Nigeria’s 2019 budget faces fresh hurdles as OPEC pegs output at 1.6mbd

The implementation of Nigeria’s 2019 budget is faced by a fresh threat as crude oil production adjustment agreed by member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC, led by the Russian Federation in December 2018, has lowered Nigeria’s daily oil production level to 1.685 million barrels per day (mbd), THISDAY has learnt. This is a far cry from the 2.3 million barrels per day assumption contained in the budget.

With oil price around $80 during the period of the preparation of the 2019 budget, the federal government had ignored the $50 per barrel oil price benchmark proposed in the Economic Recovery Growth Plan (ERGP), and proposed a $60 per barrel oil price for the budget.

However, from a 2018 peak of $86 per barrel last October, oil price had dropped to $48 per barrel before rebounding to $61 as at yesterday. To fund the N8.83 trillion budget, the federal government also predicated the estimates on the production of 2.3 million barrels per day.

But a document containing the production adjustment commitments made by OPEC member countries showed that Nigeria is voluntarily curbing 53,000 barrels per day (bd) of her crude oil from getting to the international market. This was part of the agreement reached at the 175th meeting of the OPEC Conference and fifth OPEC and non-OPEC ministerial meeting, which held in Vienna, Austria last December.

In the document posted on the OPEC webpage, Nigeria declared its reference oil production level to be 1.738mbd out of which 53,000bd would be deducted, and 1.685mbd allowed into the market. The 1.685 million barrels per day, however, exclude condensates, which could increase Nigeria’s crude exports to over two million barrels per day.

With the condensates, Nigeria’s daily output is still below the 2019 budget benchmark. The country, it was also learnt, would be the largest African producer in terms of volumes to contribute to the production cut agreement.

Angola, which declared a reference production volume of 1.528mbd will contribute 47,000bd to the agreement while Algeria with 1.057mbd production level will contribute 32,000bd.

Other African producers like Congo, Equatorial Guinea, Gabon, South Sudan and Sudan will contribute 10,000bd, 4,000bd, 6,000bd, 3,000 bd, and 2,000 bd respectively.

Libya is exempted from the agreement on account of unrest, which has affected the country’s production. Collectively, the document stated that OPEC member countries would cut 812,000bd of oil, while 10 non-OPEC countries will cut 383,000bd to bring the expected volume of oil to be taken out of the market effective from this month to 1.195mbd.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had told THISDAY that Nigeria could not be said to be comfortable with its current oil production levels, but did not ask to be exempted from the cut.

The minister initially disclosed that the country could contribute up to 40,000bd to the cut, representing about 2.5 per cent of her 1.7mbd production level at that time.

“We didn’t ask for exemption; we wanted to make sure everybody shared in the pain. If some happenstance occur, you are expected to come back to ask for exemption.

“There was a lot of difficulties in getting everybody together. You know the traditional difficulties in relationships between Saudi Arabia and Iran. While everybody was willing to cut, some countries were not willing to cut.

“It was more of the mechanics of how do you present it to the market as opposed to the substance of the resolution itself and that was why we broke yesterday and decided to take a break and come back with cool heads today,” he said then. He also explained that the output cut was as a matter of fact in the best interest of Nigeria, adding that with larger oil volumes in the market weakening prices, Nigeria would have found it difficult to implement its budget for 2019.

Asked then if the cut had any impact on Nigeria’s budget with regards to production volume, he said: “It has but has the potential of saving your budget matter of fact, because if we don’t, prices were already sliding…”

“If you look at the value of 40,000 barrels versus the gap of earning $70 per barrel – I would imagine that prices would hover around $65 or more, and if we didn’t do that, the budget will be dead. This was a savings mechanism to hold the money than holding the barrels. Technically, Nigeria is not effected, it is a win for Nigeria.”

Source: Thisday