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The shortfall in Nigeria’s oil production due to oil theft, is resulting in a loss of crude oil export earnings valued at over $50 million per day ($1.5 billion a month), which also indicates a shortfall in government revenue from crude oil royalty.
This means Nigeria is not maximizing additional oil revenue associated with the surge in crude oil prices in the international market since Russia’s invasion of Ukraine, according to the members of the Central Bank of Nigeria (CBN), Monetary Policy Committee (MPC).
The Monetary Policy Committee (MPC) met on the 23rd and 24th of May 2022. Eleven (11) members of the Committee attended this meeting, some of whose relevant statements on oil theft are reproduced below.
ADENIKINJU, ADEOLA FESTUS
I am worried that Nigeria is not able to benefit maximally from the current upsides in the global oil market.
We were not only unable to ramp up our production levels to meet the OPEC quota, no accretion to foreign reserves is also taking place, and government deficit and public debts are going north at a time we should be writing down our debt profiles and even building up a buffer for the inevitable raining days ahead,
I am concerned about government budgetary performance. The rising share of governments in total credit to the economy by the banking system suggests crowding out effects of private sector borrowings.
Governments should divert to non-debt means of funding its activities. Government must grow its revenue base, reduce waivers to economic agents, plug leakages and wastes, and address the wasteful petrol subsidy system. The huge energy deficit must be urgently addressed.
OBIORA, KINGSLEY ISITUA
Domestic crude oil production continued to trend below the OPEC quota of 1.74 mbpd and the budget benchmark of 1.88 mbpd. In April 2022, the average crude oil production declined to 1.35 mbpd from 1.39 mbpd in the previous month.
The shortfall was due to increased oil theft and pipeline vandalism, making it difficult for the Federal Government to benefit from the rising oil prices.
OMAMEGBE, MO’
According to the Organization of Petroleum Exporting Countries (OPEC) May 2022 oil report, Nigeria’s oil production fell in April 2022 due to low investment and other factors, including persistent oil theft and pipeline vandalism.
Nigeria produced an average of 1.22 million barrels per day (mb/d) of crude oil in April 2022. This production level is approximately 18,000 barrels per day (b/d) lower than 1.24 mb/d recorded in March 2022.
In addition, total production is about 500,000 b/d lower than 1.74 mb/d OPEC assigned quota for the country.
The shortfall in production results in a loss of crude oil export earnings valued at over US$50 million per day, which also indicates a shortfall in government revenue from crude oil royalty. Nigeria is not maximizing additional oil revenue associated with the surge in crude oil prices in the international market since Russia’s invasion of Ukraine.
Latest data released by the Central Bank of Nigeria (CBN) shows that Nigeria’s external reserves dipped by US$742.59 million to US$38.84 billion on May 18 2022 from US$39.58 billion on April 29 despite higher crude oil prices.
The naira has weakened to N598 per dollar at the black market as a result of increased demand.
In March this year, several Nigerian banks announced the reduction of the monthly spending limit to US$20 from US$100, while some temporarily suspended the usage of the naira-denominated debt cards for international transactions.
SALISU, MOHAMMED ADAYA
The poor performance of the oil sector, which accounted for only 6.08% of GDP in Q4, 2022, was occasioned by a lower volume of oil production caused by crude oil theft and vandalism.
In the case of energy prices, in the past, higher oil prices had improved Nigeria’s fiscal and external positions, boosting exports and government spending.
It also had spillover effects on the non-oil economy, particularly services and manufacturing sectors.
However, in contrast to the past episodes of high oil prices, Nigeria is unlikely to reap full benefits from higher oil prices now for two reasons.
First, oil production is far below Nigeria’s full capacity and the OPEC’s quota; and secondly, the higher crude oil price leaks into higher cost of imported PMS leading to higher PMS subsidy. So long as fuel subsidy is in place, it will continue to erode the revenue gains associated with higher oil price.
SANUSI, ALIYU RAFINDADI
Although the global oil price has remained high, unchecked oil theft, vandalism and unrelieved dependence on imported refined products for local consumption has continued to reduce Nigeria’s benefit from the high global oil prices.
SHONUBI, FOLASHODUN A.
Despite high global oil price, bottlenecks in the arrangements within the domestic oil sector has not allowed improved fortunes of the global oil market to manifest in the conditions of Nigeria external sector. The sector is characterised by low foreign exchange inflows resulting in low external reserves and pressured exchange rate.
EMEFIELE, GODWIN I
Protracted decline of the oil sector over the last eight quarters reflected escalating production losses, vandalism, and theft; potentially impeding overall outlook.