Budget proposal: Nigeria to breach OPEC oil cut agreement— 2mins read
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THE Organisation of Petroleum Exporting Countries, OPEC, crude production prescription is likely to be disregarded by Nigeria as its 2020 budget proposal does accommodate the terms of the agreement.
This development was disclosed in a report stating that Nigeria was granted a reprieve by OPEC in July, where it was agreed that OPEC’s initial crude oil production target be raised from 1.685 million bpd to 1.774 bpd as the initial production ceiling was unsustainable for the Nigerian economy.
OPEC and a Russia led oil-producing nations formed an alliance known as OPEC+ which had agreed to cut down inventories and remove 1.2 million barrels per day of crude oil from global markets on January 1, in a bid to raise oil prices.
Nigeria had been exempted of the OPEC/non-OPEC production cuts, for not adhering to its output ceiling, due to disruptions in the Niger Delta.
According to the report, OPEC revised the target limit mainly because of the new operated Egina oilfield which started oil production in January was not included when the initial quota of 1.685 million bpd was calculated.
Egina’s production will also classify as condensates, meaning more of Nigeria’s output would not count towards the new cap.
Condensates are an ultra-light type of crude oil that doesn’t fall under the OPEC+ cuts agreement.
The move was aimed at increasing the nation’s revenue base from crude oil which was below its 2019 fiscal projections, as crude oil prices were falling globally Nigeria reduced its oil benchmark price to $55 per barrel from $60 per barrel, stating the intention was “to cushion against an unexpected price shock.”
Records from OPEC also show that Nigeria’s crude production was 1.866 million bpd in August reflecting that its crude production was higher than the new target according to OPEC’s figures and industry surveys.
In a Bloomberg interview, Minister of State for Petroleum Resources, Timipre Sylva admitted that Nigeria’s crude oil production was pegged at 1.8 million bpd which was way above the current OPEC target hinting that full compliance to OPEC’s cut would take place in October.
However, this is unlikely considering the recently proposed budget released by the Presidency to the National assembly on Tuesday did not reflect the new limits by OPEC.
At the presentation of the 2020 proposed budget by President Muhammadu Buhari, the crude oil benchmark was fixed at $57 per barrel with a production capacity of 2.18 million barrels per day.
President Buhari emphasised that of the N8.2 trillion estimated revenue in the proposed budget huge chunk of the budget would be for debt payment to show the country’s commitment to meeting its obligations.
“Debt service is estimated at N2.45 trillion, and provision for Sinking Fund to retire maturing bonds issued to local contractors is N296 billion,” President Buhari said.
With a Gross Development Product, GDP, growth forecast of 2.9 per cent and an expected single-digit inflation rate, N8.2 trillion is estimated as the total Federal Government revenue in 2020.
This comprises N2.6 trillion as oil revenue, N1.8 trillion from non-oil tax revenues and other revenues of N3.7 trillion.
Oil production which makes up 32.4 per cent of the total revenues in the 2020 proposed budget is the largest revenue contributor to the economy in the 2020 fiscal year. This implies that if Nigeria is going to comply with OPEC’s cuts then the economy is going to suffer a setback that may further worsen condition of Nigerians.
OPEC’s 14-member nations agreed with non-OPEC partners led by Russia in 2018 to curb global crude production by 1.2 million bpd from the start of this year in an attempt to raise prices.
OPEC’s share of the cut was pegged at 800,000 bpd, with Venezuela, Iran and Libya exempted. It is not clear whether this figure or any other countries’ targets have been adjusted to accommodate Nigeria’s currently increased quota.