Increase in the prices of gas, occasioned by the 7.5 per cent Value Added Tax (VAT) and the dwindling fortune of the naira may force crude oil prices up by additional $10 per barrel in the next three to six months’ time, the Nigerian National Petroleum Corporation (NNPC) has said.
In Nigeria, the price of Liquefied Petroleum Gas (LPG), or cooking gas, has increased by more than 100 per cent in the last few months due to under-supply, according to NNPC. Marketers have also attributed the increase to the introduction of a 7.5 per cent Value Added Tax (VAT) and rising dollar value to the naira.
Wholesale gas prices have surged by 250 per cent since the beginning of the year, including a 70 per cent rise, disrupting food supplies in parts of Europe and putting several energy suppliers out of business.
Over 60 per cent of Nigeria’s domestic gas needs are sourced internationally, while the rest is sourced locally, even though the country sits atop a 206 Trillion Cubic Feet (TCF) proven quantity of the commodity.
Speaking in a conversation monitored on Bloomberg Television, Group Managing Director of NNPC, Mele Kyari, stated that in the next three to six months, the current distortion in the market could lead to an increase in oil prices by at least $10. With Brent crude hitting $76 on Wednesday, the increase could actually be about $86 during the period.
Kyari noted that soaring gas prices would most likely seep into the oil prices because consumers would be forced to seek fuel alternatives to natural gas in the nearest future because of rising prices, as demand for oil could be boosted by as much as 1 million barrels per day (bpd).
“It will absolutely hit crude prices as energy consumers are forced to shift from gas to other fuels,” the NNPC GMD stated. “You wouldn’t be very wrong if you said you would see an additional $10 on a barrel maybe three months, maximum six months,” he added.
He stressed, “There are a number of things going on now to improve on the gas supply. We surely have issues around gas supply to the LNG plant, in particular, and even into the domestic market and the net effect is that you will see some slippages in cargos in 2022 and even in 2021.
“And the implication of that is that you have to do something pretty quickly and we have lost time, we have lost investment and for us, what must happen is a very quick return to a pre-Covid-19 level investment and that, of course, is being adjusted and I know that this is a key challenge for the industry.”
Meanwhile, the OPEC Secretary General, Dr. Sanusi Barkindo, said current conversations around the transition to a carbon-free world were driven by sheer emotions, rather than facts and science.
Speaking on the side-lines of Gastech, an industry expo in Dubai, Barkindo stated that there were many distortions in discussing of a world without fossil fuels, with the planned focus on renewables.