Nigeria’s hope for a stable implementation of the 2024 budget is being threatened as oil production remains stuck at 1.4 million barrels per day (bpd) – a far cry from the 1.78 million bpd projected in the budget.
Oil revenue is the lifeblood of the country’s budget, as it finances everything: education, healthcare, infrastructure development and public sector salaries.
Data sourced from a monthly report by the Organisation of Petroleum Exporting Countries (OPEC) showed Nigeria’s crude oil production declined by 3,000 bpd to 1.419 million bpd in January from 1.422 million barrels per day in December.
“With less oil flowing, the government faces tough choices: slash spending, hike taxes, or borrow heavily,” Adeola Adenikinju, a professor of energy economics and president of the Nigerian Economic Society said.
“Each option carries its own set of risks, potentially impacting growth, fueling inflation, and straining an already burdened population,” Adenikinju added.
OPEC’s data showed Nigeria’s rig count, which depicts the level of oil production activities by operators, averaged 15, in January 2024, a sharp decline from 35 in 2018.
Jim Orife, former general manager of Nigerian National Petroleum Company (NNPC) Ltd, said there was little or no strategy for implementing any energy plan policymakers had drawn up in the last ten years.
“We have remained in the same spot if you ask me. We are not unlocking anything,” Orife, a foundation staff member of NNPC in 1977, said at the recent National Association of Petroleum Explorationists conference.
According to Austin Avuru, executive chairman of AA Holdings, Nigeria’s oil industry faces a stark reality check, as it needs 45 new rigs to reach “normal” production levels of 2.1 million barrels per day (bpd).
“To arrest the natural decline and add 800,000 barrels per day over two years will require 426 wells, including 106 exploration and appraisal wells as well as 320 development wells,” Africa Oil & Gas Report, an energy intelligence publication, quoted Avuru as saying.
“For this, 45 rigs must be on duty, so the country needs an investment of $7.6 billion in oil well costs alone.”
Experts warn that the situation could further strain the nation’s fragile economy.
The International Monetary Fund recently said stalled per-capita growth, poverty and high food insecurity have exacerbated the ongoing cost-of-living crisis in Nigeria.
The report came amid rising inflation, an exchange rate crisis, weak economic growth and business shutdowns.
“Nigeria faces a difficult external environment and wide-ranging domestic challenges. External financing (market and official) is scarce, and global food prices have surged, reflecting the repercussions of conflict and geo-economic fragmentation,” the global lender said in a new report titled ‘IMF Executive Board Concludes Post Financing Assessment with Nigeria.’
IMF added, “Per-capita growth in Nigeria has stalled, poverty and food insecurity are high, exacerbating the cost-of-living crisis. Low reserves and very limited fiscal space constrain the authorities’ option space. Against this backdrop, the authorities’ focus on restoring macroeconomic stability and creating conditions for sustained, high and inclusive growth is appropriate.”
According to data from the Debt Management Office, Nigeria currently owes the IMF $2.8bn. The Federal Government, in its 2024 budget plans to spend about N8.2trn on debt servicing.
In a new report, professional services firm PricewaterhouseCoopers warned that Nigeria’s rising debt service costs might affect the country’s debt servicing ability, credit rating outlook and borrowing cost.
PwC said debt service could rise from N8.25tn in 2024 to N9.3tn in 2025 and further to N11.1trn in 2026.
