Increase in the incidence of oil theft in the country, which resulted in the declarations of force majeure by oil companies in the first quarter (1Q) of the year, has been identified as a further risk to the Federal Government’s 2013 budget oil production target.
In a review of its forecast on downside risk to Nigeria’s oil output, Renaissance Capital (Rencap), an emerging markets-focused investment bank, said it has downwardly adjusted its oil production projection to 2.30 million barrels per day (mbpd), from 2.45mbpd, owing to the increase in oil theft. “This implies that growth of 6.9-7.0 percent in 2013 is more likely, than our initial 7.1 percent projection”.
Analysts at Rencap said the seeming recovery in oil output from the second quarter of 2012 led them to believe that it would continue into 2013. They added that floods in fourth quarter and a pick-up in oil theft in the first quarter of this year compelled them to revise their projections.
Nigeria is said to be losing six billion dollars annually to crude oil theft, according to Babatunde Ogun, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria, adding that N105 billion is lost to theft of refined products.
“As oil makes up 15 percent of GDP (Gross Domestic Product), two-thirds of FGN revenue and over 95 percent of export earnings, this risk to oil output has material implications for the Nigerian economy,” reckons Rencap.
In its October 15, 2012 ‘Nigeria: 2013 Budget – Slowdown in Spending’, Rencap had noted that the government’s oil production assumption of 2.53mbpd was overly optimistic considering that average production in October 2012 of 2.36mbpd fell short of the 2012 target of 2.48mbpd.
It stated that Nigeria’s real GDP growth has been undermined by the underperformance of oil GDP since 2011 when it recorded zero growth and contracted by 0.8 percent in 2012, adding that this was largely due to a drop in oil output from 2.42mbpd in 2010 to 2.38mbpd and 2.36mbpd in 2011 and October 2012, respectively.
“Oil GDP showed signs of a recovery in 2012 when its rate of contraction slowed in the second quarter and it recorded some modest growth in the third quarter, which was attributed to an increase in monitoring in oil producing areas by official security. However, this recovery faltered in the fourth quarter, which was partly attributed to a flood-related shutdown in oil production for three weeks in October. This explains the drop in October’s oil output to 2.19mbpd from 2.45mbpd in September.
“We still expect the FGN to meet its fiscal year 2013 budget targets but at a higher effective budget oil price. Lower-than-targeted oil production (2.53mbpd vs 2.30mbpd) implies that for the FGN to meet its budget revenue target of N3.9 trillion, the effective budget oil price is $87 per barrel (pb), by our estimates, higher than the current budget assumption of $79pb. This effective price is still lower than the actual oil price ($114pb in 1Q13), which implies that some oil proceeds will still be directed towards the excess crude account, but less than initially projected,” says Rencap.
It quoted Ngozi Okonjo-Iweala, Minister of Finance and Coordinating Minister for the Economy, as having said that a smaller deficit of 1.8 percent of GDP is likely, instead of the initial target of 2.2 percent, adding that “as this is likely to be on account of lower-than-initially-targeted spending, as opposed to higher-than-projected revenue, this implies that the effective oil price needed to sustain fiscal targets may be a little lower than $87pb.
“We now project a current account (CA) surplus of 6.9 percent of GDP in 2013, instead of our initial estimate of 7.4 percent. This is due to slower export earnings growth on the back of lower oil output. This estimate is premised on a flat oil price, compared with that of 2012, of $114pb”.