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Oil Reserve Crisis Looms Over Delay of Blocks

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  • Oil Reserve Crisis Looms Over Delay of Blocks

The delay in the award of new oil blocks and uncertainties over existing marginal oilfields are upsetting industry players, amid a warning that the country’s economic development could be jeopardised.

Nigeria is projected to witness a shortage of crude oil, as new refineries may have to compete with the sale of the product at the international market where the country earns the bulk of its hard currency. Also, some experts think the Nigerian National Petroleum Corporation’s (NNPC) bid to increase crude oil reserves by one billion barrels yearly to meet targets would remain elusive.

The Federal Government has repeatedly failed to meet a 40-billion reserve target for about eight years. Instead of making progress, the country could be inching backwards, according to statistics from the Department of Petroleum Resources (DPR), showing that the reserves declined by 961.47 million barrels between 2012 and 2016 alone.

Experts said the challenges that have frustrated meaningful exploration and production activities from marginal fields for the past 13 years could spell doom for the future of the nation’s oil sector.The country had recently targeted daily earnings of $4.23 million (N1.29 billion) from an average of 90,000 barrels of oil per day, which the experts said could have been feasible from 18 of about 30 marginal fields awarded in the country, if they were operating optimally. Of the 30 marginal fields awarded since 2004, only 12 are active and currently produce about 2.6 per cent of daily oil production and 2.5 per cent of the estimated 4,000 MMscf gas production in the country.

Considering it has been over a decade since the country conducted a bid round, Minister of State for Petroleum Resources Ibe Kachikwu recently insisted that unless there are new oil and gas regulations, the country might not award oil blocks.Awarding new oil fields or creating the needed environment that would ease exploration, especially for marginal field operators, are key ways the country could add to national oil reserve and boost revenue, especially when demand rises on the backdrop of new refineries and needed supply to the international market.

With the failure of President Muhammadu Buhari to assent to the governance fragment of the four-part Petroleum Industry Bill (PIB) and the delay that has impeded the entire legislation for about two decades, stakeholders said the stagnation would continue to frustrate desired objectives in Nigeria’s oil and gas sector.

The chairman, International Energy Services Limited, Dr. Diran Fawibe, said: “The passage of the PIGB will not really affect the oil bidding angle. We are talking about corporate governance in respect to PIGB. It doesn’t touch the heart of oil and gas upstream development, which is the fiscal arrangement that will govern the operation of the oil and gas sector.

“The ambition to process oil through a number of refineries, whether Dangote or through collocated refineries, will become a challenge because we would have less crude for international markets to sell and earn foreign exchange.”The president, Nigerian Gas Association (NGA), Dada Thomas, whose organisation, Frontier Oil Ltd, plays a leading role in the marginal field, said it was shameful that Nigeria had not held a bid round since 2007.

“In that time, other African countries have held many bid rounds that people have watched and discovered were transparent. But for 11 years, Nigeria has not held one,” he noted.According to him, a new bid round is viable under a new legislation, considering that major oil companies are being deterred by the obscurity in the sector. He however warned that the country must ensure the passage of the PIB before the end of the current administration.

“I am worried and sad for Nigeria. We need to rescue the Nigerian E&P sector. It’s a big problem and we need to solve it collectively as a nation,” he said.On the marginal fields, Thomas said government had been frustrating growth by not honouring the terms of agreement it signed with the operators. “For example, the marginal field was supposed to be taxed at a 55 per cent PPT rate not the 67.5 per cent or 85 per cent that other fields are being taxed. That has never been implemented. Marginal fields are being taxed just like everybody else,” he said.

The former president, Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, said any process that would give an individual power to award oil blocks discretionarily must be corrected. He called for a scrapping of bureaucratic rules surrounding the process.

“Licensing rounds are a simple auctioning process that shouldn’t be unnecessarily elongated. We need to look at those processes very well, to be sure that they are smooth, transparent and quick,” he added.When The Guardian enquired at the Ministry of Petroleum Resources, the Director of Press, Idang Alibi, declined to comment, stressing there was a need for wide consultation on the oil block cum marginal bid rounds matter, given the sensitivity of the matter.

On transparency in the process, he said the DPR could equally give details.But as at the time of press, the joint response of the ministry and DPR were yet to be received. A call to DPR spokesperson, Paul Osu, did not yield results, as his phone was switched off.

According to the Managing Director and Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, given the status quo, Nigeria is unlikely to meet the target of the Organisation of Petroleum Exporting Countries (OPEC), if the body goes ahead with its plans to increase members’ output.

According to him, the failure to deregulate the entire petroleum industry, from upstream to downstream, will continue to deter potential investors, whose investments would go a long a long way in boosting operations, especially in the upstream segment.

“Failure to define the industry’s regulation has put oil production at minimal levels, and with OPEC and non-OPEC countries looking to increase output, Nigeria is unlikely to meet up, given its current fiscal regime. Unfortunately, we are not finding it easy meeting up with our 1.8 million barrels per day output target,” Chukwu said.He added: “What happens when output increases is that price will fall. Thus, Nigeria will be unable to benefit from the output increase and will also suffer from the price reduction. We need good regulation to grow production.”

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

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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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