Is oil taking Nigeria out of recession?
Nigeria’s plan to ramp up crude production by additional 700,000 barrels to achieve a 2.5million barrels per day production next year helped Gross Domestic Production (GDP) achieve 1.9 percent growth year-on-year, in real terms, continuing a positive run since the economy crawled out of recession in the second quarter of 2017.
Additional volumes of 700,000 barrels a day will come from the NNPC, independents, and oil majors. Key indigenous oil producers Aiteo, Shoreline, and Seplat are adding additional volumes of 250,000 (bpd) by the end of 2020 raising hope of better economic performance.
“Oil took us into recession, and we need oil to get out of recession,” says Olusegun Zacchaeus, senior manager, management consulting at KPMG Nigeria, in a presentation at an economic outlook summit organised by Franco-Nigerian Chamber of Commerce and Industry on February 13.
Data from the Nigerian Bureau of Statistics (NBS) released last week said the nation’s Gross Domestic Product (GDP) grew in Q4 2017 by 1.92 peercent (year-on-year) in real terms, maintaining its positive growth since the emergence of the economy from recession in Q2 2017.
“In the period under review, oil production averaged at 1.91million barrels per day (mbpd), 0.12million barrels lower than the daily average production recorded in the third quarter of 2017. Oil production during the quarter was higher by 0.15million barrels per day relative to the corresponding quarter in 2016, which recorded an output of 1.76mbpd,” said the report.
Nigeria has about a dozen local oil producers pumping between 5,000 and 100,000 barrels each day. Together, they plan to add incremental supply of at least 150,000 barrels a day this year. Aiteo E & P Ltd., Nigeria’s largest independent, Shoreline Group, the third-biggest independent, want to double output by December with Seplat Petroleum Development Company, the second-largest, also intending to produce more.
Analysts at Renaissance Capital said Nigeria’s oil’s sector grew by 4.3 percent in 2017, after contracting for five years. “This decline explains the fall in the sector’s contribution to GDP, to 8.6 percent in 2017, versus 15 percent in 2011, when we last saw growth in the sector. Peak oil production in the past 10 years was 2.4Mb/d in 2010 and 2011, following a 2009 amnesty deal that the late President Umaru Yar ‘Adua’s administration offered to Niger Delta militants, which led to a cessation of attacks on oil facilities.
“Illegal oil bunkering during President Goodluck Jonathan’s 2011-2015 term reversed this recovery. However, it was the resumption of attacks on oil facilities, when President Muhammadu Buhari came into office that led to the biggest fall in production in a decade, 1.5Mb/d in August 2016. Production has since recovered to 1.9Mb/d on the back of a new amnesty deal, hence the sector’s growth in 2017 for the first time since 2011.
According to the NBS, real growth of the oil sector was 8.38 percent (year-on-year) in Q4 2017 and this represents an incline of 26.08 percent relative to rate recorded in the corresponding quarter of 2016. Growth reduced by -17.50 percent when compared to Q3 2017 which was 25.89 percent and when reviewed on quarterly basis, the oil sector dropped by -25.52 percent in Q4 2017.
The annual growth of the oil sector stood at 4.79 percent higher than the previous year’s growth of -14.45 percent. The oil sector contributed 7.17 percent of total real GDP in Q4 2017, up from figure recorded in the corresponding period of 2016 and down from the preceding quarter, where it contributed 6.75 percent and 10.04 percent respectively. The sector’s annual contribution was 8.68 percent in 2017 and 8.35 percent in 2016.
This trend is shaped by oil price and production. Oil prices have risen to nearly 3-year high of $70 per barrel and production has shot up to 1.8million barrels per day, which is the reason the country emerged from a recession.
ISAAC ANYAOGU