30 October 2012

Nigeria: Floods to Cut Crude Oil Production in 2013 - Experts

The 2013 budget may have failed the first test with the ravaging floods dragging down crude oil production output to between 2.1 and 2.2 million barrels per day (mbpd) from 2.5 mbpd in the first half of this year.

A weekly report by Afrinvest said the Nigerian National Petroleum Corporation (NNPC) revealed that the country's oil production dropped from an average of 2.5 mpbd in the first half of this year to between 2.1 and 2.2 mbpd last week as a result of flood and major outage on a Shell facility.

When the federal government presented the budget 2013 budget to the National Assembly recently, local and international analysts were sceptic about the benchmark for crude oil production, saying it was most unlikely target.

They had based their fears on crisis in the Niger Delta which seem to be smouldering, but has the penchant for erupting every now and then.

Razia Khan, Regional Head of Research, Africa Global Research, Standard Chartered Bank, London while commenting on the proposed budget sent to the National Assembly said the proposed oil production level of 2.53 mbpd for 2013 is too optimistic considering the level attained so far in 2012.

"Production is currently about 2.16 mbpd and it is not likely to increase if the problems of oil theft and pipeline leakages are not addressed. Besides, revenue would be adversely affected if weakness in the global economy causes disruption in output levels. In that case, the deficit gap is expected to be larger and domestic borrowing would increase", warned Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited.

But the fits threat to meeting the ambitious production benchmark has come from an 'unlikely' area -flood. Analysts say, if the usual assumptions are anything to go by, the budget 2013 assumption may end up being a mirage.

The scenario has left some Nigerians wandering if the budget is for better or for worse? President Goodluck Jonathan said, the budget is a plan of the intended revenues and expenditures for a country and a tool for macroeconomic management that could help promote fiscal prudency and foster growth in the economy.

Perhaps, the saving grace will come from Oando state which has begun production of about 2,000 barrels per day from the Ebendo-4 well, increasing its total output by 40 percent.

Based on the latter, Rewane said, "in our opinion, it is likely that the proposed 2013 budget may not achieve its fiscal consolidation and growth objectives".

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