Nigeria’s oil revenue stagnated at N4 trillion in ten months ending October 2021, undermined by increased incidences of pipeline vandalism, oil theft, and other technical issues.
These issues constrained average oil production to 1.3 million barrel per day (mbpd) 13 per cent below the average OPEC quota of 1.5mbpd during the period.
As a result of this huge shortfall in production, Nigeria could not take advantage of the 49 per cent increase in price of crude oil during the period to grow its oil revenue.
This development partly accounts for the 50 per cent increase in the Federal Government’s fiscal deficit in eleven months to November last year as well as the N2 trillion increase in borrowing in nine months to September last year.
A report published by the Central Bank of Nigeria, CBN, shows that oil revenue for ten months to October 2021 (10M-21) stood at N4.03 trillion, representing very marginal increase of 0.2 per cent from the N4.02 trillion recorded in the corresponding period of 2020 (10M-2020), even though most part of the 2020 was constrained by COVID-19 induced shut-ins and shutdowns.
According to the CBN report, oil revenue into the Federation Account comprises Crude Oil and Gas exports, Petroleum Profit Tax (PPT)/Royalties, and Domestic Oil and Gas sales.
The report further indicated that the relative stagnation in oil revenue during 10M-21 period was occasioned by 62 per cent, year-on-year, YoY, decline in Crude Oil and Gas exports and 10 per cent, YoY, decline in Domestic Oil and Gas sales, which cancelled the impact of 13 per cent, YoY, increase in revenue from PPT/Royalties.
The report shows that PPT/ Royalties revenue rose to N2.77 trillion in 10M-21 from N2.46 trillion in 10M-2020, while its contribution to total oil revenue rose to 67 per cent from 61 per cent.
However, Crude Oil and Gas Export revenue recorded a huge decline to N125.4 billion in 10M-21 from N326.05 billion in 10M-2020.
Consequently, crude oil and gas revenue contribution to total oil revenue fell to 3.1 per cent in 10M-21 from 8.0 per cent in 10M-2020.
Similarly, Domestic Oil and Gas sales revenue fell to N1.04 trillion in 10M-21 from N1.16 trillion in 10M-2020. Consequently Domestic Oil and Gas sales revenue contribution to total oil revenue fell to 26 per cent from 29 per cent 10M-2020.
Highlighting the factors responsible for the decline in oil revenue, the CBN’s monthly economic report stated: “Domestic crude oil production and export decreased, due to force majeure that led to pipeline shut down.
“Production declined to 1.45 million barrels per day (mbpd) in October 2021, from 1.52 mbpd in the preceding month.
“The development was attributed to operational setbacks, with key pipelines facing persistent sabotage.
“Production concerns plagued the Bonny Light, Escravos, and Forcados, while other significant grades such as Qua Iboe, Brass River, Agbami, Akpo, and Egina remained low.
“Of the 1.45 mbpd produced, exports accounted for an average of 1.00 mbpd, while the balance was for domestic consumption.”
Also providing insights into challenges that bedeviled crude oil production, analysts at KPMG, a firm of chartered accountants, stated: “In the first three (3) quarters of 2021, Nigeria was not able to meet its OPEC production quota.
“The average daily production during the first nine months was 1.3 million barrels per day, (excludes condensate daily production of 300, 000 barrels per day as these do not form part of OPEC quota), compared to average OPEC production quota of 1.5 million barrels per day.
“The major reasons are oil theft, pipeline vandalism and technical issues in restarting reservoirs that have been shut in because of pipeline attacks.”
Impact on FG’s deficit, debt profile
The impact of crude oil theft and pipeline vandalism on the nation’s revenue from oil is reflected in the Nigeria Extractive Industries Transparency Initiative (NEITI) report for 2019, which showed that the country lost 42.25 million barrels of crude oil valued at $2.77 billion dollars to oil theft in 2019.
Going by the official exchange rate of N416 per dollar, the above loss translates to revenue loss of N1.2 trillion for the Federation Account.
According to the report, the losses were incurred by companies that conveyed crude volumes through pipelines that were easily compromised by saboteurs.
The huge shortfall in revenue partly accounts for the over 50 per cent (N1.75 trillion) increase in the fiscal deficit of the Federal Government to N7.05 trillion in eleven months to November last year, as well as the 12 per cent (N2.21 trillion) jump in its borrowing to N18.23 trillion as at end of September last year.
According to the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, the Federal Government’s share of oil revenues from the Federation Account in eleven months to November 2021 was N970.3 billion (representing 47% shortfall below the sum in the 2021 budget.
“Out of the N2.011 trillion oil revenue forecast in the 2021 budget, the sum of N1.843 trillion should have been realized as at the end of November.
However, only N970.33 billion was recorded, indicating a shortfall of about 47 per cent.”, she said at the Public Presentation of 2022 budget, in Abuja.
