FG shifts to cautious mode on 2023 oil projections

The Federal Government is pegging the 2023 budget on an oil price benchmark of $70 per barrel and a daily oil production capacity of 1.69 million barrels, estimates that appear cautious but may be unrealistic, analysts say.

Zainab Ahmed, minister of finance, budget, and national planning, said Monday that the Federal Government plans to spend N19.76 trillion in 2023, a 15.37 percent increase from the amount earmarked in 2022.

Ahmed said the government is projecting total revenue of N8.46 trillion, out of which N1.9 trillion is expected to come from oil-related sources while the remaining balance is to come from non-oil sources.

Last year, the government pegged the oil benchmark at $62 per barrel with the projected oil production put at 1.88 million barrels per day (bpd).

But these estimates fell off the mark as crude theft and lack of investments in the sector bogged down production.

Since January, Nigeria has been unable to raise production above 1.3 million bpd, making it unable to meet its OPEC quota. Angola has overtaken Nigeria as the continent’s leading oil producer for the past three months.

Analysts say this reality may have informed the shift towards cautious estimates in 2023 but challenges remain.

“With the massive crude oil theft going on in the industry, that production estimates might just be on paper,” said Chinwendu Enechi, an energy analyst and partner at Andersen in Nigeria.

Enechi said that for the Nigerian oil sector to meet the government’s projection, the Federal Government has to deal with huge volumes of crude stolen in the Niger Delta.

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“The $70 benchmark price per barrel of crude oil is prudent as the actual outturn for 2023 is likely to be higher than $70,” Taiwo Oyedele, fiscal policy partner and Africa tax leader at PwC, said. “The projected daily production of 1.69m bpd is however ambitious given the declining investment in the sector required to boost production.”

Following reports of the seizure of a 3-million barrel oil capacity vessel that fled the Nigerian shores for Equatorial Guinea, the Nigerian Navy, whose duty it is to protect oil resources over the waters, has refuted claims of industrial-scale crude theft in the Niger Delta region.

“Crude oil production challenges and PMS subsidy deductions by NNPC constitute a significant threat to the achievement of our revenue growth targets; as seen in the 2022 Performance up to April,” said Ahmed.

The projected deficit for the 2023 budget stands at N11.30 trillion, 54 percent higher than the previous budget’s estimated deficit, and fuel subsidy is expected to gulp N3.36 trillion in the first six months of the year.

Oyedele called for savings of earnings above benchmark price and said the only feasible way to achieve the projection would be to stop the massive crude oil theft that seems to be going on unabated.

“Without this, it will be virtually impossible to achieve the projected daily production of 1.69 million bpd in 2023,” he said.