The naira’s steep rise in recent weeks after hitting record lows has prompted questions about the whereabouts of the petrodollars generated by the Nigerian National Petroleum Company Limited (NNPC).
The state-owned NNPC has traditionally been a key contributor to the country’s foreign exchange reserves, which stood at $32.29 billion as of Monday, the lowest since September 25, 2017.
A series of measures taken by the Central Bank of Nigeria (CBN) including interest rate hikes and the direct sale of dollars to Bureau de Change operators have helped to prop up the value of the naira against the greenback and other major currencies.
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“Until oil and gas production hits record levels, every alternative mechanism to defend the currency is too expensive and unsustainable,” Oluseun Onigbinde, the co-founder and Director of BudgIT, a civic organisation, said.
“The fiscal and resource authorities should lighten the CBN burden as the institution continues to buy them time,” he added.
A senior oil executive said NNPC’s remittances are crucial for maintaining foreign exchange reserves and stabilising the naira.
“For reasons yet unexplained, the NNPC’s dollar inflows have been noticeably absent in the naira rebound; the question is why.”
Nigeria has for years been grappling with FX shortages, causing the naira to fall to a record low of 1,915 against the dollar on the parallel market.
There has been a substantial improvement in FX liquidity in recent weeks, causing an appreciation in the value of the naira to 1,148 per dollar on Tuesday, according to the Lagos-based FMDQ Securities Exchange that tracks trading data.
For analysts at CSL Stockbrokers Limited, the improvement in FX liquidity seen so far has been primarily attributed to “foreign portfolio investments in government bonds, which come with high repayment costs”.
They said: “Crude oil receipts form a primary source of FX for the country. A significant increase in oil production will increase FX supply and alleviate liquidity issues more sustainably in the FX market.
“In our view, the sustainability of current FX rates in the coming months hinges partly on increased crude oil production volumes and tackling every bottleneck that affects low production should be of paramount concern to all stakeholders.”
Oil output from Nigeria has been low in recent years, and the country recorded its lowest oil production volume of 940,000 barrels per day (bpd) in September 2022.
The country’s low production has been attributed to massive crude oil theft in the oil-rich Niger Delta, ageing oil fields, poor crude oil terminal maintenance, shutdowns, and reduced investments in the upstream oil and gas sector.
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“The situation has led to significant revenue losses for the country. The federal government has sustained efforts to reinforce pipeline surveillance and clamp down on oil theft. However, results appear slow and inconsistent,” analysts at CSL Stockbrokers said on Monday.
Security for oil assets, according to many analysts, has not been treated with the seriousness it deserves, considering that it is responsible for the nation’s revenue.
Militants routinely kidnap oil workers, especially expatriates, and sabotage of oil pipelines occurs too frequently to absolve government officials including security personnel of collusion with criminals.
Data from Africa’s Oil and Gas Report, an intelligence publication, showed Nigeria’s seven deepwater fields output an average of 415,392 bpd in March 2024, one of the lowest performances in the last three years.
According to the Nigerian Upstream Regulatory Commission (NUPRC), Shell’s Bonga field, the country’s flagship deepwater asset, led the decline by dropping from 124,115bpd to 95,363bpd.
TotalEnergies’ (deepwater) Akpo field shed 17,000bpd, or 18 percent of the output gap between February and March 2024.
NUPRC data doesn’t highlight field-specific activities, but experts said the country’s eastern onshore fields, whose crudes are evacuated by the Shell-operated Bonny Terminal, are still struggling.
Crude receipts at the Bonny Terminal declined by 21,324bpd in March compared to the previous month.
In the western Niger Delta, the Chevron-operated Escravos Terminal witnessed a small increase in receipts of crude of around 2,000bpd from 127,046bpd in February to 129,442bpd in March, while the Shell-operated Forcados terminal saw an 18,000bpd decline in receipts month on month.
Findings showed Nigerian independent shallow water operators have not yet picked up the slack here, though work is going on in both the Anyala-Madu cluster (First E&P) and Okwok field (Oriental Energy) for the one to increase output and the other to bring new field into production.
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“One of the reasons why our production is low is because we have too many shut wells, some of them contiguous to our marginal fields or oil wells. But by the time we take those wells in line with the law and give you people, and we give a timeline upon which you must produce, we will be able to increase production,” Heineken Lokpobiri, minister of state for petroleum resources (oil) said on Monday evening at an event held in Lagos by The Petroleum Club.
Sources said the country’s authorities have reached out to the oil majors to invest more in new deepwater developments and a key part of the executive orders on oil and gas reforms signed by President Bola Tinubu in March 2024 addresses this issue with fiscal incentives.
“The existing deepwater fields will continue their inexorable decline while any new deepwater field development (like Shell’s Bonga North, being considered for Final Investment Decision by July 2024), is unlikely to reach the market before 2027,” Africa’s Oil and Gas report said.
Delays in consenting to commercial transactions not only impact employment but strategic plans that ultimately support the government revenue drive.
To change the narrative, Bolaji Ogundare, a senior oil executive, said Nigeria needs to encourage transactions that benefit the country.
“Delays in consenting to commercial transactions not only impact employment but strategic plans that ultimately support the government revenue drive,” Ogubdare said on social media platform X.
