A report prepared by the Oil Producers Trade Section (OPTS) of Lagos Chamber of Commerce and Industry (LCCI), has shown the existence of a Nigeria-specific cost premium for the petroleum sector, with operating costs and projects costs significantly higher than in other countries by as much as 100%,
The oil and gas producers stated that they spend five times more on security than their global peers, with over $500 million spent in 2016 on security services such as escort vessels, convoys and guards. According to the operating companies, they also rely on costly transportation options for personnel and goods, such as helicopter transport and aviation as a result of the insecurity of Nigeria’s waterways.
The report identified a cost premium of between 15% and 65% for operating costs, and 35% and 100% for costs of projects. OPTS identified insecurity, over regulation and bureaucracy, as well as inadequate infrastructure as the major drivers of costs in Nigeria. The report especially noted that the security environment in the country has remained volatile, particularly in the Niger Delta.
It added that these security challenges result in a cost premium for the oil and gas sector, severely affecting both operational and project costs. The report also cited multiplicity of tariffs, levies and fees as some of the costs drivers. According to the operators, the contracting cycle in Nigeria is also about 36 months while it is only six or eight months in Angola, Saudi Arabia, Venezuela and Indonesia.