Nigeria’s Crude Oil Production Costs Soar to $40 Per Barrel
Nigeria’s crude oil production costs have surged to an average of $40 per barrel, placing the country among the highest-cost producers globally, according to a report by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
The figure represents a staggering 300% increase compared to Saudi Arabia, where crude is extracted at just $10 per barrel. The NUPRC warned that Nigeria’s elevated costs, compounded by volatile global oil prices, are undermining the country’s ability to compete effectively in the international market.
“At an average of $25 to $40 per barrel, Nigeria’s upstream oil production costs are among the highest in the world,” the commission stated. “This significantly exceeds the costs in top oil-producing nations like Saudi Arabia, where efficient operations allow for production as low as $10 per barrel.”
With global crude prices averaging $75 per barrel, Nigerian producers could be spending more than half of their earnings on extraction alone—eroding profitability and discouraging investment.
Obsolete Infrastructure and Oil Theft Drive Costs Higher
The NUPRC identified a range of factors contributing to Nigeria’s excessive production costs, chief among them being aging infrastructure, oil theft, and pipeline vandalism.
“Many of the country’s production facilities, pipelines, and storage systems are outdated, resulting in frequent maintenance needs and operational inefficiencies,” the report noted. “Modernising infrastructure is essential to reducing repair costs, extending asset life, and boosting productivity.”
Pipeline sabotage and crude oil theft, which have plagued the industry for years, have also significantly inflated operational expenses. The regulator emphasised that Nigeria must develop urgent solutions to tackle these persistent issues, highlighting the enactment of the Petroleum Industry Act (PIA) in 2021 as a critical step towards addressing regulatory and structural inefficiencies.
A $20 Production Target and the Race for Competitiveness
In response to these challenges, the NUPRC has set an ambitious goal of reducing production costs to $20 per barrel. As part of its broader 10-year roadmap to revitalise the oil sector, the commission rolled out a short-term Regulatory Action Plan in 2024, with cost reduction as a key priority.
“Since its establishment as the regulatory authority for Nigeria’s upstream sector, the NUPRC has made tackling high production costs a central objective,” the report stated. “Under its Strategic Plan, the commission aims to bring costs down to at least $20 per barrel.”
The Economic Stakes Are High
With oil accounting for approximately 90% of Nigeria’s export revenue and a significant share of government income, the economic implications of high production costs are profound. The regulator warned that failure to rein in costs could deter investment, shrink profit margins, and weaken Nigeria’s ability to weather fluctuations in global oil prices.
“Lowering production costs will make Nigeria’s oil sector a more attractive destination for both foreign and domestic investors,” the report said. “This will allow the country to compete more effectively with other oil-producing nations and maintain its share of the global market.”
Beyond attracting investment, the NUPRC argued that cost efficiency would also enhance government revenue streams, with higher profit margins leading to increased tax revenues and royalty payments. A more resilient oil sector, the commission concluded, would ultimately help stabilise Nigeria’s economy and strengthen its foreign exchange reserves.
As the global energy landscape evolves, Nigeria faces mounting pressure to reform its oil industry. Whether the government’s cost-cutting ambitions can be realised remains to be seen—but the stakes, as the regulator makes clear, could not be higher.
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