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2023 Budget: Falling oil prices raises concerns despite increased production

There is growing concern that the federal government may not be able to meet its revenue projection from oil, which is the nation’s major funding source, as global oil prices fall on the back of slowing economic growth.

Nigeria’s top oil grade, Bonny Light, is said to have fallen to $73.87 per barrel over the weekend from $76.37 last week, a three percent decrease.

The 2023 budget was benchmarked by the federal government at $75 per barrel and 1.8 million barrels per day (bpd), including condensate, which Nigeria has the ability to produce at a rate of between 300,000 and 400,000 barrels per day (bpd).


The global economic slowdown, particularly in some developed economies that purchase commercial oil from Nigeria and other major oil producers, was blamed for the price decline that also affected other crudes.
The National Assembly reviewed the benchmark price and set Nigeria’s crude oil benchmark at $75 per barrel in the N21.8 trillion budget, despite the executive initially proposing a benchmark of $70 per barrel of oil for 2023.

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Condensate, which Nigeria has the capacity to produce between 300,000 and 400,000 barrels per day (bpd), was included in the 1.8 million barrels per day (bpd) production estimate made by the federal government.
According to a recent report by Goldman Sachs, the global economic slowdown makes it unlikely that oil will reach the $100 per barrel level that it had earlier predicted, noting that the current weak state of the global economy has already culminated in the failure of two major US banks.
According to the report, oil prices will likely stay around $94 per barrel for the next 12 months before rising to $97 per barrel in 2024. The report also noted that “oil prices have plunged given banking stress, recession fears, and an exodus of investor flows.”

According to the Organization of Petroleum Exporting Countries (OPEC) March 2023 Monthly Oil Market Report, Nigeria’s oil production increased month over month by 3.8 percent to 1.306 million bpd in February 2023 from 1.258 million bpd recorded in the preceding month of January 2023.
Additionally, from 1.258 million bp/d in the same period of 2022 to 1.306 million bpd in February 2023, Nigeria’s oil production increased by 3.8% annually. According to the Nigerian National Petroleum Company (NNPC) Limited, Nigeria is aiming to produce 2.2 million barrels per day (bpd), including condensate, on average by 2023.

NNPC Group Chief Executive Mele Kyari said, “In our case, we have a different challenge other than just a lack of investment in the last four to five years.” Mele Kyari was speaking during an interview session at the 13th global United Arab Emirates, UAE virtual energy forum.

“In the previous four to five years, there have been no investments. That is accurate. That holds true in many other countries where the investment cannot be supported by cash flows. In early 2022, we faced a new challenge—a security challenge—that was very real.


We took concrete steps to restart production, and they are beginning to bear fruit.

For example, in July, our net crude oil production, excluding condensate, decreased to about 1 million bpd. It is the lowest it has ever been in the history of our nation and our sector. As a result, we anticipate that production will be fully restored within a year, including condensate. Undoubtedly, we are confident that we can achieve our 2.2 million bpd goal. However, the OPEC target is 1.8 million bpd, and we are aware that 2.2 million can be accomplished by 2023.

Organization of Petroleum Exporting Countries (OPEC) has announced that it is taking drastic measures to balance the oil market as oil prices continue to fall, but it is growing sensitive and uneasy about perceived market volatility.

The Organization’s secretary general Haitham Al Ghais and the Prime Minister of Iraq met over the weekend and called for coordinated action by all oil exporters to lessen market volatility and prevent negative effects for countries that consume oil.

The Iraqi Prime Minister Mohammed Shia al-Sudani, who joined the call for cooperation on oil markets, was present when the official spoke. No official went into specifics about what this coordination might entail.

The Saudi energy minister stated earlier this month that OPEC+ would keep its tighter supply plans in place.

“Some people still believe we will change the agreement. In an interview with Energy Intelligence, Abdulaziz bin Salman stated, “I say they need to wait until Friday, December 29 2023 to demonstrate to them our commitment to the current agreement.

The second-largest producer in OPEC, Iraq, is still committed to the OPEC+ agreement on production limits, according to comments made over the weekend by the country’s oil minister.

But Hayan Abdel-Ghani also said that Iraq was ready to increase oil production if necessary.

The government of Iraq intends to significantly increase the nation’s oil production capacity from the rate of roughly 4.5 million barrels per day at present. The same government, however, has consistently asserted that it fully supports OPEC and its production adjustment initiatives.

Meanwhile, oil executives outside of OPEC are cautioning that the cartel is once again in control of the world’s supply of oil, which may lead to higher prices in the future.

Scott Sheffield, CEO of Pioneer Natural Resources, was quoted by the Financial Times as saying, “I think the people that are in charge now are three countries and they’ll be in charge the next 25 years.” “First Saudi, then UAE, then Kuwait.”

“Does it imply that Opec will simply regain control if the US starts maintaining [production] flat? We produce 10% of the world’s oil, compared to a much higher percentage from OPEC plus Russia. So yes, they can probably impose their will more so than we could, Devon Energy CEO Rick Muncrief told the Financial Times.

Nigeria’s Upstream Petroleum Regulatory Commission (NUPRC) is energizing and obediently scudding winners of marginal fields to spud first oil from their fields as the country targets exponential growth in crude production to meet her quota by the Organization of Petroleum Exporting Countries, or OPEC. This is in response to Nigeria’s declining production.

Angola replaced Nigeria as the top oil producer in Africa as the continent’s largest economy saw its output decline the most among its OPEC counterparts in May.

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According to direct communication and the OPEC monthly report for May, Nigeria’s oil production decreased by 195,000 barrels per day (bpd) from 1.22 million in April to 1.02 million in May.

NUPRC predicts that the awarded marginal fields will boost oil production by about 58,000 barrels per day in order to reverse this (bpd).

Gbenga Komolafe, the Commission’s chief executive officer, claimed that the oil fields would also boost the nation’s gas production by 87 million standard cubic feet per day.

Speaking to our correspondent about the subject, Engr. Felix Chijioke Obike, Chairman of the Society for Petroleum Engineers (SPE) Nigeria Council, said Nigeria should make more of an effort to increase her reserves while also exploring new technologies that promote emission reduction or elimination. In the long run, Nigeria could concentrate on diversifying away from fossil fuels, but we are not there yet.

According to Obike, the energy crisis in Europe has increased demand for alternative gas sources, and Nigeria’s incoming administration could take advantage of this trend as a source of revenue to restructure the country’s economy and oil and gas sector.

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