Falling Oil Prices: Nigeria Oil Revenue Dips By N77bn



Continuous decline in the price of crude oil has caused Nigeria to lose as much as N77.2 billion from oil revenue in one month, according to data obtained from the Central Bank of Nigeria, CBN.

Specifically, the CBN in its October 2014 Economic Report, disclosed that oil revenue for the month dropped by 14.11 per cent to N470 billion from N547.2 billion recorded a month before.

Non-oil revenue also declined by N11.1 billion or 3.9 per cent from N284.6 billion in September 2014 to N273.5 billion in October.

As a result, gross federally-collected revenue depreciated by 10.6 per cent or N88.2 billion from N831.8 billion in September to N743.6 billion in October.

Giving a breakdown of gross oil revenue components for October, the CBN stated that crude oil/gas sales dropped to N117.8 billion from N160.4 billion recorded in the previous month, while domestic crude oil/gas sale appreciated by N6 billion or 6.4 per cent to N99.6 billion from N93.6 billion recorded in September.

Petroleum Profit Tax, PPT/Royalties, according to the CBN, also dipped by N25.5 billion or 9.19 per cent to N251.9 billion in October, from N277.4 billion recorded in the previous month.

The CBN attributed the drop in the country’s oil revenue to a decline in crude oil and gas exports receipts due to the fall in the price of crude oil in the international market.

The CBN said, “At N470.04 billion, gross oil receipts, which constituted 63.2 per cent of the total revenue, was lower than both the monthly budget estimate and the preceding month by 21.3 and 14.1 per cent, respectively.

“The decline in oil receipts relative to the monthly budget estimate was attributable to fall in receipts from crude oil and gas exports due to the fall in the price of crude oil in the international market.”
Continuing, the CBN said that of the gross federally-collected revenue, about N457.12 billion less all deductions and transfers was transferred to the Federation Account for distribution among the three tiers of government and the 13 per cent Derivation Fund.

According to the CBN, the Federal Government received N217.77 billion; the state and local governments received N110.46 billion and N85.16 billion, respectively, while the balance of N43.73 billion was distributed to the oil-producing states as 13 per cent Derivation Fund.

“From the Value Added Tax (VAT) Pool Account, the Federal Government received N9.37 billion, while the state and local governments received N31.25 billion and N21.87 billion, respectively,” the CBN added.

A further analysis of activities in the oil sector during the period in review, the CBN put Nigeria’s crude oil production, including condensates and natural gas liquids, at an average of 2.0 million barrels per day (mbd) or 62 million barrels for the month.

This, the CBN said, was 0.05 mbd or 2.4 per cent lower than the 2.05 mbd or 61.50 million barrels produced in the preceding month.

The CBN said, “Crude oil export was estimated at 1.55 mbd or 48.05 million barrels for the month. This represented a decline of 3.1 per cent below the level recorded in the previous month. Deliveries to the refineries for domestic consumption remained at 0.45 mbd or 13.95 million barrels in the review month.

At an estimated average of US$88.78 per barrel, the price of Nigeria’s reference crude, the Bonny Light (37º API), fell by 9.9 per cent below the level in the preceding month.”

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How OPEC Weaponized The Price Of Oil Against U.S. Drillers

If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.

Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want - and are achieving - further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.

Crude fell 48 per cent last year and has declined 35 per cent since OPEC affirmed its output target on Nov. 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.

Oil Prices

“The faster you bring the price down, the quicker you will have a response from U.S. production - that is the expectation and the hope,” said Jamie Webster, an analyst at consultants IHS Inc. in Washington. “I cannot recall a time when several members were actively pushing the price down in both word and deed.”

Holding Out

 U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million barrels from a year ago and 49,000 from the OPEC meeting in November. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels a day in November, according to the Energy Information Administration.

The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren’t answered.

The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. President Nicolas Maduro said Dec. 13 that “there is no possibility of default” and on Jan. 7 that the country has “the capacity to obtain the financing” it needs.

Maintain Course

 OPEC won’t reverse course even if oil prices fall as low as $20 a barrel or non-OPEC countries offer to help with production cuts, Saudi Arabian Oil Minister Ali Al-Naimi said in an interview with the Middle East Economic Survey on Dec. 21. The kingdom may even bolster output if non-OPEC nations do so, he said. The global oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates.

The group will stand by its decision not to cut output even if prices fall and wait at least three months before considering an emergency meeting, U.A.E. Energy Minister Suhail Al-Mazrouei said Dec. 14. He said clearing the surplus may take years, Abu Dhabi-based newspaper The National reported Jan. 6.

