Nigeria’s 2025 budget faces a significant threat as global crude oil prices continue to slide below the projected $75 per barrel benchmark. This decline, coupled with a recent dip in the country’s average daily crude oil production, casts a shadow over the government’s ambitious revenue projections and raises concerns about the viability of newly operational local refineries, including the highly anticipated Dangote Refinery. The budget, predicated on a $75 oil price and a production target of 2.06 million barrels per day, heavily relies on oil revenue, with approximately 56% of the projected N34.8 trillion total revenue expected to come from this sector. The persistent drop in oil prices, currently hovering around $70 for Brent crude, significantly jeopardizes the government’s ability to meet its fiscal obligations and potentially necessitates budget revisions or spending cuts. Furthermore, the falling production levels, which slipped from 1.7 million barrels per day in January to 1.6 million barrels per day in February, exacerbate the revenue shortfall and raise concerns about the adequate supply of crude oil to domestic refineries.
The ramifications of dwindling oil revenue extend beyond the government’s fiscal challenges. The lower production figures also threaten the domestic crude supply obligations, particularly impacting the naira-for-crude deal, an agreement designed to supply local refineries with 450,000 barrels of crude oil daily at a fixed naira price. With production falling short of targets, refineries, including the Dangote Refinery, face the prospect of insufficient feedstock, potentially forcing them to rely on more expensive imported crude or operate at reduced capacity. This situation could undermine the government’s efforts to boost local refining capacity and achieve fuel self-sufficiency, ultimately impacting fuel prices and potentially negating the benefits of lower global crude prices for Nigerian consumers. The Dangote Refinery, initially envisioned to significantly reduce Nigeria’s reliance on imported fuel, already supplements its domestic crude supply with imports from the United States and Angola. Further production declines could exacerbate this reliance, impacting the refinery’s profitability and potentially delaying its plans to reach full capacity.
While lower crude prices generally translate to cheaper petrol and diesel for consumers, the Nigerian government faces a complex dilemma. The budget’s reliance on high oil prices and production levels leaves it vulnerable to market fluctuations. Experts suggest potential solutions, including budget revisions, spending cuts, and increased efforts to ramp up oil production. However, borrowing is generally discouraged as a long-term solution. The government’s ability to effectively manage this delicate balance between fiscal stability and consumer welfare will be crucial in the coming months. The country’s foreign exchange earnings, currently about N100 above the projected N1,400 to a dollar, offer some respite, but this alone is insufficient to offset the substantial revenue shortfall from oil.
The situation surrounding the Dangote Refinery and other local refineries highlights the interconnectedness of oil production and refining capacity. The naira-for-crude deal, designed to ensure a steady supply of affordable crude to these refineries, is now under pressure due to the production decline. While the initial six-month phase of the deal is set to expire in March 2025, ongoing discussions suggest a renewal is likely contingent upon crude availability. The NNPC’s disclosure that it supplied 48 million barrels of crude to the Dangote Refinery since October 2024 and a total of 84 million barrels since its commencement in 2023 underscores the refinery’s dependence on domestic crude. However, with the refinery still operating below its planned 650,000 barrel per day capacity and relying on imported crude, the pressure on domestic supply is expected to increase further.
Experts offer a range of perspectives on the potential impact of these developments. Some emphasize the negative impact on the budget and the need for government action to increase production or reduce spending, while others highlight the potential benefits of lower fuel prices for consumers. There is a consensus that the declining crude production poses a significant challenge to the domestic refining sector, potentially leading to increased reliance on imports and higher fuel prices in the long run. The government’s ability to boost oil production, effectively manage the naira-for-crude deal, and ensure a stable supply of crude to local refineries will be crucial in determining the overall impact of these market fluctuations on the Nigerian economy. Balancing the need for fiscal stability with the goal of providing affordable fuel to consumers will require a delicate and multifaceted approach.
The optimistic projections by the Minister of State for Petroleum Resources, Heineken Lokpobiri, regarding achieving three million barrels per day production in 2025, including crude and condensates, offer a glimmer of hope. However, achieving this ambitious target requires overcoming significant challenges, including security concerns in the Niger Delta, aging infrastructure, and investment constraints. The Minister’s suggestion of separating crude and condensate storage to accurately reflect production figures highlights the complexities of the current situation. While the increase in production from one million barrels per day to 1.8 million barrels per day is commendable, sustaining and further increasing this output remains a significant hurdle. The success of the government’s efforts to boost production will ultimately determine whether Nigeria can capitalize on the potential benefits of its refining capacity and achieve long-term fuel self-sufficiency.
