Business

Rising Security Costs Strain Nigeria’s Oil Sector as Operators Grapple with Insecurity

The Nigerian oil industry is grappling with a mounting security crisis, exacerbating challenges faced by operators and hindering oil production and investment. The Nigerian National Petroleum Company Limited (NNPCL) has shouldered a staggering N267.98 billion security expenditure over 16 months, underscoring the escalating burden of insecurity.

As insecurity intensifies nationwide, oil companies are confronted with heightened security risks, prompting concerns of potential disruptions to production and investment. International oil companies and independent firms are issuing security guidelines to workers amid growing apprehension over safety and operational continuity.

The burgeoning security expenditure is driving up the cost of oil production, posing a threat to Nigeria’s crude oil production benchmark in the 2024 budget. With NNPC allocating approximately N266 billion to staff salaries alongside its security spending, the total expenditure on security and salaries amounts to about N534 billion, a significant portion of the company’s profits.

In the face of security challenges, NNPC’s efforts to combat insecurity have resulted in the closure of over 4,090 illegal refineries. However, many operators report significant disruptions to projects and substantial losses in oil production, further straining the industry’s viability.

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Despite indications of a potential increase in oil production to 1.5 million barrels per day (bpd) in January, meeting the budget benchmark of 1.78 million bpd remains uncertain. Foreign direct investment in the oil sector has dwindled, with only about five percent flowing into Nigeria, exacerbating the industry’s challenges.

Climate concerns coupled with security risks have prompted significant divestments from Nigeria’s oil sector, amounting to $21 billion in recent years. Insecurity along transportation routes has impeded crude oil exports, leading to substantial losses in output even before reaching export terminals.

As Nigeria grapples with these multifaceted challenges, urgent interventions are needed to address insecurity, safeguard oil infrastructure, and restore investor confidence in the country’s oil sector.

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