Nairametrics| Nigeria has had what you can describe as one of the best two quarters since the Buhari administration.
The external reserve are up, inflation rate seems to be tapering, the economy is contracting slower than expected and we even had a positive balance of trade at the end of 2016. Oil prices are also above $50 and Nigeria is said to be producing over 2mbpd of crude (depending on whether you include condensates or not). Heck, we even have a new Forex Policy and the exchange rate is no longer N520. This was music to the ears of the government until Bonga happened.
Shell, Nigeria’s dominant oil producer, on Monday announced that it was shutting down Bonga, its deep water oil field for maintenance purposes. The shut down also has implications for the nation’s economy.
First, it takes Nigeria one step back from achieving the production target of 2.2 million barrels per day set in the proposed 2017 budget. Nigeria currently produces about 2 million barrels per day and analysts put the likely production loss at 200,000 barrels per day. A loss of at least 200,000 barrels per day equates to roughly $10 million a day.
The shut down also means a loss of revenue for both Shell and the three tiers of government, who still rely heavily on oil money to fund their respective budgets.
A more sinister implication is the effect it could have on Nigeria’s external reserves and to a larger extent the CBN’s plans to sustain supply of Forex to the retail market.To sustain at least $3 billion of sale per Month, it will need oil production and price to remain in line with plans. Nigeria sold an average $50 billion dollars to the interbank and the BDC segments in recent years. It dropped to about $55m to BDCs last year.
A set back in our forex policy could force eager to return foreign investors, to have a rethink and remain on the sidelines.
The field is expected be back onstream sometime in April after completion of maintenance work . A month is a lifetime in this economy and we hope by then, we won’t have reversed some of the gains achieved in the last two quarters.
Nigeria is dependent on crude oil for about 70% of its foreign exchange earnings. A drop in oil prices to under $30, from a high of over $100 a barrel, led to the country’s first recession in 25 years and a foreign exchange crisis.
Bonga field, was Nigeria’s first deep water oil field in depths of over 1000 feet and has produced over 600 million barrels of crude oil.
The oil field suffered a militant attack in 2008, and an operational error which led to an oil spill in 2011. Other partners in the oil field include the Nigerian National Petroleum Corporation (NNPC), Exxon Mobil, Agip and Elf Petroleum.