..FG’s N20trn oil revenue threatened
The sustained downturn in global oil prices is casting a long shadow over Nigeria’s energy sector, raising concerns about the prospects for Foreign Direct Investment (FDI) in crucial oil and gas projects.
Oil prices slid on Monday, dipping below $75 per barrel, a critical threshold for Nigeria’s oil-dependent 2025 budget as escalating trade tensions between the United States and China stoked fears of a recession that would reduce demand for crude.
At the time of writing, Brent, the benchmark for Nigeria’s crude, was trading at just below $64 per barrel, while West Texas Intermediate sold or $60.54 per barrel.
The price plunge followed a surprise move on Sunday by Saudi Aramco, the world’s largest oil exporter, to slash prices for its key crude grades to Asian buyers, the largest cut in over two years.
The decision came days after the Saudi-led OPEC+ alliance announced a major production hike of 411,000 barrels per day for May, far above the 137,000 bpd increase initially projected.
Goldman Sachs on Monday revised down its annual average price forecasts again for Brent and WTI crude in 2026, citing increased recession risks and the possibility of higher-than-expected OPEC+ supply.
In a note dated April 7, the bank cut its 2026 average price forecast by $4 for Brent to $58 a barrel and WTI to $55.
“While the uncertainty around compliance and OPEC8+ production is very large, we still assume that the four months of OPEC+ crude increases will total around 0.7-0.8 mb/d,” Goldman Sachs added.
Donald Trump, president of the United States of America, touted the steep fall in oil prices early Monday.
“Oil prices are down, interest rates are down (the slow-moving Fed should cut rates!), food prices are down, there is NO INFLATION, and the long-time abused USA is bringing in billions of Dollars a week from the abusing countries on Tariffs that are already in place,” the president said via his X social media handle.
The current market volatility, while offering some relief to consumers at the pump, is creating a challenging environment for international oil companies, which may lead to project delays or cancellations and hinder Nigeria’s economic growth.
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N20 trillion oil receipts threatened
Nigeria, heavily reliant on oil revenue to finance its ambitious N54 trillion budget for 2025 faces a significant economic risk as low oil prices impact both government revenue and the stability of the foreign exchange market.
The government projects that revenues will more than double to N36.35 trillion. Of this revenue, oil is expected to contribute about 55 percent, N20 trillion.
Tunde Abidoye, a research analyst at FBNQuest, stated that the decline in oil prices is detrimental to Nigeria’s fiscal health, forcing the government to adjust domestic fuel prices.
He warned that the situation threatens Nigeria’s budget, which was based on a benchmark oil price of $75 per barrel and a production target of 2.1 million barrels per day (mbpd).
Given current realities, Abidoye estimates that maximum production will likely not exceed 1.8 mbpd, making it difficult to meet revenue projections.
“Nigeria may have to turn to the international capital markets, such as issuing Eurobonds, to bridge the funding gap,” he added.
Abidoye noted that this option comes with challenges, as the U.S. Federal Reserve is unlikely to cut interest rates this year, raising borrowing costs for the country.
Arnold Dublin Green, chief investment officer at Cordros Asset Management, warned in an interview with Arise TV that falling oil prices will strain Nigeria’s foreign exchange earnings, deplete reserves, and further weaken the naira.
He noted that these challenges could force the government to seek additional financing through the debt market to mitigate the fiscal shortfall.
The Central Bank of Nigeria’s latest quarterly economic report reveals that the federal government recorded a fiscal deficit of N3.1 trillion in Q4 2024. While still significant, this figure shows some improvement compared to earlier deficits of N3.2 trillion in Q3 2024 and N3.3 trillion in Q4 2023.
Analysts at FBNQuest said in a note sent to BusinessDay on Monday that the modest decline was supported by higher gross revenue collection, especially oil receipts, aided by improved crude production and a weaker naira exchange rate.
“Despite the positive outturn, the fiscal deficit remained elevated, reflecting the shortfall in budgeted oil revenue and persistent spending pressures,” analysts at FBNQuest said.
This situation disincentivizes further oil exploration and development, as companies become hesitant to commit substantial capital to projects with uncertain returns.
Several major energy projects, such as Owowo offshore project by ExxonMobil, HI and HA shallow offshore gas project by Shell and Ima gas project by TotalEnergies.
These projects represent significant potential for Nigeria, promising to unlock new oil and gas reserves, create jobs, and inject billions of dollars into the economy.
“The current oil price environment is creating a significant challenge for Nigeria,” a senior project manager with an IOC doing business in Nigeria said. “No investors sign FID when the environment remains uncertain and profit margin is not predictable”.
Analysts told BusinessDay that they expected the Owowo field development, estimated to cost $10 billion and unlock an estimated 180,000 bpd, to commence by 2020 or 2021. Of course, no one saw COVID coming. Crude theft was a challenge but it has since morphed into a nightmare.
Six years after the discovery, ExxonMobil is yet to announce a definite date for its development. ExxonMobil, however, is investing a pile of money into a former British sugar colony, Guyana, squeezed between Venezuela, Brazil and Suriname at the northern end of South America.
The HI project in Nigeria’s Offshore Mining Licence (OML) 144 is also awaiting FID. The project aims to deliver up to 500 million cubic feet of gas per day to the Nigeria LNG project’s proposed Train 7 and export approximately 70,000 barrels per day of condensate at peak production.
Last December, Energy major TotalEnergies announced plans to greenlight a $750 million offshore gas project in 2025.
The Ima shallow water gas project will be developed in partnership with a local Nigerian firm. Gas from the project will be used to boost supply to Nigeria’s LNG facility.