FG strained to meet 650m barrels target over crude-backed loans

• Loss may hit $10.73b as country fails to meet production benchmarks in last 10yrs
• Forex crisis to persist amidst elusive economic diversification plan
• Tinubu, NASS jettison economic analysts, place economy recovery on uncertain oil market
• Stakeholders insist budget assumptions unrealistic 

Nigeria may fail to produce about 138 million barrels of crude oil worth $10.73 billion in 2024 even as President Bola Tinubu sets Nigeria’s N28 trillion 2024 budget on an unrealistic oil and gas outlook that has consistently failed in the last 10 years.

While President Bola Tinubu is projecting to increase revenue from oil and gas from N2.23 trillion in 2023 to N7.69 trillion in 2024, representing an increase of 344 per cent, relative to 2023, oil production is expected to move to 1.78 million barrels per day against the current 1.250 million amidst uncertain prices.

At 1.78 million barrels a day, the country is expected to produce 649.7 million barrels of crude this year. With only 1.4 million described as a feasible average by historical analysis and stakeholders, a shortfall of about 400,000 barrels a day or 138 million barrels a year is expected.

This comes as stakeholders are warning against the continuous reliance on oil revenue as the many attempts of the government to diversify the economy faces an uphill climb.

The Guardian learnt that both the president as well as the National Assembly banked on crude oil in the budget despite being directly warned by their consultants that the economy may be playing to the gallery in 2024.

There are indications that the current foreign exchange crisis may remain going by oil outlook even as the country would be busy finding crude to pay back loans already taken from Afreximbank as well as uncleared Direct Sales Direct Purchase crude obligations even as most major oil producers are divesting into other regions.

According to Afreximbank, the 5-year facility carries a margin of 6.0 per cent per annum above the 3-month secured overnight financing rate (SOFR). The transaction structure has an embedded price balance mechanism where 90 per cent of all excess cash from the sale of the committed barrels (after debt service) will be released while the balance of 10 per cent will be used to prepay the facility, effectively shortening the final maturity of the facility and freeing cash flow from future pledged cargoes for use by Nigeria.

The data for oil production in Nigeria is consistently not transparent. In September, while Group Chief Executive of Nigeria National Petroleum Company Limited (NNPCL), Mele Kyari said Nigeria was producing 1.67 million barrels of oil and condensates per day, Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that the production was 1.3 million barrels per day (bpd).

Sadly, that was all time high for the period as the production was 14 per cent higher than what the country pumped in the preceding month of August 2023. In 2023, the production was largely between 900,000 to 1.3 million bpd.

In November, data from the NUPRC showed that the country’s crude oil production dropped to 1.250 million barrels even as the Organisation of Petroleum Exporting Countries (OPEC) corroborated the information, stating that the production stands at 1.25 million barrels per day from 1.35 million in October 2023. In December, the production went to 1.300 million barrels per day. OPEC had also pegged Nigeria’s production quota at 1.5 million barrels per day.

Going by wave of divestment, warehousing of more oil blocks under the NNPC E & P with limited resources, continuous theft and vandalism despite surveillance contracts, fiscal and other challenges that have reduced production in deep-water to record low, projection by The Guardian showed that at best the country’s oil production may average 1.4 million barrels per day in 2024, leaving the nation with a deficit of 380,000  barrel per day out of the 2024 oil production benchmark of 1.7 million barrels per day.

In a year, the deficit translates to 138 million barrels, which if sold at $77.63 per barrel, which the price was trading yesterday and the nearest projection for 2024, the monetary value would stand at $10.73 billion. This is about three times the NNPC is borrowing from Afreximbank.

In 2013, Nigeria’s oil production stood at 2.2 million barrels per day (bpd), the 2013 budget projected 2.5 million bpd, it was 2.2 million bpd in 2014, the budget benchmark was 2.38 million bpd. The production was 2.1 bpd in 2015, the budget for that year projected 2.28 million bpd, it was 1.8 million bpd in 2016, the budget benchmark was 2.2 million bpd. In 2017, crude oil production was 1.9 million bpd but the budget benchmark was 2.2 million bpd. The production was 2 million bpd in 2018 but the benchmark was 2.3 million bpd, it was 2.1 million barrels per in 2019 but the budget benchmark was 2.3 billion bpd. In 2020 when the production was 1.65 million bpd, the benchmark is 1.8 million bpd. The production was 1.6 million bpd in 2021, the budget benchmark was 1.86 million bpd while in 2022, production was 1.4 million bpd, the benchmark was 1.88 million bpd.

In 2023 when the oil production plummeted to 1.4 million, the benchmark stood at 1.69 million bpd. In the 2024 budget, while Nigeria is currently producing 1.250 million bpd on the average, budget benchmarks considered a production of 1.78 million and oil price of $74 per barrel.

This comes at a time that the Nigerian National Petroleum Company Limited is expected to pay back on crude the $3 billion loan taken from the AfreximBank and being raised through oil traders.

