Nigeria’s Oil Production Miss to Temper GDP Growth –Analysts
Nigeria’s oil production volume has been underperforming target sets for the preparation of fiscal spending, thus leading to fiscal slippage while the government swings to a borrowing spree.
Africa’s largest economy by a gross domestic product depends largely on hydrocarbon revenue to drive economic growth.
Oil export receipts account for the largest chunk of Nigeria’s budget spending, though global prices have been high, there has been a lower inflow into the nation’s external reserves which remains below $40 billion psychological mark despite the Eurobond raise.
IEA Cuts Nigeria’s Sustainable Output
The International Energy Agency (IEA) cut Nigeria’s sustainable oil production volume by 200,000 barrels per day from about 1.5 million barrels per day to around 1.3 million barrels per day. This is expected to impact revenue generation.
The agency attributed the cut to persistent technical and operational issues such as pandemic-related disruptions, sabotage, and theft. Based on the estimate, sustainable output implies a production level that can be reached in 90 days and maintained for some extended period.
Since the beginning of the year, oil production volume has remained behind the Organisation of the Petroleum Exporting Countries (OPEC) quota for seven months straight. The development cast doubt on the possibility of meeting gross domestic product growth expectations in 2022.
Rising headline inflation, high unemployment and insecurities have already taken a toll on corporate business performance across the sphere. Stanbic IBTC purchasing manager index produced by S&P Global has consistently indicated the private sector performance is trending below the pre-pandemic period.
While there has been recovery, future growth performance is facing downsides especially as government oil revenues track behind budget. In a recent report, Nigeria’s crude oil production (including condensates) reversed June’s uptrend, creating more headaches for the oil sector.
According to the recently released data by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) declined by 6.4% month on month to 1.31 million barrels per day in July from 1.40 million barrels per day in June 2022.
Rising oil theft has been an issue in revenue generation coupled with low investment in crude oil infrastructure amidst non-performance in Nigeria’s outdated refineries. Cordros Capital analysts said in a note that predictably, the persistent low crude oil production volume reflects the lingering pass-through impact of infrastructure decay, massive theft and vandalism.
Growing numbers of international oil companies are also in divestments mood, given the challenging business environment amidst the shift to cleaner energy sources. READ: Compensation Plans for Oil Cut: OPEC+ sets Deadline for Nigeria, Others
In July, crude oil production declined significantly across the Brass which declined by 58.8% from the record seen in June, Forcados dropped off 24.2%, Bonny underperformed by 21.8% and there was a 10.2% decline in Bonga production terminals.
“The consistent low crude oil production volume suggests that the oil GDP could drag overall growth in 2022 amidst the continued resilience of the non-oil sector”, Cordros Capital said.
Overall, analysts said they do not expect a significant improvement in crude oil production over the short term, given the nature of challenges hampering production. Despite the rally in crude oil prices, Cordros Capital analysts expect the government’s oil revenue performance to remain underwhelming over the short-to-medium term.
In its latest report, OPEC and allies have revised downward global oil demand growth in the second half of 2022 by 300,000 daily barrels to 3.1 million barrels per day stemming from expectations of a resurgence of COVID-19 restrictions and ongoing geopolitical uncertainties. # Nigeria’s Oil Production Miss to Temper GDP Growth –Analysts