Financial Energy Review
Out of the 1.772 million barrels per day crude oil allocated to the country by the Organisation of Petroleum Exporting Countries (OPEC) in June, Nigeria was only able to produce 1.158 million bpd, the latest Monthly Oil Market Report (MOMR) by the organisation has indicated.
At a conservative average price of $110 per barrel for the month, a THISDAY analysis showed that Nigeria’s daily underperformance pegged against the OPEC quota yielded a whopping 614,000 bpd and 19.034 million barrels’ deficit for the month.
A further breakdown revealed that valued against the daily oil price for the period, Nigeria may have lost as much as $2,093,740,000 due to its inability to, for months, increase the country’s production level.
For a country with huge foreign exchange shortages, if the loss had been plugged it would have for a start helped cash-strapped federating units (states and local governments) embark on major projects.
The Nigerian National Petroleum Company Limited (NNPC) has not been able to contribute a kobo to the federation account this year.
Although, month-on-month, the country’s oil production increased by about 134,000 barrels per day, from 1.02 million bpd recorded in May 2022, to the new figure of 1.158 million bpd, according to data by the government, OPEC’s figures showed that it was far from the projection for the period. It was also markedly lower than the production for April, which stood at 1.219 million bpd.
It also almost aligned with data for June released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) which stated that the country produced more than 133,000 bpd, representing a 0.13 percent increase from the May 2022 output.
But despite the huge gap between expected and actual production, the Minister of State, Petroleum, Mr Timipre Sylva, had recently said the gap will be filled by August.
Sylva’s comment came almost a year after similar assurances by the minister and the Group Managing Director of the Nigerian National Petroleum Company (NNPC), Mallam Mele Kyari, that the country will drill enough oil to cover for the deficit by December 2021.
“For us in Nigeria, we are at a low point. We are not able to meet our OPEC quota. We have given ourselves just about a month to ensure that we can … we believe that by August we would see some improvement in security,” Sylva said in an interview.
But the aspiration expressed by the minister remained very ambitious as Nigeria’s production increases remain very uninspiring, slipping to a record low of 1.024 million bpd production in May.
The gap is expected to continue to grow since there appears to be no short term solution to the problem and Nigeria’s OPEC quota has even increased to 1.826 million bpd for the month of August.
Identifying massive theft as one of the reasons for its inability to meet its quota, the federal government had months ago, deployed heavy military presence in the Niger Delta to curb the menace. But even that move has not helped much.
However, it would appear that there’s no shortcut to nipping the prolonged underperformance in the bud, with dipping investment, multiple divestments, operational difficulties and oil theft having been identified as issues bedeviling the sector.
In addition, the country is currently experiencing petrol scarcity due to its inability to refine its fuels in-country, posing a huge blow to the local currency and the economy by extension.
On the economy, the OPEC report stated that despite the improvement in fossil fuel prices, the short-term economic outlook for Nigeria was clouded by high inflation, which it said had reduced private sector optimism and weakened consumer spending.
“In May 2022, the composite CPI rose to 17.7 per cent y-o-y from 16.8 per cent y-o-y in the prior month.
“In response to the elevated inflationary pressures, the Central Bank of Nigeria (CBN) raised its policy rate by 150 bps to 13 per cent, bringing borrowing costs to the highest since April of 2020.
“It was the biggest rate hike since July of 2016 amid concerns that persistent inflationary pressures could weigh on the country’s fragile recovery…pointing to the weakest improvement in business conditions in Nigeria’s private sector since January of 2021.
“Overall, the above-average fossil fuel prices support a firmly positive outlook for the rest of the year, but concerns over soaring inflation would increase uncertainty next year,” the OPEC report stressed.
Tied to the country’s under-production, last week, the NUPRC Chief Executive, Mr Gbenga Komolafe, revealed that Nigeria lost $1 billion in revenue during the first quarter of this year due to crude oil theft, warning that the development was a threat to the economy of Africa’s top producer.
Komolafe noted that of the 141 million barrels of oil produced in the first quarter of 2022, only about 132 million barrels of oil were received at export terminals.
“This indicates that over 9 million barrels of oil were lost to crude oil theft … this amounts to a loss in government revenue of about $1 billion … in just one quarter,” Komolafe added.
