ADC presidential candidate, Atiku Abubakar kicked off his 7th presidential campaign by attempting to make fuel subsidy the central theme of the 2027 general election. He declared that if elected, he would restore fuel subsidy despite earlier promising to remove subsidy during the 2023 campaign season.
Of course, this bizzare proclamation elicited instant reactions from every quarters including the President, who described the pledge by Atiku Abubakar as evidence of his “serious ignorance” of governance and the economy.
This piece, a lengthy one I must forewarn, is not really about the renewed political rhetoric and flip-flops around fuel subsidy but an attempt to cut through the populist noise and lay bare the underlying realities that must be at the foundation of any further fuel subsidy debate in Nigeria.
Following the initial Atiku declaration to return fuel subsidy, several of his aides and also his running mate, Rotimi Amaechi came out singing many tunes to explain what Atiku Abubakar really meant. Paul Ibe, Atiku’s spokesperson in an initial post to defend and clarify Atiku’s position said that the subsidy removal his principal meant was to reduce domestic refining costs.
Atiku’s running mate, Rotimi Amaechi on the other hand, during the NBA conference in Port Harcourt said: “What Vice President Atiku Abubakar is proposing is not to deviate from removal of fuel subsidy or not, ours is to provide cheap crude for them to refine and sell at a cheap cost. That way, individuals will be able to buy fuel.”
Another of Atiku’s spokesperson and the popular Living in Bondage actor, Kenneth Okonkwo also had this to say about Atiku’s subsidy return pledge:
“What Atiku is talking about is that oil is our product. We do not have any basis for producing it in our land by ourselves and still selling it to Nigerians at an unaffordable price.”
Another of Atiku’s aides, Mr. Phrank Shuaibu, also said the following as he attempted to clarify Atiku’s subsidy restoration promise:
“What Atiku is proposing is simple, clear, and unambiguous. He’s saying, no, we have to cut down waste, and in cutting down waste, I want a reform and subsidy placed on production. We will encourage local refineries. We will subsidize crude. You produce the crude, you produce the oil, produce the fuel, you supply the Nigerian people at a cheaper cost.”
When you sieve through what Paul Ibe, Rotimi Amaechi, Kenneth Okonkwo and Phrank Shuaibu tried to say, one constant emerges – SUBSIDISING CRUDE OIL to the local refineries. There was however one last funny twist, Paul Ibe doubled down on AIT when he proclaimed that Atiku will restore subsidy but after “a while”, he will again remove the subsidy. Confusion.
Well, it all sounds sweet and even straightforward on the surface, but unfortunately that is actually where the complication begins and it is this complication that I want to lay bare using the Bonga South West deepshore project as a point of contact. I will do so in a layman’s language as
much as possible.
It is true that Nigeria owns the crude oil and we have around 39 billion barrels of crude oil reserves, but the question many often fail to ask or take into account is, “how does that oil come from under the ground to the surface?”
Let us begin with this concise picture:
Crude oil is typically found in three categories of reservoirs:
1. Onshore at depths of between 2,500 to 12,000 feet (762 meters – 3600 meters)
2. Shallow offshore (with water depth less than 100meters but with oil reservoirs located at depths similar to onshore)
3. Deep offshore (deepwater) with water column depths ranging from 1,000 feet (300 meters) to over 4,800 feet (1,463 meters) below the ocean surface. This distance is to get to the sea floor before drilling to the oil reservoir begins, which is typically reached at depths of 5,000 to 15,000 feet further down into the earth’s crust.
So, using our point of contact, Bonga South West deepwater oil field discovered in 2004 by Shell but yet to be exploited, you will have to navigate through a depth of between 4,085 and 4,395 feet (1,245 to 1,340 metres) to get to the ocean floor before you begin drilling another 9000+ feet into the ground to reach the crude oil reservoir. In essence, we are talking about a total distance of 13,650 feet or 4,160 metres (4.16km) from the ocean surface to the crude oil reservoir.
To further contextualise this distance that you must drill, let me use a relatable measure. We all know the popular Niger Bridge connecting Asaba to Onitsha. 4,160 meters is equivalent to THREE OF THE NIGER BRIDGE. This is the distance you have to go from the surface of the ocean to reach the crude oil reservoir in the Bonga South West oil field.
So, let us now answer the question of “how the crude oil comes from the ground to the surface”. It is simple – you invest MONEY first.
Billions of dollars!
The investment starts from EXPLORATION of crude oil. Crude oil can be found literally anywhere beneath the earth surface but you cannot know where exactly until you search with the help of science and precision technology. You spend money to do that. Nigeria since independence has never invested any substantial amount of revenue to explore for crude oil. It has always licensed such exploration activities to major international oil companies like Shell, ExxonMobil, Chevron, Total, Agip etc.
These companies bring in funds, majority of which is BORROWED and finance exploration activities at targeted locations. When exploration leads to the discovery of an oil field with crude oil in commercial quantities, the next phase becomes EXPLOITATION – bringing the crude oil from underneath the ground to the surface.
Again, Nigeria rarely finances such crude oil exploitation activities. Why? Paucity of funds! If you go through our past national budgets, you will almost not find any budgetary provision for crude oil exploration or exploitation projects but you will almost certainly see CRUDE OIL PRICE BENCHMARK. So, who finances those exploitation activities? Again, the oil companies look for funds and invest in the oil fields to bring the oil and gas from the ground, not as Father Christmas, but in exchange for an opportunity to recoup their investment and make profit based on a binding CONTRACT.
The funds we are talking about are in the billions of dollars and that is why Nigeria would rarely have such an amount to sink in exploiting only one oil field rather it engages in joint venture with international oil companies or goes into production sharing contracts with them. The IoCs provide both finance and expertise while the cost of exploration/exploitation is defrayed when oil revenues begin to flow in.
