Oil price: Nigeria to lose N680bn in 2015

If the revised budget benchmark of $73 per barrel of crude oil, as against the initial $78 provided for in the Medium Term Economic Framework (MTEF) and proposed for 2015 budget is approved by the National Assembly, then Nigeria will be losing a whopping $4 billion  (about N680 billion) as revenue next year.
Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, who briefed reporters in Abuja on Sunday, explained that the development was in the face of the continuous slide in oil prices. The new benchmark price is to be submitted to the National Assembly.

Currently, the nation’s daily crude oil production is estimated at 2.39 million barrels per day (mbpd). If this figure is multiplied by $78, which is the initial budget benchmark that would sum up to $186.42 million daily and $67 billion yearly. But with the new benchmark figure of $73, daily revenue accruing to government would be $174.47 million and $62 billion yearly.
“The drop in oil prices is a serious challenge we must confront as a country. We must be prepared to make sacrifices where necessary. But we should also not forget that we retain some important advantages such as a broad economic base driven by the private sector and anchored on sound policies. Our strategy is to continue to strengthen the sectors that drive growth such as agriculture and housing while reducing waste with a renewed focus on prudence,” the Minister said.
And to urgently address the shock on the economy, Okonjo-Iweala said government, in the meantime, would take money from the excess crude account to absorb some immediate shocks, noting that government was not considering printing extra currencies to check the development.
The United States (US) International Energy Agency (IEA) said at the weekend that it foresaw even a further price plunge. The agency also cited the risk to US unconventional oil production, which could become uneconomic at prices under $80 per barrel.
Meanwhile, OPEC has maintained production averaging 30.08 million barrels per day so far in 2014. While global oil prices have fallen by more than 30 per cent since mid-June, and in its latest monthly oil market report, the IEA said oil markets were entering a “new chapter” in their history, and that a return to higher prices in the short term seemed unlikely.
“Our supply and demand forecasts indicate that barring any new supply disruption, downward price pressures could build further in the first half of 2015,” the IEA said.
On Thursday last week, Brent crude futures slipped below $80 per barrel for the first time in more than four years, and earlier Friday dipped below $77 per barrel.
“While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80-$90 per barrel range, supply/demand balances suggest that the price rout is yet to run its course,” it said.
Market players have estimated that some US light, tight oil production could become uneconomic at current price levels, including OPEC Secretary General, Abdalla el-Badri, who last month said 50 per cent of US light, tight oil production could come off the market as a result of the low price.
But the IEA said production growth was showing few signs of abating.
“While falling prices may well trim investment in US light, tight oil, such potential cuts should not be misconstrued as a production drop, and indeed would likely pale in comparison with recent gains in LTO productivity. Cost reductions and efficiency gains in LTO production have been constant, and price pressures would only provide more impetus for producers to cut costs further.”