13th November, 2012
Nigeria’s mono-cultural economy faces gloomy days ahead as flooding and large-scale theft of crude drove Nigerian oil output to the lowest level for more than two years in October.
According to the International Energy Agency, IEA, in its latest monthly report, Nigeria’s crude oil production fell to 1.95 million barrels per day in October, more than 25 per cent drop, compared with production range of between 2.0 and 2.5 mbd, in recent months.
The drop from September to October was around 110,000 barrels per day, it said, leaving Nigerian production at “the lowest level in around two and half years.”
The impact of this production fall will be felt as the three tiers of government share the revenue accruing in the bad months. The various governments already complaining of insufficient money may need to borrow heavily to cover the shortfall.
But the gloomy days will not be forever as IEA reported a surge in production, with the flood abating in oil producing areas.
It said: “By early November, production levels were recovering, with export schedules showing increased volumes for December.”
It was enough to keep Nigeria as Africa’s top producer ahead of Angola at 1.79 million barrels per day, but the drop comes amid growing warnings that the country must take action to avoid stagnant output in the future.
The IEA report cited heavy flooding which hit Nigerian production this rainy season as well as the continuing problem of large-scale and organised oil theft in the continent’s most populous nation.
It cited findings that “oil bunkering, or theft, costs the government an estimated $7 billion in lost revenue per year.”
By comparison, Nigeria’s annual total budget is around $31 billion.
Theft and sabotage often leads to pipeline damage, causing oil firms to cut output. Shell has been Nigeria’s biggest producer, with major firms such as Exxon, Chevron and Total also present.
Nigerian oil production sharply rebounded after a 2009 amnesty deal for militants in the Niger Delta region following years of unrest which had cut output by around half for a period of time.
However, future output is in question over a number of factors, including a long-stalled overhaul of Nigeria’s oil industry that has created uncertainty among energy firms, freezing investment, as well as theft.
Beyond that, a boost in production in the United States — the IEA believes the US will become the world’s top oil producer by 2020 — is also expected to force Nigeria to hunt for new markets. The United States has been a major buyer of Nigerian oil exports.
Nigeria’s government has been seeking for years to pass sweeping legislation to overhaul its oil industry, widely seen as riddled with corruption. President Goodluck Jonathan sent a fresh version of the bill to parliament in July, but lawmakers are yet to take action.
Uncertainty over new fiscal terms in the industry has led to a slowdown in new investments, which could threaten future production growth if not resolved.