The oil sector contracted by 10.73 percent year-on-year and contributed just 7.49 percent to the total real Gross Domestic Product (GDP) in the third quarter (Q3) of 2021 in spite of the amount invested in the sector since oil was discovered in Nigeria.
Quarter-on-Quarter, the oil sector grew by 12.05 percent in Q3 2021. The Oil sector contributed 7.49 percent to total real GDP in Q3 2021, down from 8.73 percent recorded in the corresponding period of 2020 and up compared to the 7.42 percent filed in the preceding quarter.
In the third quarter, Nigeria failed to up crude oil production despite oil prices trading at over $80 per barrel. Crude oil production was 1.57 million barrels per day (mbpd) on average, down from 1.67 mbpd achieved in the same quarter of 2020. Another indication that Nigeria is still struggling to up production due to its outdated oil infrastructure and high cost of production.
In the latest report by the National Bureau of Statistics (NBS), the non-oil sector remains the powerhouse of the Nigerian economy, growing at 5.44 percent in real terms in the third quarter and contributing 92.51 percent to the nation’s economy.
Breaking down sectorial performance in the third quarter, services subsector contributed 49.65 percent to real GDP while industries and agriculture added 20.41 percent and 29.94 percent, respectively.
Trade, Telecommunications, Financial Institutions, Manufacturing, Agriculture, and Transportation and Storage all recorded positive growth even with the inflation rate hovering around 16 percent year-on-year during the period.
Despite the tough operating environment and other bottlenecks like an increase in electricity tariffs, import duty, high foreign exchange rate, and drop in consumer spending, the non-oil sector contributed over 92 percent to real growth in the third quarter, suggesting that more investment and a conducive environment would have deepened the sector growth.
Nigeria’s economy grew by 4.03 percent in the third quarter of 2021, slightly slower than the 5.01 percent recorded in the second quarter of the year but authenticate the nation’s resilience post-Covid-19.
Nigerian Pump Prices May Increase as Crude Oil Hits $93.55 Per Barrel
Amidst growing concerns over the surging price of crude oil on the international market, Nigerian citizens are bracing themselves for a possible increase in pump prices.
Crude oil, the lifeblood of Nigeria’s economy rose to $92.42 per barrel on Monday, casting a shadow of uncertainty over the already volatile fuel market.
This surge in crude oil prices comes in tandem with the persistent depreciation of the Naira in foreign exchange markets, where it traded at N980 to $1 on the parallel market. For many Nigerians, these simultaneous developments trigger memories of the recent fuel price hikes that followed the removal of fuel subsidies earlier this year.
In June, the government removed the subsidy, leading to a sharp 210% increase in the pump price from N175 per liter to N546.83 per liter. In a further blow to consumers, less than a month later, the price surged again, reaching N617 per liter.
However, since then, there have been no additional fuel increments, despite fluctuations in the Naira’s exchange rate. President Bola Ahmed Tinubu, along with key government officials and industry leaders, has reiterated their commitment to stabilizing petrol prices in the country.
According to Ajuri Ngelale, Special Adviser to the President on Media and Publicity, “The President affirms that there will be no increase in the price of petroleum motor spirit.”
Mele Kyari, Group Chief Executive of the Nigerian National Petroleum Corporation Limited (NNPC), echoed this sentiment, emphasizing that NNPC is the sole supplier of petrol nationwide and has not proposed any price hikes.
Industry experts like Chinedu Okonkwo, President of the Independent Marketers Association of Nigeria (IPMAN), have urged the government to expedite efforts in implementing Compressed Natural Gas (CNG) as a viable alternative to traditional fuels, providing a long-term solution to the country’s energy needs.
While the global crude oil price surge is a cause for concern, Nigerians are holding onto the government’s commitment to price stability and the potential for CNG to provide a sustainable energy alternative in the future.
In a market with unique dynamics, where NNPC remains the sole supplier and importer of fuel, the hope is that prices will remain stable for the benefit of all Nigerians.
Nigeria’s Oil Output Plummets to Record Low as Production Sharing Contracts Struggle
Nigeria’s oil output from Production Sharing Contracts (PSCs) with partnering firms has reached a historic low of 34 percent over the past year, according to a comprehensive review of the latest Oil and Gas Report released by the Nigeria Extractive Industries Transparency Initiative (NEI TI).
This dramatic decline underscores the nation’s persistent challenge of meeting its crude oil export commitments, despite its status as Africa’s largest oil producer with abundant crude reserves.
The NEITI report, covering the year 2021, paints a grim picture of the state of PSCs in Nigeria. Out of the 35 PSC blocks, only 12 recorded any production, while a staggering 23 blocks, representing 66 percent of the total, remained entirely dormant.
The Nigerian National Petroleum Company Limited (NNPC), representing the federation, participates in these PSCs, where partnering oil companies finance operations in exchange for future benefits, such as Petroleum Profit Tax (PPT), royalties, and other bonuses.
NEITI’s report reveals that production from these PSCs has dwindled significantly. “In 2021, only 12 (34 percent) of the PSC blocks recorded production, while 23 other blocks, representing 66 percent of the total number of PSC blocks, did not produce,” the report stated.
