Nigeria’s crude oil production has witnessed its second consecutive monthly decline, dropping to 1.231 million barrels per day (mbpd) in March, as reported by the Organisation of Petroleum Exporting Countries (OPEC) in its latest Monthly Oil Market Report for April 2024. The decrease was attributed to reduced production compared to February figures, with data showing a drop from 1.322 million barrels per day to 1.231 million barrels per day, a decline of 91 mbpd.
Ironically, this production decline in Nigeria is being experienced at a time when a number of factors on the global scene are conspiring to push up prices of the commodity while curtailing its supply in the world market. Specifically, oil prices have been rising as heightened tensions in the Middle East raised the risk of supply disruptions from the oil-producing region. On Friday, April 12, Brent crude futures climbed 75 cents, or 0.84%, to $90.49 a barrel by 0630 GMT, while U.S. West Texas Intermediate crude futures rose 87 cents, or 1.02%, to $85.89, according to OPEC market monitor.
Average monthly Brent crude oil price in the last quarter 2023 had hovered between $70 and $75 per barrel; this figure sharply rose to $85 by end-March 2024. And since April, it has been rising higher on a daily basis, hitting over $90 per barrel in the third week of the month. The face-off between Israel and Iran, which escalated in recent times has unwittingly added to the upwards drivers of crude oil prices. Note that Iran is the third-largest producer in the Organization of the Petroleum Exporting Countries, according to Reuters’ data, and its conflict with Israel certainly has the potential for supply disruptions in the entire Middle East.
However, while this tension in the Middle East is playing out, Nigeria and its oil sector are bogged with a myriad of issues and challenges. These problems are such that, although the first quarter of 2024 saw an average crude oil production of 1.327 mbpd, an improvement over the 1.313 mbpd average in the fourth quarter of 2023, many challenges persist in depressing production levels. Factors such as oil theft and pipeline vandalism continue to hamper Nigeria’s oil output, resulting in disruptions and falling below OPEC-approved volumes. Recent reports from the Nigerian National Petroleum Company Limited (NNPCL) underscore the severity of the situation, with 155 oil theft incidents recorded in just one week.
The incidents included illegal pipeline connections, discoveries of illegal refineries, and arrests related to oil theft across various locations in the Niger Delta region. The menace of oil theft has not only affected production but has also inflicted significant environmental damage, with clusters of illegal refineries and oil spills observed in affected areas.
Despite ongoing efforts by the national oil company to combat crude oil theft, the problem persists, leading to substantial financial losses for Nigeria. This loss is more so now that the Israeli-Iran conflict is aiding in inducing rapid rise in the prices of crude oil in the global market—to levels that could provide windfall to many oil nations. But, for Nigeria, data presented by the Nigeria Extractive Industries Transparency Initiative (NEITI), shows the country recorded 7,143 cases of pipeline breakages and deliberate vandalism between 2017 and 2021, resulting in crude oil theft and product losses valued at N4.325 trillion. This trend has not changed, unfortunately.
The situation poses a grave threat to Nigeria’s oil exploration and exploitation efforts, impacting economic growth and business prospects while undermining the profitability of oil companies operating in the region. In point of fact, Angola has overtaken Nigeria as the biggest oil producer/exporter in Africa, according to OPEC reports. While OPEC allotted quota for Nigeria is about two million barrels per day, the country’s oil production has kept hovering at about 1.30 million barrels per day.
This is a huge gap and real threat to Nigeria’s N28.75 trillion 2024 Appropriation Act, which is hinged on oil production level of 1.78 million barrels per day. The first quarter of the year has gone, with the country very far away from both its production benchmark for the year as well as the allotted OPEC quota. At the same time, many International Oil Companies (IOCs) operating in the country have remained determined to dispose off most of their (land-based) assets—and exit Nigeria. All these go to whittle down both oil discovery and production volumes—for a country whose economic mainstay is yet crude oil.
To this challenge would be added the incubus inherent in the fuel subsidy removal policy announced by President Bola Ahmed Tinubu on May 29, 2023. Rather than disappear, the ‘ghost’ of the policy has wreaked a lot of havoc on the Nigerian economy in the last ten months or so. Specifically, the inability of the Government to have promptly developed local refining capacity, and continued dependence on importation of almost 100% local need of petrol (Premium Motor Spirit, PMS) hit the economy hard in various ways.
Massive importation of PMS implied much demand for dollar in the forex market; the continued importation also induced increase in the pump price of PMS—as the landing cost of the imported refined products kept rising. To ‘stabilise’ the market as it were, and not worsen endlessly the economic pains of Nigerians, Government is believed to have ‘secretly’ resorted to subsidy payment. This speculation was recently validated by the Chief Executive officer, CEO, Rainoil Limited, Gabriel Ogbechie, when he said “the federal government now spends N600 billion on petrol subsidy monthly.”
Speaking during the Stanbic IBTC Energy and Infrastructure Breakfast Session in Lagos, Ogbechie, said the federal government resumed petrol subsidy following the devaluation of the naira in the foreign exchange (FX) market. He said with the current daily consumption at 40 million litres and the foreign exchange rate at N1,300, the government’s subsidy per litre on petrol falls between N400 and N500.
The Rain Oil boss said: “if you look at what our daily consumption say, conservatively, 40 million litres per day; if you are spending N500, that is at least N20 billion every day; N600 billion every month or N7.2 trillion depending on how you look at it, So, subsidy is definitely back on petrol.” Ogbechie said the Nigerian National Petroleum Company (NNPC) Limited being the only petrol importer in the country proves the continued existence of subsidy. Recently, too, the former governor of Kaduna State, Nasir el-Rufai, also said the federal government was spending more on petrol subsidy than before.
In the face of this ‘return of subsidy’, constrained or declining oil production and non-functional local refineries, budgetary projections for 2024 are fast becoming unrealizable. This is more so with ‘secret initiatives’ that have been eating up the nation’s stock of external reserves in recent months. The apex bank, the Central Bank of Nigeria (CBN) has denied vehemently that it has been using part of the reserves in funding the forex market. This strident denial by the boss of the Bank, Olayemi Cardoso, goes to complicate the prospects of the Nigerian economy.
The CBN is getting soaked in the culture of secrecy over its monetary policies—particularly with respect to the strengthening of the Naira in the foreign exchange market in recent times. The big question remains: how is the CBN sourcing the dollar for funding the forex market? Unwittingly, as the Naira is getting stronger against the dollar, the apex bank is losing the much-needed confidence of the investor, other stakeholders and indeed, the general public. No economy thrives on secrecy.
Similar question goes to the NNPC: how is the current round of oil subsidy being funded? The secrecy surrounding it is a serious cause for worry in the polity; this is because the memory of the very ugly past regarding oil subsidy is still very much with most Nigerians. And this is why the Federal government must expedite action in seeing that many of the local refineries in the pipeline commence production in no time. The modal refineries that are known to have been under construction in several locations across the country must be encouraged to go life. The same for the much-talked –about Dangote Refineries that is believed could be the game changer (in the Nigerian economy). The economy really badly needs jumpstarting!
- The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: obioraokeke2000@yahoo.com