Nigeria’s oil output drops by 14% to an average of 1.5mb/d // Need for diversification

 

 

 

 

 

 

 

 

Nigeria’s oil output drops by 14% to an average of 1.5mb/d

 

***As Bonny Light price hovers at $49 per barrel By Udeme Akpan, Ediri Ejoh & Prince Okafor Nigeria might be under pressure to fund its N13.8 trillion 2021 budget following a significant drop of its oil output by 14.08 percent in the first 10 months of 2020, according to data obtained from the Organisation of Petroleum Exporting Countries, OPEC.

A breakdown showed that the nation produced an average of 1.5 million barrels per day, mb/d, (excluding Condensate) between January and October 2020, indicating a drop of 2.5 mb/d when compared to 1.7mb/d recorded in the corresponding period of 2019. The dip in output has also been worsened by the prolonged lull in the international market, characterised by low prices of crudes, including Nigeria’s Bonny Light, which demand has been affected because of the resurgence of Coronavirus pandemic in many nations, including China that accounts for one-third of the global oil demand growth.

 

 

For instance, in its latest monthly Market Report, obtained by Energy Vanguard, yesterday, OPEC stated that the data were based on information obtained from official or direct sources. However, when data obtained from secondary or unofficial sources were considered, OPEC put the nation’s output at 1.4 mb/d. This was even as the price of Bonny Light, Nigeria’s premium oil grade hovered at $48 per barrel in the international market. This means that the nation’s 2021 budget, which was benchmarked on 1.86 mb/d, including condensate and $40 per barrel might be affected, considering that the nation’s cost of oil production has been estimated at $30 per barrel. Demand Nevertheless, the organisation, currently battling to achieve stability, noted that the global market was still haunted by weak demand. It stated: “World oil demand for 2020 is expected to decline by 9.77 mb/d, marginally lower than in last month’s assessment. Weaker-than-expected data in the OECD in 3Q20, mainly due to lower transportation fuel demand in the US and OECD Europe, led to a downward revision of around 0.18 mb/d for the OECD group.

“However, this is mostly offset by an upward revision to the non-OECD, by 0.16 mb/d. Better-than-expected oil demand in China, amid a steady recovery across various economic sectors, and improving oil demand from India support this upward revision. “Total oil demand is estimated to reach 89.99 mb/d in 2020. For 2021, world oil demand growth is revised lower by 0.35 mb/d, to growth of 5.90 mb/d. “This is due to the uncertainty surrounding the impact of COVID-19 and the labour market on the OECD transportation fuel outlook for 1H21.

 

 “Petrochemical feedstock and industrial fuels are forecast to gain momentum on the back of improving economic activities, with total oil demand projected to reach 96.89 mb/d in 2021.” Supply On supply, it stated: “Non-OPEC liquids production in 2020 is revised down by 0.08 mb/d, m-o-m, contracting by 2.50 mb/d, to average 62.67 mb/d. “This is mainly due to downward revisions in Brazil, the US, the UK and Norway, following lower-than-expected output in 4Q20, although partially offset by upward revisions to production in Russia and Canada. “For the year, oil supply shows declines mainly in Russia, the US and Canada, while production in Norway, Brazil, China and Guyana is estimated to have grown.” It also added: “Non-OPEC supply for 2021 is adjusted down by 0.1 mb/d and is now forecast to grow by 0.85 mb/d to average 63.52 mb/d, mainly due to downward revisions in Russia’s output. “The US liquids supply forecast remains unchanged at 0.3 mb/d, while uncertainties persist. The main drivers for supply growth are expected to be the US, Canada, Brazil and Norway. OPEC N,Non Gas Liquids, GLs in 2020 are estimated to decline by 0.1 mb/d y-o-y, and forecast to grow by 0.1 mb/d, year-on-year, y-o-y in 2021, to average 5.2 mb/d. “OPEC crude oil production in November increased by 0.71 mb/d, month-on-month, m-o-m, to average 25.11 mb/d, according to secondary sources.” Expert Nevertheless, in an interview with Energy Vanguard, Prof. Omowumi Iledare, the Ghana National Petroleum Corporation (GNPC) Professorial Chair in Oil and Gas Economics and Management, Institute for Oil and Gas Studies, University of Cape Coast. Ghana, said: “It is not unexpected because of drastic shift downward in demand due to lower economic growth projections in Asia subsequent to the coronavirus-19 in China.

“Cast your mind back to 2008. Something has to be done with supply to reverse the trend in the short run! OPEC is mindful of the unfolding price trend, and in conjunction with non OPEC producers, OPEC is working at reducing marketed production (global supply). “Certainly because of the excessive dependence on oil for revenue, fulfilling budget estimates will be straining. And because government drives the economy, the inability of the government to fund its budget has implications on the economy.” Budget 2021 However, in his 2021 budget address to the National Assembly, President Muhammadu Buhari had said: “The 2021 Appropriation Bill, which is designed to further deliver on the goals of our Economic Sustainability Plan. This Plan provides a clear road map for our post- Coronavirus economic recovery as a transitional plan to take us from the Economic Recovery and Growth Plan (2017 – 2020) to the successor Medium-Term National Development Plan (2021 – 2025). “In view of the many challenges confronting us, we must accelerate our economic recovery process, promote social inclusion and strengthen the resilience of the economy. “The 2021 Appropriation has, therefore, been themed the ‘Budget of Economic Recovery and Resilience’. It is expected to accelerate the pace of our economic recovery, promote economic diversification, enhance competitiveness and ensure social inclusion. “The 2021 – 2023 Medium Term Expenditure Framework and Fiscal Strategy Paper set out the parameters for the 2021 Budget, which include a benchmark oil price of 40 US Dollars per barrel; daily oil production estimate of 1.86 million barrels (inclusive of Condensates of 300,000 to 400,000 barrels per day) and exchange rate of N379 per US Dollar.”