Between 2010 and 2014, Nigeria’s oil and gas industry generated 47% of government revenues.
This is according to the World Bank, in its November 2022 Public Finance Review report on Nigeria.
In the report, the World Bank states that oil revenues have historically accounted for the largest share of Nigeria’s public revenues, and this share declined significantly thereafter to an average of 36.6% between 2015–2020. The report stated:
- “After rising above 2 million barrels per day in 1997, oil production fluctuated between 2 and 2.5 million barrels per day, before falling below 2 million barrels per day in 2016 due to an unusually high number of attacks on oil production infrastructure that year. After recovering modestly, production in 2021 fell to the lowest level since 1988.”
In contrast to the success of the oil and gas industry between 2010 and 2014, Nigeria’s Central Bank governor, Godwin Emefiele, recently announced that the country’s crude oil sales proceeds into its foreign reserves are down to zero.
Declining crude oil production: According to the World Bank report, the failure of the Nigerian National Petroleum Company (NNPC) to pay for the federation’s share of costs in joint venture (JV) operations has been a significant contributor to declining oil production, which has impacted crude oil sales proceeds.
Explaining further, the report stated:
- “The federation, through the NNPC, is supposed to pay 55% (in JVs with Shell) or 60% (in all other JVs) of production costs and receive the corresponding share of total revenue. However, the federation has failed to pay its full share and owed, as of March 2022, $0.97 billion of arrears for oil production costs prior to 2016. However, it began accumulating arrears again in 2020. The arrears grew in 2021 and 2022, as oil revenues were diverted to finance the growing subsidy for petrol.”
The World Bank’s report cited the NNPC monthly submissions to FAAC, payments made to cover the federation’s share of costs had fallen short of the budgeted amount by $2.9 billion in 2021. The combined impact of payment arrears and continuing disruptions to oil production in onshore fields has prompted experienced oil companies to exit onshore oil production.
Petrol subsidy is hurting Nigeria’s economy: The World Bank report refers to petrol subsidies as enormous and volatile. Because the subsidy fluctuates with global petrol prices, which tend to follow movements in crude oil prices, it is susceptible to sudden and unpredictable changes. In 2020, when oil prices were low, the subsidy totaled ₦107 billion, consuming 4% of the country’s oil and gas revenues paid in kind to the NNPC.
As oil prices increased in 2021, the price of petrol also rose, and the cost of the subsidy soared to ₦1.43 trillion in nominal terms. This amounted to 0.8% of gross domestic product (GDP), about double what the federal government is spending on health and social protection combined. Other factors that have affected Nigeria’s crude oil production over the years include; attacks on oil production infrastructure, work stoppages, disturbances in oil-producing communities, and more recently, crude oil theft.
In case you missed it: The Labour Party presidential candidate, Peter Obi, has previously said that Nigeria’s over-reliance on oil, excessive borrowings, and fiscal indiscipline is contributing to the country’s slow economic growth.
- If elected, Obi says his administration will reduce the petrol subsidy cost by over 50%, with concomitant measures and counter-balance policies and programs to cushion the impact of the removal of oil subsidy.
- He also said he will support modular refineries and local refining for domestic use and priced strictly in naira.
