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‘Why Deepwater Fields Produce 41% of Nigeria’s Total Oil Output’

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Lekki Deep Seaport
  • ‘Why Deepwater Fields Produce 41% of Nigeria’s Total Oil Output’

Oil production from deep-water acreages, carried out through the production sharing contract (PSC), accounts for 41 per cent of Nigeria’s total oil production, the Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has said.

Speaking at a forum in Lagos, he commended the success of deepwater fields operation. He said the PSC production growth rate and contribution is 41 per cent of national production with phenomenal growth rate of over 2000 per cent within 10 years.

He added that lack of injection of required investment in Joint Venture (JV) operations and small independents is responsible for the development. If the JVs and others get the required investments, production will shoot up substantially.

He explained that that is the reason the Federal Government is backing alternative funding for oil production and why small indigenous exploration and production firms should adopt the same option.

The NNPC boss noted that a new class of players, including small local independents with non-diversified portfolio and lean balance sheet but with track record, could raise funds from international financiers because they contribute about 15 per cent of national production and require substantial capital/funds for growth.

He explained the importance of diversified players, including locals as against the trend where the international oil companies (IOCs) and the National Oil Company dominate oil exploration and production.

Baru said the trend was changing to an arrangement involving IOCs and locals. To him, global competition was increasing. He said though Nigeria has good geology and huge prospect, he noted that new production centres were emerging across the world, including the shale oil and emerging new producer nations. Therefore, Nigeria needs to unlock its barrels to stay relevant, he added.

On the need for alternative funding for oil and gas operations as against the JV cash calls, Baru said the Federal Government has less cash to fund its JV cash calls in view of the 50 per cent reduction in capital expenditure (capex) across industry, about $7billion yearly incremental funding requirement above current levels, which is imperative for change.

“Joint venture under-funding has led to significant decline in JV production over the last 10 years – two to 2.5 million barrels decline in JV production over the last 10 years. There is significant PSC volumes contribution due to lack of funding constraints. Therefore, to make the industry robust, the industry needs to aggressively pursue, unlock innovative funding strategies to arrest base decline and grow production.

“Also, public spending cuts and falling investment point to a weaker outlook for Nigerian oil industry. Volume from independents not enough to cover gaps, therefore, huge investment is required to fund production growth.

“Such investments are important because production from matured fields is declining and facilities are ageing. Investments would also boost achievement of lower field development cost, huge oil and gas reserves and low cost oil to meet national aspiration

“Therefore, to enable a thriving petroleum industry that maximises contribution to Nigeria, it is imperative for important key stakeholders to collaborate and resolve the current industry challenges, such as the JV funding and arrears and the ongoing PSC disputes.

“Chronic JV funding shortfalls have resulted in declining JV oil production. Arrears are rapidly increasing standing at $6.8billion as at December 2015. JVs are unable to sustain production levels production levels. To arrest JV oil production fall from one million barrels per day to 0.6 million barrels per day, 40 per cent decline and JV gas production decline from 3.6 billion cubic feet per day to 3.2 billion cubic feet per day about 11 per cent decline, the JV funding challenges need to be resolved.

“Resolving the JV funding challenges would potentially increase production by more than 1.2 million barrels equivalent per day by 2025, thereby adding value to both government and investors. The goal is to ensure continuous investment by the IOCs while maintaining a competitive share of government take compared to other petroleum provinces of similar nature such as Angola, Norway, Brazil and Gulf of Mexico, among others.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Growth Forecast Lowered to 3% for 2025, Higher than Most Emerging Markets

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IMF global - Investors King

The International Monetary Fund (IMF) has projected a 3% growth rate for Nigeria in 2025, slightly down from the 3.1% forecasted for 2024.

Despite this slight decline, Nigeria’s projected growth remains higher than that of many emerging markets as detailed in the IMF’s latest World Economic Outlook released on Tuesday.

In comparison, South Africa’s economy is expected to grow by 1.2% in 2025, up from 0.9% this year. Brazil’s growth is projected at 2.4% from 2.1% in 2024, and Mexico’s growth forecast stands at 1.6% for 2025, down from 2.2% in 2024.

However, India is anticipated to see a robust growth of 6.5% in 2025, although this is slightly lower than the 7% forecast for 2024.

The IMF’s projections come as Nigeria undertakes significant monetary reforms. The Central Bank of Nigeria has been working on clearing the foreign exchange backlog, and the federal government recently removed petrol subsidies.

These reforms aim to stabilize the economy, but the country continues to grapple with high inflation and increasing poverty levels, which pose challenges to sustained economic growth.

Sub-Saharan Africa as a whole is expected to see an improvement in growth, with projections of 4.1% in 2025, up from 3.7% in 2024. This regional outlook indicates a modest recovery as economies adjust to global economic conditions.

The IMF report underscores the need for cautious monetary policy. It recommends that central banks in emerging markets avoid easing their monetary stances too early to manage inflation risks and sustain economic growth.

In cases where inflation risks have materialized, central banks are advised to remain open to further tightening of monetary policy.

“Central banks should refrain from easing too early and should be prepared for further tightening if necessary,” the report stated. “Where inflation data encouragingly signal a durable return to price stability, monetary policy easing should proceed gradually to allow for necessary fiscal consolidation.”

