Nigeria’s generous budget projection is facing challenges as its main revenue driver, oil prices, is trading below $100 per barrel, setting off warnings about the ability of OPEC countries to fund their annual budgets.
This is as Nigerian oil Production for March averaged 1.93 million barrels a day, according to industry sources who spoke to Businessday off the record.
Oil prices must average $99 this year for the 12 members of the Organisation of Petroleum Exporting Countries (OPEC) to be able to balance their national budgets, says Ali Aissaoui, a senior consultant at the Arab Petroleum Investments Corp or Apicorp.
OPEC will probably cut output if Brent prices keep trading below $100 a barrel because that is less than what many member countries need to balance their budgets, according to Aissaoui.
Brent crude for June settlement fell 95 cents to $98.96 a barrel on the London-based ICE Futures Europe exchange. The front-month contract fell below $100 yesterday for the first time since July. OPEC’s basket price, which represents the group’s export grades, has also fallen below $100.
The National Assembly passed a N4.987 trillion budget for 2013 last December, based on oil production of 2.562 million barrel per day; however the crude oil production assumption contained in the 2013 budget was never achieved in 2012.
The budget is also predicated on a $79 per barrel price which is getting increasingly squeezed as oil prices retreat.
Crude oil exports provide 90 percent of Foreign exchange (FX) earnings and over 70 per
cent of the Federal Government’s budget.
BusinessDay (27 December, 2012) quoting Bloomberg news report disclosed that Nigeria will attain its highest oil production volume in six months of 2.19 barrels per day in February 2013.
The Bloomberg report notes 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.
“Overall output has been close to 2.36 mbpd, which has been short of the budget estimate,” Samir Gadio, an emerging-markets strategist at Standard Bank Group London, said in an e-mail reply to questions. “The same metrics will most likely apply this year,” he added.
The impact of lower oil prices on ability to meet budget projections may already have begun to be felt.
Nigeria withdrew a second $1 billion from the excess crude account ECA to distribute to its three tiers of government for projects this month, reducing the balance to $6.82 billion.
This was after President Goodluck Jonathan in January approved the transfer of $1 billion from oil-revenue savings in the ECA to be shared by the country’s 36 states and Federal Government.
Funds from the ECA – which currently keeps the excess oil earnings over the budget benchmark – are often used to augment shortfalls in monthly revenues from the federation account.
“If Dated Brent slips further, this would shift the futures market from a long period of backwardation to a contango position, thereby encouraging the accumulation of inventories in the physical markets,” Aissaoui said yesterday in an e-mailed note.
Nigeria, is expected to boost crude exports to 76 cargoes in May, according to a final loading program obtained by Bloomberg News.
That compares with 66 shipments due to be exported this month, according to a revised plan for April.
The May program totals 65 million barrels, or 2.1 million barrels a day, versus 60.2 million, or 2 million a day, scheduled for April.
That is still below the 2.562 million barrel per day crude oil production assumption for the 2013 budget.
There have also been reports of Nigerian crude cargoes remaining unsold due to reduced European refining margins and rising U.S. shale oil output.
Sales of Nigerian crude to the U.S. fell to the lowest in 27 years in 2012.
The 2013 budget already has a deficit projection of N887 billion (US$5.69 billion), which is to be financed from, governments domestic borrowing, a planned $1.0 billion eurobond issue in 2013 and proceeds from the privatisation of power assets.
OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
PATRICK ATUANYA