The State Minister of Petroleum (Oil), Heineken Lokpobiri, NNPC’s  Kyari and the newly constituted board of the supposed commercialised NNPC had promised that the country’s oil production would hit between 1.7 million barrel per day and 2 million bpd, most stakeholders however warned that the statements were only to score political points.

Chairman of International Energy Services Limited, Dr Diran Fawibe was not convinced Nigeria would increase crude oil production significantly in 2024 given that most oil producers are holding back their investment even as the onshore and shallow water are largely affected by massive theft and NNPC would need more resources to boost production from its exploration and production subsidiary.

Fawibe noted that there have equally not been serious prosecutions to show that the government is serious in dealing with crude oil theft even when about 90 per cent of oil is being lost because reaching the terminal and previous investigations remain a mirage.

He said while fields like Bonga, Prowei and Owowo among others have prospects, most international oil companies are putting their money in other countries as the cost of oil production escalates in Nigeria.

An insider at the National Assembly told The Guardian that the committee on the budget was warned on oil production in the 2024 budget but they declined the expert opinion, as they insisted that the nation could not do two million barrels.

The insider, who is also an oil and gas expert, said the current outlook of the oil sector in Nigeria would not deliver the project in the budget, especially when oil companies are not investing.

“It has come to a time in Nigeria when we don’t need to fool ourselves. The price and the oil production outlook are not realistic,” the source said.

Managing Partner at Kreston Pedabo, Ajibade Fashina said there may be concerns about the feasibility of oil outlook in the 2024 budget, especially considering the downward trend in oil prices.

“The implication of this development for the economy is that if the projected oil production and price are not met, it could lead to a significant shortfall in government revenue. This could impact the ability to fund critical sectors such as infrastructure development, healthcare, education, and social welfare programs. It may also lead to increased borrowing and a higher national debt burden,” he said.

Fashina insisted that the inability to diversify the economy from crude oil after many attempts remained worrisome considering that over-reliance on oil exposes the economy to volatility in global oil prices, as well as other risks such as geopolitical tensions and environmental concerns.

According to him, diversification would help to reduce the country’s vulnerability to fluctuations in oil prices and create a more sustainable and resilient economy.

Fashina said the Nigerian government has several options to diversify its revenue from crude oil to agriculture and agribusiness, manufacturing and industrial development, solid mineral, tourism, renewable energy as well as information and communication technology.

The President of the Nigerian Economic Society, Prof Adeola Adenikinju said the projection targets could be realised but OPEC quotas and insecurity relating to oil theft may stand in the way unless the government is ready to engage OPEC and get serious over insecurity in the Niger Delta.

He was worried about the oil price as the situation remains very volatile, stressing that the divestment from oil companies over climate change is a serious threat.

Adenikinju said Nigeria must prioritise diversification even within the oil industry, adding that most aspects of the oil and gas sector are yet to be explored.

Renowned energy scholar, Prof Wunmi Iledare said the price projections in the budget is closely in line with the crude oil price outlook for 2024 where multiple predictions are looking at $77 per barrel.

Iledare however said the production assumption is only wishful thinking, adding that the budget was too optimistic.

“Permit me to say that the crude oil production assumption of 1.78 million barrels per day in 2024 is daydreaming and it makes the 2024 budget rather too optimistic, in my opinion.

“Growing production from 1.250 million bpd to 1.780 million barrels per day within the next three to six months is a tall order even if the global market supports it. But the projected target seems less likely than not, but time will tell,” Iledare said.

According to him, the budget expects more contribution from the non-oil sector with an economic growth assumption of 3.76 per cent, the historical growth records do not support that growth assumption and declaring the assumption as just unrealistic is being kind.
Iledare said the budget deficit for next year would be significantly higher than as currently projected, stressing that the government must cut the fat from the budget and impose fiscal discipline to lower the budget deficit appropriately.

Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of Economics at Babcock University, Prof. Segun Ajibola said pipeline vandalisation by restive Niger Deltans, oil theft through diversion and bunkering, disharmony between the IOCs and host communities, hostile operating environment would impact oil production.

Ajibola said: “Unless and until these challenges are fully tackled, actual oil production and export may continue to fall below the OPEC quota. And of course, this has dire consequences for the implementation of the 2024 budget as oil accounts for about 60 per cent of government revenue and 90 per cent of foreign exchange earnings.”

According to him, the challenge with Nigeria’s economy is its monolithic structure with over reliance on oil.

Admitting that the fortunes of the global oil market are beyond the dictates of a single player like Nigeria, Ajibola said any adverse occurrence in the global market creates problems for countries like Nigeria and endangers the fiscal budget.

“The way out is structural reforms through diversification. Agriculture sector needs to be faithfully rebranded. The industrial sector is yearning for a new lease of life. More efforts need to be deployed to the upcoming areas such as tourism, hospitality, information technology, arts and crafts, among others to lessen the burden on the oil sector. It is high time Nigeria reworked her import substitution, export promotion and other allied strategies initiated from independence to date but with minimal results and impact on the economy,” he said.