This production amounted to 242.96 million barrels, a mere 42.92 percent of the nation’s total oil production for the year.
Despite ongoing efforts to boost production, Nigeria has been unable to raise its oil exports for over three years, consistently falling short of its required OPEC quota by at least 560,000 barrels per day.
This shortfall severely hampers the country’s ability to generate much-needed foreign exchange.
NEITI has issued a crucial recommendation in response to this crisis. It calls on the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and NNPC to urgently review the technical and operational constraints hampering production from idle PSC blocks, with the goal of optimizing these arrangements.
In cases where issues cannot be resolved, NEITI suggests considering license revocation and allocation to other interested parties.
Also, the NEITI report highlights losses in the oil sector due to theft and sabotage. In 2021, a total of 29 companies suffered crude oil losses amounting to 37.57 million barrels. The theft and sabotage were primarily concentrated in three terminals: Bonny, Forcados, and Brass, with Bonny experiencing the highest volume of theft at 28.91 million barrels.
Cumulatively, this resulted in a substantial loss of 19 percent of production delivered into these terminals.
The report also notes that companies reported deferred crude production of 70.09 million barrels in 2021, attributing it mainly to repairs and maintenance.
Concerns regarding transparency and accountability are raised as the report reveals discrepancies in revenue records. While $194.85 million and N9.73 billion were earned from pipeline transportation revenue during the period, NEITI highlights that the naira receipt had yet to be remitted at the time of the report, and there was inadequate disclosure of tariff rates and volumes.
Similarly, $702.19 million and N343.56 million in miscellaneous revenue from Joint Venture (JV) operations raised questions, as the naira receipt remained unremitted to the federation. NEITI urges NNPC and partnering companies to promptly provide a basis for revenue computation and ensure that all due revenues are remitted as soon as received.
The report concludes by emphasizing the need for improved data management processes and controls to prevent future discrepancies, highlighting the importance of regular monitoring, data reconciliation, and cross-verification to maintain data integrity.
As Nigeria grapples with these critical issues in its oil sector, the report serves as a stark reminder of the challenges facing one of Africa’s largest oil-producing nations.
Urgent action and reforms are required to address the declining production, losses, and revenue discrepancies in Nigeria’s oil industry.
Oil Prices Tumble Amidst Central Bank’s Tightened Grip on Interest Rates and Economic Uncertainty
Supply Constraints and Economic Fears Cast Shadows Over the Oil Market
Oil prices took a tumble on Tuesday as concerns mounted that fuel demand would take a hit due to major central banks standing firm on their decision to keep interest rates high, despite a backdrop of tightening oil supply.
Brent crude oil, against which Nigerian oil is priced, dipped by 87 cents to $92.42 a barrel at 07:30 a.m. Nigerian time while the U.S. West Texas Intermediate crude sheds 87 cents to $88.81.
The prevailing sentiment among analysts was that “Fears of an economic recession may again dominate the oil market’s movement due to surging U.S. bond yields following the Fed’s hawkish stance last week,” stated Tina Teng, a market analyst at CMC Markets in Auckland.
The world’s leading economic authorities, the U.S. Federal Reserve and the European Central Bank, have recently reaffirmed their commitment to combat inflation, signaling that tight monetary policy could persist longer than initially anticipated.
The higher interest rates associated with these policies typically stifle economic growth, in turn dampening oil demand.
Adding to the economic unease, rating agency Moody’s sounded the alarm on Monday, warning that a U.S. government shutdown would negatively impact the nation’s credit. This caution comes just a month after Fitch downgraded the U.S. by one notch amid concerns related to the debt ceiling crisis.
Furthermore, China’s ongoing property market troubles have cast a shadow on market sentiment. Tina Teng from CMC Markets noted that China Evergrande’s announcement of missing a bond coupon payment on Monday evening rekindled investor pessimism regarding the sector, which had long been a cornerstone of economic growth.
While supply constraints persist with Russia and Saudi Arabia extending production cuts until the end of the year, Moscow chose to ease its temporary ban on gasoline and diesel exports on Monday to stabilize its domestic market.
Looking ahead, China’s Golden Week holiday, beginning this Sunday, could provide some relief for oil prices. A potential surge in travel during the holiday period is expected to drive increased oil product demand from the world’s second-largest oil consumer.
Despite the turbulence, oil prices have surged by approximately 30% since mid-year primarily due to tightening supply conditions. This price increase, however, has come at a cost, with JP Morgan estimating that it has shaved off 0.5 percentage points from global GDP growth in the second half of the year.
Nevertheless, JP Morgan analysts reassure that this shock “is not large enough to threaten the expansion by itself.”
Baden Moore, Head of Carbon and Commodity Strategy at National Australia Bank, added his perspective, stating, “We forecast $94/bbl through the 4Q23 period, which is the maximum steepness of the curve we see before OPEC likely eases its supply constraints.”
As the oil market navigates these uncertain waters, the world watches closely, mindful of the intricate interplay between central bank policies, economic conditions, and supply dynamics that continue to shape the energy landscape.
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