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Oil Production Shortfall May Threaten Naira Recovery — Experts - INDEPENDENT
The recovery of the naira currently being witnessed in the foreign exchange market where the naira is daily appreciating may be short-lived due to shortfalls recorded in oil production since February.
Nigeria’s average crude oil output fell to a three-month low of 1.23mbpd from 1.7mbpd targeted in the 2024 budget projection, thereby threatening the N8 trillion revenue target.
At the weekend, analysts at Afrinvest said, “The April 2024 edition of the OPEC Monthly Oil Market Report (MOMR) and CBN’s new circular on the usage of foreign currency (FCY) as collateral for naira loans both have the potential to impact Nigeria’s quest for a near term fiscal reinvigoration and exchange rate stability.
“To start with, the OPEC MOMR published on Thursday revealed that Nigeria’s daily average crude oil production (excluding condensate) declined by 91,000bpd to 1.23mbpd in March, marking its second consecutive monthly decline since reaching a 24-month peak of 1.43mbpd in January.
“Comparatively, OPEC’s total daily average output has remained on the increase since the start of the year, reaching 26.61mbpd in March from 26.38 and 26.60mbpd in January and February, respectively.”
Examining output levels from other African peers in the review period, it was noticed that Libya’s daily average production rose by 133,000bpd and 63,000bpd to 1.17mbpd and 1.24mbpd in February and March, sequentially.
Similarly, Algeria’s daily average output which fell by 1,000bpd in February, rebounded in March to January’s level of 907,000bpd.
However, looking from the perspective of the potential opportunity cost of the declining crude oil output to Nigeria, analysis by analysts at Afrinvest revealed a baseline value loss of $238.8 million (c.N394.0 billion at N1,650/$) and $214.4 million (c. N287.2bn at N1,340/$) in February and March, respectively, given that OPEC reference crude oil price averaged $81.22 and $84.13 per barrel in February and March as against $80.04 per barrel in January.
“Connecting this to the Federal Government’s optimistic oil & gas revenue and output projections for 2024 – N8.0 trillion and 1.78mbpd – we posit that Nigeria’s quest for a near-term ‘turning the corner experience’ from macroeconomic challenges is hanging in the air, should the declining oil output trajectory continue.
“Interestingly, oil revenue accounts for more than 40.0% of Federal Government’s revenue in the last decade (2024 projection: 43.9%) and it is also the largest source of net dollar inflows ($387.7 billion) between 2014 and 2022.
“We advise that the Federal Government double down on efforts to secure oil assets (short-term fix) and encourage new long-term investments in the upstream and other segments of the oil & gas value chain in order to optimise the economic
benefits of having large hydrocarbon reserves”.
Jude Abdul, an economist, said the shortfall needs to be addressed immediately by the government as soon as possible.
He said, “I am one of those who believe that the ‘magic’ being seen in the foreign exchange market is unbelievable as we can’t really say what was responsible.
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“However, I am of the opinion that whatever that is boosting the market will be hampered by the oil production shortfall and something drastic should be done by the Federal Government.”
To Stephen Iloba, another economist, the shortfall in oil production should be addressed as soon as possible.
He said, “I said it that Nigerians should not rely on the recovery seen in the forex market as it will be premature to do so.
“I don’t think what we see in the forex market is realistic. We are still facing cost-push inflation as increase in the price of domestic or imported inputs (such as oil or raw materials) pushes up production costs.
“Firms are faced with higher costs of producing each unit of output; they tend to produce a lower level of output and raise the prices of their goods and services.
“Seeing all these, the development in the forex market seems irrelevant as things are still very expensive.
“Let me add that we need full disclosure by the CBN about happenings in the foreign exchange market.”
Daily Independent gathered that the Federal Government is aware of the shortfall and or is ready to tackle it.
The Minister of State for Petroleum Resource (Oil), Sen. Heineken Lokpobiri, blamed the crude oil production shortfall in the first quarter 2024 (Q1 2024) on challenges with the Trans Niger Pipeline and the maintenance that some oil companies carried out.
According to Lokpobiri, the Federal Government is intensifying efforts at restoring the production to the previous level of 1.7 million barrels per day and also exceeding it.
He said, “In response to recent concerns regarding a shortfall in oil production in Nigeria during the first quarter of 2024, I want to assure Nigerians that measures are being taken to address the situation to, not only restore production to previous levels, but to also increase it.”
The minister clarified that the reported production shortfall was primarily due to issues encountered on the Trans Niger Pipeline, coupled with maintenance activities carried out by some oil companies operating in Nigeria.
The minister is also pleased to announce that the issues have been adequately addressed, and production is expected to return to its previous levels in the coming days.
He anticipates that Nigeria’s oil production, including condensate, which was approximately 1.7 million barrels per day (bpd) prior to these developments, will soon be restored.
