Oil remains arguably the most important sector in Nigeria’s economy. According to the minister of petroleum resources, Chief Timipre Sylva, the oil and gas industry accounts for approximately 10% of Nigeria’s Gross Domestic Product (GDP). In a similar vein, oil accounts for about 86% of total export earnings, and the government’s actual revenue from the oil and gas sector is 40%.
GDP is a widely used indicator of the size and strength of a country’s economy. Nairametrics earlier reported that Nigeria’s oil production averaged 1.183 million bpd in July 2022, a decrease from the 1.238 million bpd recorded in June 2022. In comparison to other top-producing countries in the world, oil accounts for 8% of the U.S.A economy, 46% of Saudi Arabia’s economy, 6.1% of Russia’s economy, and 7.5% of Canada’s economy. It’s noteworthy that some of the countries highlighted have trillion dollars GDPs, while Nigeria’s billion dollars GDP.
Oil is essential in Nigeria’s economy, here are ways oil can account for more of Nigeria’s GDP.
Increased Oil Production
According to reports, the Organization of Petroleum Exporting Countries (OPEC) increased Nigeria’s oil output from 1.826 million bpd in August 2022 to 1.830 million bpd in September 2022. In July, OPEC’s production quota for Nigeria was 1.799 million bpd, but the country’s production averaged 1.084 million bpd. This figure shows that Nigeria has consistently failed to meet up with OPEC’s production quota. That means Nigeria cannot fully take advantage of the soaring oil prices around the world following the Russia-Ukraine war, and OPEC’s determination to cover up for sanctions on Russia’s oil. The missing figures in Nigeria’s production to OPEC’s quota is 717,000 barrels per day or 22.22 million barrels per month, and this translates to about $12.44 billion every month. Increasing production will help meet up with OPECs quota and even more, also it would solve the issue of FX scarcity and increase the country’s GDP.
Increased in-country refining capacity
Oil is a contrasting fortune for Nigeria. With soaring oil prices in the world, oil should contribute more to Nigeria’s economy, but it doesn’t in the real sense, to the country’s economy. Since the start of the Russia-Ukraine war, oil prices have been pegged at $100 per barrel, which makes Nigeria earn more from oil, but a lack of refining capacity also makes the country spend more. In January 2022, the price of Automotive Gas Oil (AGO) also known as Diesel was sold at around N288 in the country, the price has soared to about N774 in most stations in the country.
Despite having four refineries, they are moribund. Increasing in-country refining capacity will help solve the refining issues in the country as Nigeria will have functional refineries to refine oil products, and spend less on the importation of refined petroleum. Also, it will help make petroleum products available. It will also help reduce Nigeria’s ever-increasing subsidy bill. Nigeria’s subsidy bill is projected to N6 trillion in 2022.
Stoppage of oil theft/illegal refineries
Oil theft in Nigeria has continued to grow, despite governments’ efforts to clamp down on illegal activities. According to reports, Nigeria loses about 400,000 barrels of crude oil to theft daily, which amounts to about $40 million. Also, 95% of oil output at the bonny terminal is stolen. This figure is partly responsible for Nigeria’s failure to meet up with OPEC’s quota. The oil stolen goes through a process and is sold to illegal refineries locally or abroad. The oil stolen does not contribute to Nigeria’s GDP and also doesn’t generate any revenue.
While plans are in place to diversify Nigeria’s economy and make it sufficient for non-oil exports, addressing the issues in the oil and gas industry is crucial to the sustainability of the Nigerian economy and increasing the country’s GDP.
