Despite having one of Africa’s largest crude oil reserves, Nigeria’s production continues to lag behind global peers after decades of efforts to strengthen its energy sector.
Despite vast reserves, Nigeria’s crude oil production averages about 1.5 million barrels per day, far below Saudi Arabia’s 11 million barrels per day and Iran’s estimated 4 million barrels per day, even amid geopolitical tensions.
This underperformance reflects structural challenges rather than resource limitations.
One of the clearest indicators of inefficiency is Nigeria’s production cost. While Saudi Arabia produces crude oil at an estimated $4 per barrel, Nigeria’s cost ranges between $25 and $48 per barrel. During periods when global oil prices traded between $55 and $68 per barrel, profit margins remained significantly constrained, particularly given ageing infrastructure and operational inefficiencies.
Weak investment remains a central issue. Over the years, capital inflows into Nigeria’s upstream oil sector have declined due to regulatory uncertainty, security concerns and shifting priorities among international oil companies. Domestic investment has also failed to close the gap, leaving production capacity stagnant.
The situation is further compounded by existing financing arrangements tied to crude output. For instance, Nigeria’s crude-backed loan agreement with Afreximbank, valued at approximately $3.3 billion, requires repayment through the allocation of about 90,000 barrels per day over a five-year period. While relatively modest in scale compared to total production, such commitments still place additional pressure on already constrained supply.
At the same time, the mismatch between production and domestic demand is becoming increasingly evident. The Dangote Refinery imported crude oil worth about $3.74 billion within a year, highlighting the inability of Nigeria’s upstream sector to consistently meet local refining needs.
This contradiction underscores a deeper issue: Nigeria is not just facing a refining gap but a production and supply inefficiency problem. Without sufficient and reliable crude output, domestic refining capacity will continue to rely on imports, even in an oil-producing nation.
Beyond crude oil, Nigeria’s gas sector reflects similar underperformance. Despite holding one of the largest gas reserves globally, investment in gas infrastructure and development remains limited, restricting the country’s ability to fully monetise its resources.
Operational inefficiencies also raise critical concerns about cost management and governance. Questions persist around why Nigeria’s production costs remain significantly higher than global benchmarks, particularly under arrangements dominated by foreign operators. Addressing these inefficiencies is essential to improving competitiveness.
To reposition the sector, Nigeria must prioritise large-scale investment in upstream operations, modernise ageing infrastructure and implement policies that enhance regulatory clarity and investor confidence.
Reducing production costs through efficiency improvements and better contract management will also be critical.
Additionally, expanding investment in gas development offers an opportunity to diversify revenue streams and strengthen energy security, especially as global demand gradually shifts toward cleaner energy sources.
Nigeria’s oil sector remains central to its economic stability, but its current trajectory is unsustainable. Without decisive reforms and targeted investment, the country risks continued underperformance in a sector where it should be globally competitive.
