The petrol subsidy to be incurred by the Nigerian government this year looks set to outpace its budgeted oil revenue of N3.36 trillion as global oil prices are expected to remain at record highs.
Goldman Sachs, on Tuesday, raised its price forecasts for Brent, the international oil benchmark, saying the world could be facing one of “largest energy supply shocks ever” because of the Ukraine crisis. It increased its 2022 Brent spot price forecast to $135 per barrel from $98 and its 2023 outlook to $115 from $105.
Barclays and Rystad Energy said Brent could rise to $200 if Europe and the United States banned Russian oil imports.
“With slowing oil production and increasing subsidy, Nigeria’s oil revenue will not be enough to pay oil subsidy if the present scenario continues in the global market,” Sheriffdeen Tella, a professor of economics at Olabisi Onabanjo University, Ogun State, told BusinessDay.
Brent, against which Nigeria’s oil is priced, jumped to $139 per barrel on Monday, its highest level in over 13 years, as Western nations weighed an embargo on crude oil from Russia, the world’s second largest exporter.
On Tuesday, the United States announced a ban on Russian oil and other energy imports, in retaliation for the invasion of Ukraine. President Joe Biden said Russian oil would no longer be acceptable in US ports.
“At some point, we might use all of our oil revenue to pay for subsidy, which will still not be enough,” Tella warned.
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Brent stood at $131.0 per barrel as of 7:57 pm Nigerian time on Tuesday, more than double the $62 oil benchmark price in the 2022 budget, translating to a potential increase in oil revenue for Nigeria.
“The money is unpredicted revenue and will not hit its full potential due to subsidy,” Akpan Ekpo, professor of economics and public policy at University of Uyo, said.
In 2021, Africa’s biggest economy planned to generate a total oil revenue of N2.01 trillion, but was only able to earn N970 billion (less than 50 percent) as of November 2021.
If Nigeria’s actual revenues and subsidy bill look anything like what they have consistently done in the past five years, the country may use all of its 2022 proposed revenues of N3.36 trillion to pay subsidies, analysts say.
“The 2022 figure would be the highest on record, surpassing anything that Goodluck Jonathan paid. Nigeria is in a deeper financial hole than it has ever been, and the only thing the government has done is to dig even deeper,” Cheta Nwanze, a partner at SBM Intelligence, an Africa-focused geopolitical firm, said in a note.
Analysts at CSL Stockbrokers noted that the increasing oil prices implied an increase in the landing cost of petrol and an increase in subsidy payments.
“The Federal government has earmarked a sum of N3trn for subsidy payments in 2022. If oil prices continue to rise, the figure stands to increase substantially,” they said in a note.
Under the watch of President Muhammadu Buhari, who also doubles as minister of petroleum, Nigeria has spent over N6 trillion trying to keep the price of petrol cheap for its 200 million people.
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