Nairaland Forum

Here’s a thread about declining US demand for Nigerian crude oil http://www.nairaland.com/948493/us-cuts-demand-nigerian-crude

In a structured society or family, declining revenue or income will mean tightening of one’s finances. Some people think that if Nigeria’s revenue were to decline, it might mean less awuf for thieving politicians.

I think they are wrong!

The easiest shortsighted way of solving the problem is

(1) to let the Naira fall against the dollar - this will mean that the Nigerian government still gets about the same Naira equivalent for fewer crude oil sales. Having naira on hand allows the government to maintain payment of wages and the same budgetary allocations except the naira will be much less valuable; and/or

(2) increase borrowing to makeup for the shortfall.

With the first scenario, there will be very high inflation but most people won’t directly tie it to the government. There will be almost no political backlash because salaries will still be paid.

Here’s an extreme example as to how it might work:

1. Nigeria exports 10,000 barrels of oil at $100 a barrel. Nigeria makes $1,000,000. If the exchange rate of a dollar is NGN 160 than Nigeria will get NGN160,000,000.

2. If oil export falls to 5,000 barrels, Nigeria will make $500,000 @ $100 a barrel. To make up for the shortfall, Nigeria will let the Naira deprecate to NGN360 to a dollar, which will mean that Nigeria will still realize NGN160,00,000.

The problem now is that anything imported will be twice as expensive.


The remedy for this inevitable scenario is for the government to diversify the economy but how?

If you say agriculture, exactly what crops can be grown in commercial quantities enough to earn significant foreign exchange? You have to be cognizant of the fact that decades of abandoning large scale farming means that decades worth of skills have been lost!

About the only thing I can think of is to resort to manufacturing our needs which will make us less reliant on foreign imports. But exactly what do we have the requisite skills to manufacture?

What are your thoughts?

hmmm...Am afraid what will happen to us if the world cease to use crude oil.

Another article pointing to lower oil prices!

...Yet most analysts say China's newfound interest in American energy may actually be good for U.S. consumers, as it will likely increase oil and gas supplies worldwide and possibly lower prices.

Big deals: Earlier this month, reports said PetroChina (PTR) is close to buying an old refinery on Aruba owned by American refining giant Valero (VLO, Fortune 500).

China is also said to be interested in building a pipeline to carry 300,000 barrels a day of Colombian oil to the Pacific Coast, according to a recent Eurasia Group note....

These deals come on the heels of some other major energy acquisitions.
They include CNOOC (CEO)'s purchase of a $2 billion stake in Chesapeake's Texas oil fields in 2010 as well as CNOOC's $2 billion purchase of Canadian oil sands operator OPTI Canada in 2011.

Also in 2011, China National Petroleum Corp. paid over $5 billion for a joint venture in Canadian shale gas properties held by Encana (ECA), and Sinopec (SHI) put down $7 billion for a share in Brazil's deepwater oil assets.

http://money.cnn.com/2012/05/29/investing/china-oil-energy/index.htm?hpt=hp_t2