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COVID-19: N2.64t shortfall imminent as oil outlook topples government’s plan

 Over $160b Oil, Gas Projects Face Uncertainty Over OPEC’s Failure
• Stakeholders Proffer Escape Route, Warn Against Borrowing
• Capital Projects, Debt Servicing To Suffer As Recession Looms

Over N2.64t revenue expected from the sale of crude oil to fund the 2020 budget may remain unrealistic as prices of oil crashed to record low of $45 per barrel, following the inability of the Organisation of Petroleum Exporting Countries (OPEC) to reach a new deal that would have cut oil output by 1.5 million barrel per day (bpd).

Amid a bumpy outlook for the nation’s excess crude account, which has been depleted by the President Muhammadu Buhari-led administration, over $160b worth of oil and gas projects, particularly in the country’s upstream sub-sector, as well as infrastructure projects of the Federal Government, may suffer as tougher times await marginal operators in the nation’s oil sector.

With the nation’s debt profile rising from N12.6t in 2015 to N26.2t in 2019, stakeholders have advised the Federal Government on preventive measures, but nothing near borrowing, as a result of the debt profile.

The outbreak of Coronavirus in China and other countries have created shocks in the oil market prompting OPEC and its allies, especially Russia to take measures aimed at cutting about 1.5 million bpd of oil output from the international market, but the cartel ended its meeting with no deal.

While current agreement ends by this month, thereby opening up the market to oversupply by April 1, the current development has created a free fall of over eight per cent in oil prices, as Brent stood at $45.27 yesterday, in the face of imminent break up of OPEC+ alliance.

Nigeria’s N10.33t 2020 budget was predicated on 2.18 million bpd output at a price of $57 per barrel, while the exchange rate is expected to remain N305 per dollar. The country, therefore, requires an additional $12 on every barrel, violation of OPEC’s existing production cut, as well as a looming scarcity of foreign exchange.

With N2.64t from oil, N1.81t from non-oil and N.97t coming from other revenue sources, Minister of Finance, Budget and National Planning, Zainab Ahmed, had earlier said the devastating impact of the coronavirus outbreak may force the government to review the 2020 budget of N10.95 trillion.

Coming at a time when the country is yet to pass critical legislations that would have driven investment into the oil and gas sector, there are indications that pending projects in the country may face the fresh threat.

Some of the projects either at planning stage or bogged down by hurdles years after initiation include Shell’s Bonga South-West and Aparo, which is expected to add about 225, 000 barrel per day (bpd); Bonga North (100,000bpd); Eni’s Zabazaba-Etan (120,000bpd); Chevron’s Nsiko (100,000bpd); ExxonMobil’s Bosi (140,000bpd); Satellite Field Development Phase Two (80,000bpd), and Ude (110,000bpd).

These projects are estimated to cost around $100b, boosting the nation’s production by as high as 875, 000 bpd and revenue by about $1.5b.

The Ajaokuta-Kaduna-Kano (AKK) pipeline, a 614 km-long natural gas stretch developed by the NNPC at the cost of $2.8b and scheduled for commissioning in 2020 is yet to commence, even though the NNPC originally announced tenders for its development as far back as July 2013.

Also mired in obscurity are the $20b Brass LNG project in Bayelsa State; the $9.8 billion Olokola LNG in Ogun; the 5000 km Nigeria-Morocco offshore gas pipeline which in current market price would cost an estimated $20 billion; and the expansion of LNG Train-7 plant, a Nigerian Liquefied Natural Gas project, expected to attract $10 billion in FDI.

Vice President, Macro Oils, at Wood Mackenzie, Ann-Louise Hittle, stated that the current development in the international oil markets was a psychological blow for the market, evident in the steep plunge in oil prices, that the market would face the spectre of unrestrained production once the current OPEC+ agreement expires in March.

According to her, Saudi Arabia will push hard to lift their output in the northern hemisphere spring, considering weak demand and the likelihood of the development persisting into the second quarter, it will be hard for any producer to increase their output sharply once the original production deal expires at the end of this month.

She added: “One factor to bear in mind is that the plunge in demand we saw in the first quarter was created by circumstances in China. The country’s Coronavirus (COVID-19) containment measures have been far more stringent than those imposed anywhere else, and are not likely to be copied elsewhere.

