Economy: New borrowing underway as oil production, reserves dwindle.
Widening deficits, poor crude oil production, rising subsidy payments and lingering foreign exchange challenge appear to be compounding Nigeria’s revenue problems, making borrowing the last resort for the Federal Government in financing the N16.39 trillion 2022 budget.
Unable to take advantage of higher oil prices, the call by some major oil consuming nations to release their strategic reserves to check high prices is expected to further reduce projected income from an oil rally, despite low production.
Indeed, oil traded below $80 after the calls to release reserves.
Currently, crisis-rocked Libya has ousted Nigeria as Africa’s leader in terms of crude oil production and reserves. Fresh indications emerge that Nigeria may never increase its daily oil production to four million barrels and reserves to 40 billion barrels as divestment and net-zero goals lay siege to the sector.
President Muhammadu Buhari had earlier this year reiterated the ambitious goal of ramping up crude oil production to at least four million barrels per a day, and building a reserve of 40 billion barrels. However, instead of increasing, the reserves and daily production are on a free fall. Besides, the goal has been a mirage for the past 10 years.
While the 2021 yearly Statistical Bulletin of the Organisation of Petroleum Exporting Countries (OPEC) had shown a drop of 543 million barrels in the crude oil reserves of Nigeria, the country is currently unable to meet its OPEC quota of 1.66 million barrels per day as daily production stands at about 1.2 million slightly below what Libya is pumping.
The reality is a direct opposite of the projection set by the Minister of State for Petroleum Resources, Timipre Sylva; Group Managing Director of Nigeria National Petroleum Corporation (NNPC) Limited, Mele Kyari and the Chief Executive of the Nigerian Upstream Regulatory Commission, Gbenga Komolafe. Increased production and reserves had topped agenda for them and the people they succeeded but prevailing reality is far below par.
As of 2016, when the current administration settled into office, oil reserves were about 37.4 billion barrels but it has fallen to 36.9 billion barrels. Daily production, which almost hit two million barrels, now hovers at 1.2 million.
Recall that the Federal Government is proposing a N16.39 trillion budget with a daily crude oil production benchmark of 1.6 million; the current hurdles meant that the deficit of N6.25 trillion in the budget would increase.
It should also be considered that while the deficit is 3.39 per cent of GDP, it is already higher than the three per cent ceiling set by the Fiscal responsibility Act 2007 (FRA).
WITH projected falling revenue from oil amid subsidy payment, Nigeria’s deficit is expected to be financed by new borrowings, privatisation proceeds and drawdown on loans secured for specific projects, experts at PwC had noted.
By implication, improvement in the value of naira against dollar in the coming year may be dismal, while excess crude account depletion may persist in the face of foreign exchange crisis.
Although hostility by Niger Delta militants against oil production was previously the main challenge against oil production, there has been relative peace in the region.
This implies that Nigeria is now contending with fresh challenges in the oil and gas sector. Some experts attributed the challenges to the growing security tension across the country, divestment by international oil companies and the inability of the new legislation in the sector to spark optimism as the government’s move is being frustrated by the push away from fossil fuel.