The IMF also highlighted the importance of avoiding fiscal slippages, noting that fiscal policies may need to be significantly tighter than previously anticipated in some countries to ensure economic stability.

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Nigeria’s Inflation Rises to 34.19% in June Amid Rising Costs

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Food Inflation - Investors King

Nigeria’s headline inflation rate surged to 34.19% in June 2024, a significant increase from the 33.95% recorded in May.

This rise highlights the continuing pressures on the nation’s economy as the cost of living continues to climb.

On a year-on-year basis, the June 2024 inflation rate was 11.40 percentage points higher than the 22.79% recorded in June 2023.

This substantial increase shows the persistent challenges faced by consumers and businesses alike in coping with escalating prices.

The month-on-month inflation rate for June 2024 was 2.31%, slightly up from 2.14% in May 2024. This indicates that the pace at which prices are rising continues to accelerate, compounding the economic strain on households and enterprises.

A closer examination of the divisional contributions to the inflation index reveals that food and non-alcoholic beverages were the primary drivers, contributing 17.71% to the year-on-year increase.

Housing, water, electricity, gas, and other fuels followed, adding 5.72% to the inflationary pressures.

Other significant contributors included clothing and footwear (2.62%), transport (2.23%), and furnishings, household equipment, and maintenance (1.72%).

Sectors such as education, health, and miscellaneous goods and services also played notable roles, contributing 1.35%, 1.03%, and 0.57% respectively.

The rural and urban inflation rates also exhibited marked increases. Urban inflation reached 36.55% in June 2024, a rise of 12.23 percentage points from the 24.33% recorded in June 2023.

On a month-on-month basis, urban inflation was 2.46% in June, slightly higher than the 2.35% in May 2024. The twelve-month average for urban inflation stood at 32.08%, up 9.70 percentage points from June 2023’s 22.38%.

Rural inflation was similarly impacted, with a year-on-year rate of 32.09% in June 2024, an increase of 10.71 percentage points from June 2023’s 21.37%.

The month-on-month rural inflation rate rose to 2.17% in June, up from 1.94% in May 2024. The twelve-month average for rural inflation reached 28.15%, compared to 20.76% in June 2023.

The rising inflation rates pose significant challenges for the Central Bank of Nigeria (CBN) as it grapples with balancing monetary policy to rein in inflation while supporting economic growth.

The ongoing pressures from high food prices and energy costs necessitate urgent policy interventions to stabilize the economy and protect the purchasing power of Nigerians.

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Inflation to Climb Again in June, but at a Reduced Pace, Predicts Meristem

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Nigeria's Inflation Rate - Investors King

As Nigeria awaits the release of the National Bureau of Statistics’ report on June 2024 inflation, economic analysts project that while inflation will continue its upward trajectory, the pace of increase will moderate.

This comes after inflation rose to a 28-year high of 33.95% in May, up from 33.69% in April.

Meristem, a leading financial services company, has forecasted that June’s headline inflation will rise to 34.01%, a slight increase from May’s figure.

The firm attributes this persistent inflationary pressure to ongoing structural challenges in agriculture, high transportation costs, and the continuous depreciation of the naira.

Experts have highlighted several factors contributing to the inflationary trend. Insecurity in food-producing regions and high transportation costs have disrupted supply chains, while the depreciation of the naira has increased importation costs.

In May, food inflation grew at a slower pace, reaching 40.66%, but challenges in the agricultural sector, such as the infestation of tomato leaves, have led to higher prices for staples like tomatoes and yams.

Meristem predicts that food inflation will persist in June, driven by these lingering challenges. Increased demand during the Eid-el-Kabir celebration and rising importation costs are also expected to keep food prices elevated.

Core inflation, which excludes volatile items like food and energy, was at 27.04% in May. Meristem projects it to rise to 27.30% in June.

The firm notes that higher transportation costs and the depreciation of the naira will continue to push core inflation up.

However, they also anticipate a month-on-month moderation in the core index due to a relatively stable naira exchange rate during June, compared to a more significant depreciation in May.

Cowry Assets Management Limited has projected an even higher headline inflation figure of 34.25% for June, citing similar concerns.

The firm notes that over the past year, food prices in Nigeria have soared due to supply chain disruptions, currency depreciation, and climate change impacts on agriculture.

This has made basic staples increasingly unaffordable for many Nigerians, stretching household budgets.

As inflation continues to rise, analysts believe the Central Bank of Nigeria (CBN) will likely hike the benchmark lending rate again.

The CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 650 basis points this year, bringing it to 26.25% as of May 2024.

At a recent BusinessDay CEO Forum, CBN Governor Dr. Olayemi Cardoso emphasized the MPC’s commitment to tackling inflation, stating that while the country needs growth, controlling inflation is paramount.

“The MPC is not oblivious to the fact that the country does need growth. If these hikes hadn’t been done at the time, the naira would have almost tipped over, so it helped to stabilize the naira. Interest rates are not set by the CBN governor but by the MPC committee composed of independent-minded people. These are people not given to emotion but to data. The MPC clarified that the major issue is taming inflation, and they would do what is necessary to tame it,” Cardoso said.

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