“The lack of a production deal carries risk. This would become apparent if global economic growth weakens and oil demand continues to contract more sharply than expected. Thanks to the double whammy of Coronavirus containment measures and falling GDP.”

A leading Professor of Economics and member of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), Abiola Adenikinju, insisted that the current slump in oil price may not be transient, adding that global trade, global supply chains, movement of peoples, air transportation would be significantly affected.

To him, the global economy in the first half of the year would likely contract as China, Asia, Europe and increasingly the United States’ economies will be negatively impacted by the development, coupled with the outbreak of Coronavirus.

Adenikinju said: “Nigeria must brace up for the key shocks that the falling oil prices will have on the economy. Government expenditures must be reviewed to ensure that only high impact projects are financed in order to reduce the fiscal deficit. Unfortunately, we do not have many fiscal buffers to cushion the impact of oil prices.”

He noted that it was again high time Nigeria focused on boosting non-oil revenues to reduce the expected shortfall in oil revenues, stressing that the Federal Government must not resort to debts to finance the shortfall given the current scale of national debts.

Adenikinju also noted that the country must maximise the domestic contributions of oil and gas, rather than focusing on it as its main source of revenue.

He added: “A lot of investment in the upstream sector will be stressed and likely put on hold. Marginal producers will also find the environment more difficult to operate.”

Although the Senate approved a $22.7b loan requested by Buhari’s last week, the economist said the loan may not provide immediate reprieve for the economy, as the fund would not be disbursed quickly enough to mitigate the pressures on government revenues and foreign reserves needed by the country.

The former President of Nigeria Association for Energy Economics (NAEE), Prof. Wunmi Iledare added that the country must review its 2020 budget and limit irrelevant spending in terms of concurrent expenditure. 

He also tasked the government to be transparent with respect to petroleum product subsidies at low crude prices, adding that the budget must not be based on the volatile oil market.

“I challenge Nigeria leaders to use what they have and diversify for sustainable economic growth. Low oil price is not necessarily bad except for a petroleum-dependent economy with skewed lifestyles of some. Oil is better for the economy as a source to power the economy than as a source of revenue for unsustainable lifestyles,” he said.

Iledare, however, noted that Final Investment Decisions (FID) may not be elusive since exploration and production projects are based on outlook not instantaneous. 

According to him, though the current price of oil may be lower than expected at the moment, they do not solely determine project decision making in the long run. 

Iledare said: “It is government reaction and unattractive fiscal regime with undue emphasis on money to spend today that can affect investment drastically; rather than current price situation.”

An energy expert at Nigeria Extractive Industries and Transparency Initiative NEITI) Garuba Dauda said: “A downward review of the budget will mean a backdown on some capital projects, which the country needs desperately now. It also means a potential depletion of special funds to which attention will be turned, and a possible resort to borrowing that may result in growth in the country’s debt profile,” he said.

Describing the prevailing realities as bad news and threat to the nation’s economy, PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola said the price of oil may fall far below $45 a barrel if oil producers begin to flood the market from next month.

Jaiyeola also noted that the country could fall into recession as similar development contributed to the nation’s recent economic downturn.

“We may fall into recession if the price falls further. The likelihood of falling further is the case at this moment if every OPEC country starts pumping as they want, then the price will experience a nosedive,” he said.

Currently, the country is producing about 2.2 million bpd, but Jaiyeola noted that improving on the production in the short term may be elusive, thereby creating challenges for the country.

He equally did not foresee any deposit into the excess crude account, which houses the surplus between the budget benchmark and the oil price, adding that debt service plan would also suffer since it was projected on oil price realities.

“Solutions are very little at this time. We need to increase revenue from other areas, for instance, agriculture, solid mineral and mining. It is now more important to improve revenue from non-oil sector,” Jaiyeola said.

3,500 Killed By COVID-19
Meanwhile, over 3,500 people have so far been killed by COVID-19, which confirmed cases went up to 100, 000, yesterday, in 94 countries and territories globally.

Official data from China showed that the country’s exports have taken a great bashing after the outbreak caused massive disruptions to business operations and economic activities.

