Nigeria, Africa’s largest economy is experiencing an oil and gas recession after the sector posted negative growth for two quarters in a row in 2014.
The current value of ‘crude petroleum and natural gas output fell by 15 per cent and 18 per cent in Q3 and Q4 2014 respectively, according to full-year per cent GDP figures released by the National Bureau of Statistics (NBS) this week.
The NBS explained that the oil sector witnessed a combination of “production and price challenges” in both quarters. Average daily oil production in Nigeria is officially 2.2 million barrels per day (mbpd) but an estimated 400,000 barrels are lost daily to leakages, pipeline vandalism and outright theft. In the best of times (2010), production has peaked at about 2.9mbpd.
Oil prices have also tumbled from $115 in June 2014 to an average of $57 per barrel this February.
Twin shocks of production and price have dug a hole in the much-needed funding for Africa’s biggest oil producer and the government is now faced with unpopular decisions of increasing taxes, imposing austerity measures and borrowing, to finance a N4.5 trillion budget, during an election year.
The first signs of a revenue crunch may have emerged at the January edition of the Federal Accounts Allocation Committee (FAAC) meeting.
Accountant-General of the federation, Jonah Otunla, was quoted by wire reports on Wednesday, stating that revenue fell 15 per cent to N416.1 billion in January, compared with N490 billion a month earlier.
The volume of oil exports declined 33 per cent in November and December, resulting in $159.88 million of lost revenue, Otunla said.
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Nigeria has “suffered a substantial loss in revenue as a result of the massive drop in crude oil price at the international oil market,” he said.
Total revenue distributed among the three tiers of government in January amounted to N500.1 billion, including value-added tax and refunds by the Nigerian National Petroleum Corporation (NNPC).
Also this week, the Senate proposed a $52 budget benchmark oil price and $1/N190 exchange rate, compared to the $65 benchmark and $1/N165 exchange rate proposed in December last year.
Wire reports quoted Enyinnaya Abaribe, chairman of the Senate Committee on Information and Media, saying the proposal was due largely to a decline in crude oil prices and was agreed with Finance Minister Ngozi Okonjo-Iweala.
However, the House of Representatives would also have to approve. Parliament is seeking to get the budget approved before the national vote next month, said Paul Nwabuikwu, spokesman for the finance ministry.
The new proposal “will give the country a clearer picture of government revenue projection and allow for a budget that is in line with current crude oil market realities,” according to analysts at Ecobank Transnational Inc, quoted on Bloomberg news.
BusinessDay estimates that the combination of a lower benchmark and adjusted exchange rate would result in a N477 billion haircut on gross revenues.
This compares closely with the N492 billion budget allocation to the education sector, as presented by the Budget Office in December last year. Besides the government, industry players are also feeling the impact of the oil sector recession.
For instance, BusinessDay gathered that the increasing pressure from the plunge in oil prices has adversely impacted marginal field operators in Nigeria, whose fields have yet to start producing either oil or gas, as they now run the risk of losing their licenses next month.
Temilade Esho, oil and gas analyst at Renaissance Capital, reports that only nine out of 30 marginal fields awarded in the country are producing and the Department of Petroleum Resources (DPR) has threatened to revoke licenses of non-performing/producing marginal fields by March 2015.
“This is part of the government’s plan to boost oil production. However, volatile oil prices and infrastructure challenges have made it difficult for operators to raise money to fund the assets,” Esho stated in a research note received by BusinessDay today.
“We see little upside in the oil and gas sector, where we forecast flat production,” says Yvonne Mhango, an economist at Renaissance Capital, sealing the fate of the sector in 2015.
AKIN-OLUSOJI AKINYELE
