N820bn Oil Revenue Under Threat as Exports Drop

The proposed oil revenue in the 2016 budget presented by President Muhammadu Buhari to the National Assembly about three weeks ago is facing a setback as the nation’s crude exports begin to fall amid further slide in global oil prices.

Industry analysts also say crude oil production in the country will continue its decline this year, meaning lower revenue for the government.

Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue.

Buhari had in the 2016 to 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper sent to the National Assembly for this year’s budget said oil-related revenues were expected to contribute N820bn.

But the total exports of Nigerian crude oil are expected to slide in February after reaching a three-month high in January, Reuters reported, citing a compilation of loading programmes.

The export programme for Brass River crude, which was under force majeure, had not yet been issued as of Friday, leaving just 56 cargos for a total of 53 million barrels planned for February loading.

While a Brass River programme is expected once the force majeure is lifted, it will not enable February exports to reach the 61.7 million barrels initially planned for January.

The Atlantic Basin was said to be still oversupplied with oil and there were at least a dozen January loading Nigerian cargos looking for outlets.

The country’s output declined by 50,000 barrels per day in December due to disruptions to exports from the Brass River and Bonny production streams, a Reuters survey found out.

The President projected crude oil production of 2.2 million bpd and a benchmark price of $38 per barrel for this year’s budget, down from 2.2782 million bpd in 2015 budget.

The Head, Energy Research, Ecobank Capital, Mr. Dolapo Oni, who noted that the country’s oil production declined significantly last year, said, “Our production is really having issues, and I think it might be worse in 2016. Our production is likely to reduce this year.

“There are not as many fields likely to come on stream this year. Most companies just want to focus on their existing production. So, it is possible we won’t see as much new production come on stream to reverse the trend of decline in major fields we have. That might make production go down.”

He predicted that he nation’s oil production might fall to 1.9 million bpd on the average this year, compared to 2.2 million bpd and 2.1 million bpd in 2014 and 2015, respectively.

“This is worrisome for the government revenue because the budget is benchmarked on 2.2 million bpd production,” Oni said.

The global benchmark Brent crude on Wednesday dropped below $35 per barrel for the first time since July 2004 amid the ongoing row between key producers, Iran and Saudi Arabia, and after a sharp rise in United States’ gasoline inventories.

With the further slide on Wednesday, Brent was more than $3 per barrel lower than Nigeria’s proposed crude oil benchmark price for this year’s budget.

Brent fell to $34.52 per barrel from $36.42 per barrel the previous day amid growing global supply glut of crude.

The supply glut in the world oil market, which is said to be oversupplied to the tune of two million bpd, is expected to be exacerbated by the full return of Iran to the market after the expected lifting of Western sanctions.

There have been calls in some quarters for a downward review of the $38 per barrel oil benchmark price.

The Chairman, Trade Union Congress of Nigeria, Rivers State Chapter, Mr. Chika Onuegbu, said, “More worrisome is that some analysts, including the International Monetary Fund, have projected that crude oil will fall to $20 per barrel in 2016. Also, Goldman Sachs insists that the fall in crude oil price will be sustained and oil price will fall to $20 per barrel.

“Anyone who is a keen observer of the events that are shaping the crude oil price will recognise that we are in for a sustained low crude oil price regime. Accordingly, it is doubtful if the budgeted oil revenue of N820bn will be realised in 2016. If the budgeted oil revenue is not realised, this will negatively impact on the 2016 budget performance.

“It is, therefore, important that the government begins to make contingency arrangements should crude oil price fall below the benchmark price, or better still, review the benchmark oil price downwards.”

Punch