The World Health Organisation (WHO) described the spread of the virus as “deeply concerning” as a number of countries reported their first cases of the COVID-19 disease.

The death toll in the United States (US) also rose to 17, with the two new deaths recorded on Friday. There are 308 confirmed cases in the US, while 2, 700 people are under quarantine in New York.In India, the confirmed cases jumped to 34 after three new cases were recorded, yesterday.

In Iran, the death toll rose to 145 after 21 new deaths were also recorded on Saturday, including a politician who became the eighth official to bow to the disease. Within 24 hours, Iran reported 1, 076 additional cases of the disease.

South Africa also confirmed its second case, just as Qatar recorded its 12th case.Back home in the country, the Director-General of the Nigeria Centre for Disease Control (NCDC), Dr. Chikwe Ihekweazu, will resume work in the office tomorrow, after ending his self-isolation, a precautionary measure taken after he returned from China, as part of a World Health Organisation (WHO) team.

Ihekweazu in an email exchange with The Guardian said: “Please, I am back to work on Monday, and not answering questions relating to my well being. I am absolutely fine…”

Some Churches Not Heeding CAN’s Warning
One week after the Christian Association of Nigeria (CAN) directed churches to take serious steps to curb the spread of the deadly disease, most churches have paid scant heed to the directive.

Last week’s CAN’s statement, which was signed by the General Secretary, Joseph Bade Daramola, urged all churches in the country to make water, soap and sanitisers available for worshippers before, and after service, beginning penultimate Saturday, while also appealing to all Nigerians, irrespective of religious and political persuasions, to embrace simple rules of hygiene regularly for safety reason. 

CAN also called on government at all levels to be pro-active in order to contain the disease and prevent its spread, as well as cautioned politicians against politicising the situation.

However, a visit to some churches by The Guardian revealed a poor level of compliance to the directive, as well as the absence of precautionary measures among members.

Despite admonishing his flock not to entertain fears, but believe the scripture, the General Overseer of the Redeemed Christian Church of God (RCCG), Pastor Enoch Adeboye, last Sunday, at the National Headquarters (The Throne of Grace) at Ebute-Metta, Yaba, took time to sanitise every member that was present in church in obedience to the CAN directive.

According to a member, who was part of the service, “taking precautionary measure against the virus is very important because of the way the virus has been spreading. So, it is important one complies with the directive in order not to fall, the victim.

The President/Founder of Rhema Christian Church and Towers International, Otta, Ogun State, Bishop Taiwo Akinola, informed that he was making provision for water and sanitisers at the church headquarters, adding that aside this, members have been constantly enlightened on the need to wash their hands, avoid touching their faces, cover their mouths with handkerchiefs when they cough, among other things.

The cleric, who said that health talk has now become part of the church’s teachings, added that on Sunday (today), “a medical practitioner will come to talk to the whole church on the virus and other health issues. All hands must be on deck to contain this virus.”

Clifford Oritsefemi, a member of The Synagogue Church of All Nations, Lagos, who spoke to The Guardian said that members of the church have no need to be worried as the founder of the church, Prophet T.B. Joshua, had earlier told them in 2019 that there will be a deadly virus and that members of the church should pray against its spread.

He further disclosed that penultimate week, Joshua in his Sunday homily told them that the deadly virus that started in Wuhan, China, mid-December would disappear as it came by March 27, 2020, adding that the rain that fell on March 1, was designated to wipe out the epidemic and that the rain, which began in Wuhan would fall intermittently across the world.

At the Daystar Christian Centre in Oregun, Lagos, a member, who identified herself as Derbie said: “We’ve been told to protect ourselves by washing our hands regularly with soap and sanitiser as well. And that is why we even have sanitiser placed at different entry points in the church auditorium.

At the Lord’s Chosen Charismatic Revival Ministries in Ijesha, Lagos, the Public Relations Officer of the church, Pastor Louis Chidi, said the church places a high premium on the spiritual and physical lives of its members.

At St. Hoares Methodist Church, Yaba, there were no wash-hand basins or such facilities outside and inside the church, and it was business as usual.

SOURCE: TheGuardian