Nigeria fails to meet budget 2013 crude oil production
In early March this year when BusinessDay Research published its “2013 budget: facts behind the figures”, we had warned: “A major revenue risk facing Nigeria in 2013 will be achieving and sustaining crude oil production of 2.562 million barrels a day. Insecurity still remains a major challenge in the oilfields of the Niger Delta with pipeline vandalism reaching new heights. In the last five months of 2012, the NNPC noted that there were about 774 pipeline vandalisms affecting oil supplies. Pipeline vandalism is fuelled by oil theft in the Niger Delta, which is said to average 150,000 barrels daily.”
We also stated that “the crude oil production assumption contained in the 2013 budget was never achieved in 2012”. Quoting agency report, we noted: “Nigeria attained its highest oil production volume of 2.19 barrels per day in six months in February 2013. The agency report had disclosed that the last time Nigeria surpassed that volume was in August 2012 with a daily production of 2.27 million barrels. Both of these figures are about 250,000 barrels a day below Nigeria’s 2013 budget crude oil production benchmark of 2.562 million barrels a day. A key risk is increasing loss of market share for Nigerian crude in the US market which has been the major destination for Nigerian crude. US crude oil production is expected to hit highest level this year putting further pressure on Nigeria’s crude oil exports.”
Interestingly, five months into the year, our fears that Nigeria will never achieve the ambitious projections contained in the 2013 budget have materialised. Data from the Central Bank of Nigeria shows that Nigeria’s crude oil production has been on a steady decline since January 2013. The highest crude oil production achieved by the country this year was in January when crude oil production was at 2.09 million barrels per day. By May 2013, Nigeria’s crude oil production had dropped to a year low of 1.94 million barrels per day, a decline of 7.18 per cent.
On the average, BusinessDay Research analysis shows that Nigeria has been suffering a shortfall of 518,000 barrels of crude oil per day since the beginning of the year compared to its 2013 budget production assumption of 2.53 million barrels per day. Using the budget assumption figures, Nigeria’s crude oil production should average 75,900,000 barrels per month, assuming a 30-day month. However, the CBN data shows that production figures have never exceeded 65,000,000 barrels per day leading to an average monthly shortfall of 15,158,000 barrels.
Our analysis also shows that if Nigeria’s crude oil production assumption had been met, crude oil production would have hit 379,500,000 barrels for the first five months of the year. However, actual crude oil production in the first five months of the year was 303,710,000 barrels leading to a shortfall of 75,790,000 for the period. The implication of this is a revenue shortfall of $8.41 billion or an average of $56,084,600 per day for the first five months of this year, an amount equivalent to 83 per cent of the 2013 capital budget.
BusinessDay Research analysis also shows a steady decline in crude oil exports in the first five months of the year with crude oil exports hitting a year low of 1.49 million barrels per day in May 2013, down by 10 per cent from 1.64 million barrels of crude oil exports at the beginning of the year. Based on the 2013 budget estimate, the country should be exporting an average of 2 million barrels of crude oil per day.
With an average revenue loss of $8.41 billion in the first five months of the year, the country may lose as much as $20 billion in crude oil revenues by the end of the year if the current trend of under-production continues. This is almost thrice the country’s $7.9 billion external borrowing plan between 2012 and 2014 under the medium-term expenditure framework and enough money to generate a minimum of 20,000MW of electricity, Nigeria’s biggest challenge.
The declining crude oil exports and production at a time of averagely high crude oil prices should be of great concern to the Nigerian government. With the developments in the global crude oil industry, like the USA’s increasing production of shale oil and gas, reported massive reserves of shale gas in China, the imminent end to quantitative easing which could lead to a significant fall in crude oil prices, the Nigerian government should be concerned that it is not ramping up production at the time it should be doing so.
The irony is that the government is borrowing heavily at a time it should be buoyant. Fortunately, the government is able to borrow cheaply because of the high price of crude oil which has masked the obvious fact that the fortunes of the crude oil industry is deteriorating very fast. The underlying risk in the government’s current revenue management strategy will easily be seen if crude oil prices fall and stay low for any length of time.
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Editor, BusinessDay Research Unit
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