OPEC has no plans to meet before its next scheduled conference in June, Kuwaiti Oil Minister Ali al-Omair said on Dec. 16. Prices will recover in the second half as oil producers with the highest costs are compelled to scale back operations, he said.

‘Swift Fall’

It wouldn’t be the first time U.S. drillers are caught up in an OPEC battle for market share. In 1986, Saudi Arabia opened its taps and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

“It seems in their interest to have a swift fall rather than a slow, grinding fall,” Miswin Mahesh, an analyst at Barclays in London, said by phone. “A swift drop in prices would bring more changes to non-OPEC supply,” while a more gradual decline would let companies in other oil nations “merge and become more efficient.”

Not all share this view. UBS Group AG analysts said that hastening a price slump isn’t a practical strategy because oil demand and supply respond too slowly to price changes.

Undermine Prices

“I doubt that they target a lower price,” Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail on Jan. 5. “Supply and demand are quite inelastic in the short-term.”

Brent for February settlement decreased 85 cents, or 1.7 percent, to $50.11 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since April 28, 2009.

Saudi Arabian oil ministers sought to undermine prices in the 1980s and 1990s with their public comments, according to Amy Myers Jaffe, executive director of energy and sustainability at the University of California-Davis. The tactic was used to pressure other OPEC members into agreeing to quota changes, she said.

There are signs that OPEC’s approach is starting to work. Rigs targeting oil in the U.S. declined for the sixth time in seven weeks, by 17 to 1,482 last week, Baker Hughes Inc. said on its website on Jan. 5. There will be a serious decline in U.S. shale oil investment in 2015, Fatih Birol, chief economist of the International Energy Agency in Paris, said on Dec. 22.

“Some OPEC countries, most specifically Gulf states, obviously think that it’s best to get unpleasant things over and done with,” Eugen Weinberg, head of commodities research at Commerzbank AG, said by e-mail from Frankfurt. “The recent wordings showed they are still firm about this strategy.”

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Nigeria Loses N170bn To Gas Flaring



Nigeria lost about $1bn (N170bn) as oil companies operating in the country flared a big chunk of the gas produced from January to September 2014, analysis of data obtained from the Nigerian National Petroleum Corporation has shown.

According to data from the NNPC, about 296 billion standard cubic feet of natural gas was flared in the nine-month period.

With natural gas price now about $3.30 per 1,000 scf, 296 billion scf of gas amounts to about $1bn.
International oil companies and indigenous players burnt a total of 43.7 billion scf in January (19.17 per cent of total production), 50.1 billion scf in February (23.20 per cent of production) and 38.3 billion scf in March (17.77 per cent of output).

In April, 22.3 billion scf of gas was flared; 19.7 billion scf in May and 23 billion scf was wasted in June. In July, 29.1 billion scf was flared; 39.1 billion scf in August; and 29.5 billion in September, the NNPC data showed.

Nigeria is Africa’s top oil producer and largest holder of natural gas reserves on the continent, with about 187 trillion cubic feet of proven gas reserves and 600 Tcf of unproven gas reserves.
But low investment in gas infrastructure over the years has continued to hamper the development of the huge natural gas reserves in the country for domestic consumption, particularly for power generation.

A former Permanent Secretary in the Ministry of Mines and Power, Chief Philip Asiodu, had recently said that there could be no valid excuse for the failure over the past two decades to agree on gas pricing, which would have led to the much-needed development of gas reserves to fuel the power sector and gas-utilising fertiliser and petrochemical industries in the country.

“Many promoters of excellent viable projects based on gas have negotiated with the NNPC and the government for more than 10 years to no avail. This has been disastrous for economic development. It has been bad for the environment as cut-off dates for gas flaring have been postponed continuously,” he said.

The International Energy Agency, in its special report entitled: ‘Africa Energy Outlook’, said a critical uncertainty for Nigeria’s gas supply outlook was its ability to stimulate significant production of non-associated gas.

“Huge resources exist, sufficient to cover both domestic demand and exports. Production of non-associated gas increases in our projection period, but it is gradual. Exploiting this resource requires a change in focus by the upstream sector and, importantly, the government to establish a framework to incentivise the necessary large-scale capital investment,” it stated.

This will require a stable, attractive investment environment generally and the development of a bankable commercial structure in Nigeria’s gas sector, which includes price reforms, improvements in regulatory arrangements, a redefinition of the role of public companies in the gas sector and an alternative to the current NNPC joint venture financing model, the IEA said.

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