Last updated on October 19th, 2023 at 06:05 pm
The implementation of the 2023 budget, which amounts to N21.8 trillion, is facing a serious threat due to a significant shortfall in crude oil output. In August 2023, Nigeria experienced a decrease of 470,000 barrels per day (bpd), which accounts for a 29% drop from the budgeted benchmark of 1.69 million bpd.
At the current global market price of $92 per barrel, this 470,000 bpd deficit translates to a daily loss of $43.2 million, or roughly N32 billion based on the Central Bank of Nigeria’s exchange rate of N742.10/$. The budget was originally based on a projection of 1.69 million bpd, priced at $75 per barrel, with an exchange rate of N437.57/$, anticipating a revenue generation of N2.29 trillion from the oil sector in 2023.
However, according to the September Monthly Oil Market Report (MOMR) from the Organisation of Petroleum Exporting Countries (OPEC), Nigeria’s actual production was 1.2 million bpd, excluding condensate. This fell significantly short of the nation’s production quota of 1.8 million bpd.
The primary reason cited for this shortfall is crude oil theft, which has impeded Nigeria’s ability to meet both its budgeted benchmark and OPEC quota. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) also reported that the nation fell short of its set target, producing 233,531 bpd of condensate.
This development has raised concerns among various stakeholders. Mazi Colman Obasi, the National President of the Oil and Gas Service Providers Association of Nigeria, noted that while the high crude oil prices could mitigate the negative impact of low output, the nation is currently facing challenges in subsidizing fuel imports due to rising global prices of refined petroleum products.
Shell Companies in Nigeria also acknowledged the severity of oil theft, highlighting how it had impacted their operations. The company declared force majeure in March 2022 due to a significant decline in crude receipts at the Bonny Oil and Gas Terminal.
Several experts have weighed in on the situation, emphasizing the need for immediate action. Prof Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria, stressed the worrisome nature of the development and called for a decisive approach to tackling crude oil theft. David Adonri, Executive Vice-Chairman at HIGHCAP Securities Limited, argued that the targeted budget of 1.69 million bpd was unrealistic, and suggested that the budget should be adjusted with caution.
Tajudeen Olayinka, CEO of Wyoming Capital and Partners, pointed out that the reduction in oil production would affect the dollar component of the Federal Government budget and could worsen the dollar liquidity challenge in the foreign exchange market. Capt Tajudeen Alao, President of the Nigerian Association of Master Mariners, emphasized the importance of transparency and strict measures in the oil sector, advocating for the protection of oil assets and engagement with communities in oil-producing areas.
In conclusion, the shortfall in oil production is a critical issue that requires immediate attention and concerted efforts to combat crude oil theft and enhance production capacities. The Nigerian government must also consider diversifying revenue sources to reduce dependence on crude oil in its budgeting process.
