OPEC’s resolution puts Nigeria’s projected 2024 oil revenue in doubt

THE Organisation of Petroleum Exporting Countries (OPEC) and its allies’ resolve to deepen crude oil production cuts will make Nigeria’s proposed revenue from crude oil sales for 2024 unrealistic.

At a virtual meeting on Thursday, November 30, the cartel, known as OPEC+, announced additional voluntary cuts to 2.2 million barrels per day (bpd) to support the stability and balance of oil markets.

The voluntary cuts by its members are calculated from the 2024 required production level.

At the meeting, which was used to discuss 2024 output amid concerns that the market faces a potential surplus, the cartel said it would raise Nigeria’s production quota to 1.5 million bpd from 1.38 million bpd but that the 8.69 per cent increase would be subject to further consideration.

“In view of current oil market fundamentals, in accordance with the decision of the 35th OPEC and non-OPEC Ministerial Meeting, the completion of the assessment by the three independent sources (IHS, Wood Mackenzie and Rystad Energy) for production level that can be achieved in 2024 by Angola, Congo and Nigeria as follows: Angola at 1,110 t/bd, Congo at 277 t/bd and Nigeria at 1,500 t/bd,” OPEC+ said.

The ICIR reports that “t/bd” means ‘to be decided or to be determined’ as OPEC+ fixed its 37th meeting for June 1, 2024, in Vienna.

Pumping more than 40 per cent of the world’s oil production, the OPEC+ members agreed that Saudi Arabia extends its voluntary cut of one million bpd it has had in place since July; Russia cut its output by 500,000 bpd while other members also voluntarily reduced production, as the geo-political Israel-Hamas war had further increased tensions between many OPEC+ members and Western countries.

The cartel’s output of some 43 million bpd already reflects cuts of about five million bpd, but Nigeria and Angola have been resisting attempts to curb their production.

In June this year, OPEC+ cut Nigeria’s output target for 2024 to 1.38 million bpd from 1.74 million bpd for 2023, further making the country fail to meet its targets for years.

At its previous meeting, OPEC+ had agreed to give Nigeria a 2024 quota of 1.58 million bpd if it could pump that much subject to independent verification.

Tinubu’s 2024 crude oil benchmark unrealistic

At his budget presentation on Wednesday, November 29, President Bola Tinubu said his led administration had “adopted a conservative oil price benchmark of 77.96 US dollars per barrel and daily oil production estimate of 1.78 million barrels per day” after reviewing developments in the world oil market and domestic conditions.

The Federal Government also adopted a naira to US dollar exchange rate of N750/$1 for 2024, The ICIR reported.

It aggregated an expenditure of N27.5 trillion in the proposed budget, of which the non-debt recurrent expenditure is N9.92 trillion. Debt servicing is N8.25 trillion, and capital expenditure will gulp N8.7 trillion for the 2024 appropriation.

It is also uncertain if the economy will grow by a minimum of 3.76 per cent, above the forecast world average, and inflation – currently at 27.33 per cent – will moderate to 21.4 per cent in 2024, as projected by the government.

The budget deficit is projected at N9.18 trillion or 3.88 per cent of gross domestic product (GDP) in 2024, lower than the N13.78 trillion deficit in 2023, representing 6.11 per cent of GDP.

However, in an earlier report, The ICIR analysed that Nigeria’s daily crude production might fall below the 1.78 million bpd budgetary benchmark, according to the African Energy Chamber (AEC) in its ‘The State of African Energy 2024 Outlook’ report.

The AEC projected Nigeria’s daily crude oil output to be 1.51 million bpd 2024. So, compared to the 1.78 million bpd budgetary benchmark, it will represent a 270,000 per day crude oil production shortfall and an N21.05 million daily revenue loss.

Despite the OPEC+ quota reduction system, Nigeria has not met its daily crude production target.

The Federal government and NNPCL blamed low production output on pipeline vandalism, militancy, and other insecurity as oil production declined.

In October, the country’s oil production stood at 1.35 million bpd, the highest production level since the beginning of the year and the most considerable volume since January 2022.

Nigeria opposes oil cut

While Saudi Arabia shoulders the burden of slashing its output by one million barrels a day since July this year, Nigeria contrarily rejected OPEC’s oil quota cut.

Ahead of the OPEC+ meeting on Thursday, November 30, Saudi Arabia and its partners had struggled to agree on oil output quotas for 2024.

The meeting initially set for Sunday, November 26, was delayed four days as Nigeria and Angola opposed a reduction in their crude oil production quotas.

Bloomberg analysts believe that if the OPEC+ don’t reach an agreement, a looming supply surplus could crash crude prices, which would batter the coffers of the 23-nation coalition, which relies on oil revenue to cover government spending.

The Saudi-led alliance had yet to reach an agreement with Angola and Nigeria, which were pushing back against lower quota limits for 2024 that reflect their diminished production capabilities.

In particular, Saudi Arabia, which has been making a voluntary oil production reduction of one million barrels per day since July, is asking other coalition members to reduce their quotas to share the burden of cuts.

But Nigeria and Angola are disputing changes to their oil production targets provisionally agreed upon when OPEC last met in June.

Nigeria is now seeking a quota of 1.58 million barrels per day for 2024, a slight increase from the provisional level.

When the group last announced cuts in April, just nine countries participated. Many others had lost so much production capacity and revenue in recent years that they couldn’t afford to cut further.

Nigeria’s share in global oil sales, contribution to GDP

Nigeria’s oil sector contribution to GDP has declined while its debt portfolio has risen. A quick look at statistics shows that the oil sector’s contribution to GDP slumped from 6.63 per cent in the first quarter (Q1) of 2022 to 4.43 per cent in the fourth quarter of the same year.

In Q1 2023, it increased to 6.21 per cent, plunged to 5.34 per cent in the second quarter, and settled at 5.48 per cent in the third quarter.

The analysis shows Nigeria’s crude oil production to the global volume has recently declined.

Nigeria oil contribution to GDP
Nigeria’s oil contribution to GDP

The ICIR, in its recent report, stated that the entire African-producing oil nations’ 2023 – 2024 output is expected to stay relatively flat at about 6.77 million bpd.

Month-on-month production looks bleaker, with production expected to decline from 6.9 million bpd in January 2024 to approximately 6.62 million bpd in December 2024.

Global output is expected to total more than 84 million bpd next year, a 1.6 per cent increase over 2023.

While the American nations, both north and south combined, are expected to see a marginal four per cent growth in output year over year in 2024, the Middle East is expected to see a more negligible two per cent growth over 2023 output.

    Crude oil revenues projections decline over the years

    There has been a gradual decline in projected oil revenues since 2022 and recurrently since 2010.

    For instance, the Federal Government’s share of oil revenue expected to fund the 2023 budget was estimated at N1.86 trillion, less than the N2.19 trillion of the revised 2022 budget.

    Dataphyte oil revenue target in years

    The percentage contribution to total revenue in the last three years showed an oil revenue to total revenue proportion of 25.18 per cent in 2021, 21.97 per cent in 2022, and 22.01 per cent in the 2023 proposed call (see chart above).

    Production estimate output was 1.8 million bpd in 2020 from 2.3 million bpd in 2019. It was 1.86 million bpd in 2021 and 1.6 million bpd in 2022. In 2023, projected oil production is estimated at 1.69 million bpd.

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