For example, the Bonga South West/Aparo project would need a total capital investment of around $15 billion to $21 billion over the lifespan of the field. To understand the scale of the investment required, the three tiers of government in Nigeria shared around $34.8 billion that accrued to the federation account from 2023 to 2025.
This is why countries with little financial capacity to fund these huge investments in oil exploitation chase capital from international oil companies and woo them with various incentives. If these oil companies feel that the governance climate or prevailing governance framework in the oil and gas industry is not conducive or profitable for them, they will withhold their investment and in most cases the discovered crude oil remains UNEXPLOITED.
This was the story of Bonga South West oil field for more than 20 years. Despite Shell estimating that the Bonga South West oil field holds more than 800 million barrels of crude oil, it could not proceed to develop the field because of uncertainties in Nigeria’s oil and gas industry and mixed messages from the government regarding issues such as petroleum taxes, royalties, joint venture financing etc. In fact after the development of the Agbami greenfield deepwater project in 2008, the only other major greenfield deepwater project to come to reality was the Egina floating production facility in 2018 operated by TotalEnergies.
Eventually PIA came into being in 2021, which was a good encouragement to investors but not enough to convince many of them to reach final investment decisions needed to bring to life the many pending deepwater projects.
Then came the former Treasurer of Mobil – President Bola Tinubu.
From day one, President Tinubu made clear his intention to compete for every available funding for deepwater projects and began removing one bottleneck after the other that were stalling these projects. Executive orders became embedded in tax laws and more. These steps encouraged Shell to reach an FID for the $5 billion Bonga North holding 300 million barrels of oil in December 2024. With more encouragement, especially the mouth-watering incentives recently codified by the Tinubu administration, Shell and its partners are nearing an FID for the Bonga South West with a definitive Production Sharing Contract already in place. ExxonMobil has also been progressing development studies on the $8 billion Owowo deepwater field, which holds an estimated 1 billion barrels of resources and is lined up for potential FID.
Now, let us pause for a second and imagine what would happen if Nigeria, or better still a fictional President Atiku Abubakar on May 29, 2027 suddenly ORDERS all the international oil companies in Nigeria to begin to sell crude oil at subsidised rate he determines to Dangote Refinery and other domestic refineries without recourse to existing contractual obligations or PSCs because he wants to return fuel subsidy?
Shell will simply pause its investment in Bonga North and may likely pull the plug on Bonga South West. ExxonMobil will pause its preliminary studies on the Owowo deepwater project. That would put at risk up to $32 billion in deepwater investments! That is beside the other very wrong signals it would send to other players in the industry including those already building new modular refineries like Azikel.
This is not difficult to predict of course. No firm will take the pains to mobilise this amount of funding and you expect that firm to subsidise the resulting product with no clear agreement on reimbursement of the differential. They will most likely flee and let you use magic to summon your crude oil from the ground since you claim you own the crude!
This is what Atiku Abubakar is simply trying to do by his poorly thought out desperate pledge to restore fuel subsidy. This is also precisely why President Bola Tinubu described Atiku’s plan as evidence of serious ignorance of governance and the economy. There is no better way to describe it really.
Desperation can blind someone from seeing the folly in their actions or words. In Atiku’s blind desperation to grab power, he is ready to promise and do anything to get into office including returning Nigeria’s oil and gas industry back to square one.
The fundamental question, therefore, is not whether Nigerians deserve cheaper petrol. Of course they do. The question is who pays for that cheapness and what Nigeria must sacrifice to provide it?
If the Atiku subsidy is disguised as a discount on crude sold to domestic refineries, it does not suddenly become free. Every dollar or naira removed from the market value of crude oil that would otherwise be sold on commercial terms is potentially revenue lost to FAAC. This can translate into less money available to the three tiers of government for salaries, infrastructure, debt servicing, electricity subsidy and basic public services. It also impacts negatively on our foreign reserves
Nigeria has only recently been trying to escape from a vicious cycle in which low oil revenues and large fuel subsidy obligations squeezed government finances. And this is where Atiku’s desperate plan raises more questions than it answers.
For example, will his government fix the price at which Dangote Refinery and other refineries buy Nigerian crude or sells refined product to Nigerians?
On what formula will that price be computed, for instance, is it based on percentage of prevailing international benchmark price, production cost etc? If the price is artificially manipulated, who absorbs the difference? Is that not a return to the corruption ridden subsidy regime?
Will the subsidy really reflect in the prices of consumer goods and services or will producers, importers or service providers simply continue pricing their products as if nothing changed? In other words, will the price of Agege bread or rent reduce?
For how long will his crude oil discount game go on? When he stops the discount, would prices of petroleum products not go up again and create another round of inflation and cost of living crisis that Nigerians already faced between 2023 and 2024?
Will there be return of scarcity of petroleum products? Will smuggling of subsidised petroleum products from Nigeria resume to Niger Republic, Benin Republic, Chad, Cameroon etc?
With reduced revenues available to the FG, how will his government and those of the subnationals get money to invest in critical road infrastructure that is very central to reducing cost of transportation in the long run?
Will he freeze minimum wage at N70,000 since he claims cost of living will reduce or will he increase minimum wage and how does he intend to fund the resulting new wage bill with reduced revenue?
Atiku says he will make the Naira worth more, is he aware that reduced dollar inflows from his so-called discounted crude is guaranteed to drain our growing foreign reserves and trigger instability in the Naira? Or will he also peg the value of the Naira?
Plenty questions and very little coherent answers from Atiku Abubakar. This was a very unnecessary and desperation-ridden political gamble by Atiku on his 7th and last attempt at becoming President.
Fortunately, many Nigerians are wiser.