According to data from the National Bureau of Statistics, the oil economy declined by -11.8% y/y in Q2 ’22 compared with 6.6% y/y recorded in Q1 ’22. This decline can be largely attributed to production cuts on the back of oil theft and infrastructural deficits.
Turning to contribution to GDP, the oil sector accounted for 6.3% to the GDP compared with 6.6% recorded in the previous quarter. Meanwhile, the non-oil sector contributed 93.7% highlighting the sector as the major driver of the economy.
In February, oil prices exceeded USD100/b after Russia’s attack on Ukraine exacerbated concerns around disruptions to global energy supply. The Russia-Ukraine crisis as well as the sanctions against Russia impacted global oil supply. Furthermore, the US announced a ban on Russian oil on 08 March, which resulted in further upticks in oil prices.
Although oil prices had been volatile since the Russia-Ukrainian crisis began, prices began to dip below USD100/b in August. This was largely driven by concerns around a global economic downturn amid monetary policy tightening by central banks and covid-19 restrictions in China (the largest energy consumer).
Following the oil price decline, in its October ’22 meeting, OPEC unanimously agreed to adjust oil production downwards by 2mbpd in November ‘22. The adjustment was intended to spur a recovery in oil prices. Since the announcement, Brent crude price has increased by 2% to USD95.1/b.
OPEC data shows that Nigeria produced about 1.14mbpd of oil in September ’22 compared with 1.18mbpd recorded in the previous month. This is below the expected 1.6mbpd OPEC quota. Furthermore, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) noted that production from 13 out of 29 oil terminals declined between July to September.
The worst hit crude terminals include Bonny, Brass and Forcados.
In a bid to address the oil theft menace in the Niger Delta region, we understand that the FGN awarded a pipeline surveillance contract worth N48bn per annum run within the region in August. A few months after the contract was awarded, about 58 illegal connections were discovered in both Delta and Bayelsa states.
The FGN further disclosed that a probe mechanism has been setup to ensure culprits face the full extent of the law.
Despite developments regarding clampdowns on illegal oil refineries and bunkering, Nigeria may struggle to fully benefit from the global oil market. The latest commodity output report released by the World Bank (in October) disclosed that the benchmark crude oil price, Brent crude is expected to average USD92/b in 2023.
In an oil producing economy like Nigeria, oil price increases should reflect more revenue dividend as it is expected to enhance foreign exchange earnings and build reserves.
However, payment of petrol subsidy and low oil production occasioned by the activities of oil vandals have hampered oil revenue growth.
We understand that the effects of global warming have triggered the need for countries to shift attention to renewable energy sources. However, Nigeria’s oil economy should experience a face-lift on the back of the Dangote refinery which has an expected refining capacity of c.650,000 bpd.