access. Regulatory and fiscal inefficiencies further exacerbate the problem. Complex local content requirements, bureaucratic delays, and high taxation create a challenging business environment, making cost-effective production difficult. Additionally, corruption and mismanagement inflate operational expenses. Security concerns also add another layer of complexity.
According to the Group CEO of NNPC, unrest and militant activities in oil-rich regions like the Niger Delta necessitate expensive security measures, further straining production budgets and causing frequent operational disruptions. In contrast, countries like Saudi Arabia benefit from robust infrastructure, streamlined regulations, and a stable security environment, all of which contribute to significantly lower production costs. Without urgent reforms, Nigeria’s high production costs will continue to undermine its competitiveness in the global oil market. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has set an ambitious target for 2025: reducing crude oil production costs to US$20 per barrel.
While this goal is ambitious, it is achievable with the right strategies in place. To effectively lower production costs, a multifaceted approach is essential. Investing in modern infrastructure, such as upgrading pipelines, expanding storage facilities, and enhancing refinery capacities, can significantly improve operational efficiency and reduce losses. Additionally, streamlining regulatory processes and cutting bureaucratic red tape will ease administrative burdens and
create a more competitive operating environment. Security remains a critical factor.
Strengthening law enforcement and fostering community engagement can help curb disruptions caused by vandalism and oil theft, ultimately reducing security-related costs. Moreover, public-private partnerships and increased foreign direct investment can inject much-needed capital and technical expertise into the sector, driving efficiency and innovation. By implementing these measures, Nigeria can enhance its competitiveness in the global oil market and ensure that its vast oil reserves translate into sustainable economic growth for the nation.
