Crude Oil Production Cost Reaches $40/Barrel—Report.

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A report by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has revealed that the cost of producing crude oil in Nigeria has increased to approximately $40 per barrel. This represents a 300% rise compared to the production cost in Saudi Arabia, which stands at $10 per barrel.

The NUPRC attributed the surge in production costs to rising expenses and volatile global oil prices, making it challenging for Nigeria to remain competitive in the global market.

“At an average of $25 and $40 production costs per barrel, the nation’s upstream oil production costs are among the highest in the world,” the NUPRC stated in a publication. “This range is significantly higher than production costs in top oil-producing countries like Saudi Arabia, where efficient operations allow for costs as low as $10 per barrel.”

The commission expressed concerns that the high production costs could deter investment and hinder Nigeria’s ability to compete globally. “High production costs can limit profitability for investors, particularly when global oil prices are low,” the NUPRC noted.

To illustrate the impact of high production costs, the report highlighted that if crude oil sells for $75 per barrel, producers may spend over half of that amount on production costs.

The NUPRC identified outdated facilities, pipelines, and storage systems as contributing factors to the high production costs. “Modernising infrastructure to cut down on repair costs, extend asset life, and bolster productivity is therefore crucial,” the commission stated.

Additionally, the regulator cited oil theft and pipeline vandalism as significant challenges affecting operational costs in the sector. “Nigeria understands it must develop urgent solutions to curb these menaces and continue to show its determination to address them,” the NUPRC said.

The commission disclosed that efforts are underway to reduce production costs to $20 per barrel. “Since its emergence as the regulatory powerhouse in the upstream sector, the NUPRC has wasted no time in embracing the task of tackling existing challenges. In 2023, barely two years after its institution, it drew up a 10-year roadmap as a comprehensive strategy to revitalise and return the oil sector to its glory days.”

“In 2024, in a shorter-term focus initiative under the broader decade-long Strategic Plan, the NUPRC effectively rolled out its Regulatory Action Plan with one of its key objectives being to lower the production cost per barrel of oil to at least $20,” the publication disclosed.”

The NUPRC emphasised that achieving production cost efficiency is crucial for attracting investments, retaining higher profit margins, and improving resilience to market fluctuations. “A high cost of oil production poses risks to the country’s economic stability and growth,” the regulator warned.

The commission concluded that reducing production costs would make Nigeria’s oil sector more attractive to foreign and domestic investors, enabling the country to compete more effectively in the global market.

“Lowering production costs will make Nigeria’s oil sector a more appealing destination for foreign and domestic capital,” the NUPRC stated. “By controlling oil production costs, oil companies can secure higher profit margins, even during periods of lower global oil prices.

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