Federal Government Struggles to Attain 650 Million Barrels Target Amid Challenges with Crude-Backed Loans
Nigeria may face challenges in achieving its projected oil production targets for 2024, leading to a potential shortfall of about 138 million barrels, valued at $10.73 billion.
President Bola Tinubu’s budget for 2024 is based on an optimistic outlook for the oil and gas sector, projecting an increase in revenue from N2.23 trillion in 2023 to N7.69 trillion in 2024, representing a 344% increase. However, concerns arise as oil production is anticipated to reach 1.78 million barrels per day, compared to the current 1.250 million barrels, amid uncertain prices.
The projection of 1.78 million barrels per day suggests that Nigeria will produce 649.7 million barrels of crude in 2024. However, historical analysis and industry stakeholders suggest that a more feasible average is around 1.4 million barrels per day. This raises the possibility of a deficit of about 400,000 barrels per day or 138 million barrels annually.
The lack of transparency in oil production data, ongoing theft and vandalism, divestment by major oil producers, and fiscal challenges contribute to the difficulty in meeting ambitious production targets. The continuous reliance on oil revenue, despite attempts to diversify the economy, raises concerns among stakeholders.
The 2024 budget’s oil production benchmark is set at 1.7 million barrels per day, but projections indicate that Nigeria’s oil production may average around 1.4 million barrels per day. This potential shortfall in production could impact the country’s revenue and foreign exchange earnings.
Nigeria must address the underlying challenges in the oil and gas sector, such as theft, vandalism, and the need for increased investment, to ensure realistic budget projections and sustainable economic growth.
“It has come to a time in Nigeria when we don’t need to fool ourselves. The price and the oil production outlook are not realistic,” the source said
Ajibade Fashina, the Managing Partner at Kreston Pedabo, has expressed concerns about the feasibility of the oil outlook in the 2024 budget, particularly considering the downward trend in oil prices. The continuous decline in oil prices, coupled with uncertainties in the global oil market, poses challenges for the revenue projections based on oil and gas in the budget.
Oil prices are influenced by various factors, including global demand, geopolitical events, and production levels. Given the volatility in the oil market, projecting a significant increase in revenue from oil and gas may be ambitious. Fashina’s comments highlight the need for realistic and conservative budgeting, considering the unpredictability of the oil sector.
Nigeria must diversify its economy and explore alternative revenue sources to reduce dependence on oil. Sustainable economic growth requires addressing structural issues and implementing policies that promote a more diversified and resilient economy.
“The implication of this development for the economy is that if the projected oil production and price are not met, it could lead to a significant shortfall in government revenue. This could impact the ability to fund critical sectors such as infrastructure development, healthcare, education, and social welfare programs. It may also lead to increased borrowing and a higher national debt burden,” he said.
Ajibade Fashina, the Managing Partner at Kreston Pedabo, emphasized the need for Nigeria to diversify its economy away from crude oil. He expressed concerns about the country’s over-reliance on oil, which exposes the economy to the volatility of global oil prices, geopolitical tensions, and environmental concerns.
Fashina highlighted that diversification is crucial for reducing vulnerability to oil price fluctuations and creating a more sustainable and resilient economy.
He suggested various sectors for diversification, including agriculture and agribusiness, manufacturing and industrial development, solid minerals, tourism, renewable energy, and information and communication technology.
Prof Adeola Adenikinju, the President of the Nigerian Economic Society, acknowledged that the projection targets in the budget could be realized, but OPEC quotas and insecurity related to oil theft might pose challenges. He emphasized the need for the government to engage with OPEC and address security issues in the Niger Delta.
Adenikinju expressed concern about the volatile nature of oil prices and the threat posed by the divestment of oil companies due to climate change. He stressed the importance of prioritizing diversification, even within the oil industry and exploring untapped aspects of the sector.
Renowned energy scholar Prof Wunmi Iledare commented on the budget’s oil price projections, noting that they align with the crude oil price outlook for 2024, where multiple predictions indicate around $77 per barrel. However, he expressed skepticism about the production assumption, deeming the budget too optimistic. Iledare suggested that the production target is wishful thinking and may face challenges in realization.
“Permit me to say that the crude oil production assumption of 1.78 million barrels per day in 2024 is daydreaming and it makes the 2024 budget rather too optimistic, in my opinion.
“Growing production from 1.250 million bpd to 1.780 million barrels per day within the next three to six months is a tall order even if the global market supports it. But the projected target seems less likely than not, but time will tell,” Iledare said.
Prof. Wunmi Iledare raised concerns about the economic growth assumption of 3.76% in the budget, stating that historical growth records do not support this optimistic projection. He labeled the assumption as unrealistic, emphasizing the need for a more pragmatic and feasible growth target.
Iledare also highlighted potential challenges with the budget deficit, suggesting that it could be significantly higher than currently projected. He emphasized the importance of the government cutting unnecessary expenditures and implementing fiscal discipline to address the budget deficit effectively.
Prof. Segun Ajibola, a former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of Economics at Babcock University pointed out factors that could impact oil production, including pipeline vandalization, oil theft, disharmony between International Oil Companies (IOCs) and host communities, and a hostile operating environment.
These concerns underscore the importance of a realistic and comprehensive approach to budgeting, taking into account historical trends, potential challenges, and the need for economic diversification. Addressing these issues is crucial for achieving sustainable economic growth and fiscal stability in Nigeria.
Ajibola said: “Unless and until these challenges are fully tackled, actual oil production and export may continue to fall below the OPEC quota. And of course, this has dire consequences for the implementation of the 2024 budget as oil accounts for about 60 percent of government revenue and 90 percent of foreign exchange earnings.”
Prof. Segun Ajibola emphasized the challenge posed by Nigeria’s monolithic economic structure, where there is an over-reliance on oil as the primary revenue source. He acknowledged that the fortunes of the global oil market are beyond the control of a single player like Nigeria. In the face of any adverse occurrence in the global market, creates problems for countries like Nigeria and endangers the fiscal budget.
This highlights the vulnerability of Nigeria’s economy to external factors, such as fluctuations in oil prices, geopolitical tensions, and global market dynamics. The need for economic diversification becomes apparent as a way to reduce dependence on oil and create a more resilient and sustainable economic framework.
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“The way out is structural reforms through diversification. The agriculture sector needs to be faithfully rebranded. The industrial sector is yearning for a new lease of life. More efforts need to be deployed to the upcoming areas such as tourism, hospitality, information technology, and arts and crafts, among others to lessen the burden on the oil sector.
It is high time Nigeria reworked her import substitution, export promotion, and other allied strategies initiated from independence to date but with minimal results and impact on the economy,” he said.
