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Nigeria budget faces more troubles as $9.6bn judgment debt, falling crude prices, raise fresh fears

Hopes of full implementation of the 2019 budget are now looking doubtful as Federal Government’s revenue sources countined to come under pressure due to falling crude oil prices, increased shale oil production by the United States and the recent $9.6billion judgement debt imposed on the counry by a British court.

For instance Brent crude, the international reference crude traded at $59.76 at yesterday indicating a drop of $0.24cent against Nigeria’s budget benchmark of $60 per barrel.

The concern among oil traders is that the development has been trend for over three months and chances of it continuing remain high on the scale .

The slide in oil revenue appears to have compelled the government to target two other revenue generating agencies; Customs and the Federal Inland Revenue Service in order to make up for the shortfall.

President Muhammadu Buhari, had on May 27, 2019 signed the N8.9trillion budget with oil production benchmark at 2.3 million barrels per day at the price of $60 per barrel. With an inbuilt deficit of N1.89trillion, the Senate in April also approve a new borrowing plan to support the budget.

To compound the looming fiscal crisis for the Buhari administration in its bid to implement the budget, a British Court judgment which gave an Irish firm, Process and Industrial Developments Limited (P&ID) the nod to seize Nigerian assets worth $9.6 billion over a failed gas deal may further constrict the nation’s $44.3billion foreign reserves by over 20 per cent if implemented.

Although the Central Bank of Nigeria (CBN) Governor, Mr.Godwin Emefiele, had given assurances the apex bank would move strongly to defend the reserves, the effect on the economy and the implementation of the budget could also be far reaching.

According to Emefiele the judgment could impact country’s monetary policy. .

In the past few years, the US has significantly reduced imports of Nigerian crude oil as its shale oil operations continues to gain traction in the international market compared to Nigeria’s Bonny Light.

This is because despite reducing its import from Nigeria to 9.599 million barrels in the first three months of 2019 from 15.879 million barrels in the same period of 2018, according to latest data from the US Energy Information Administration, the US is known also to be targeting Nigeria’s traditional markets in Europe and Asia.

Similar figures from the National Bureau of Statistics (NBS), showed that crude oil exports, contributed N3.376 trillion or 74.45 per cent to the value of total exports in Q1 2019, trailing behind the Q1 2018 figure of N3.58 trillion, representing 76.3 per cent of total exports.

But despite the growing concern over government’s revenue, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr.Mele Kolo Kyari, said he is not losing sleep, assuring in a recent interview that buyers would still come to buy because of the quality of the country’s crude.

“I think the advantage we’ve had is the quality of our crude. We know (buyers) will come.”

Also commenting, energy analyst and Partner, Bloomfield Law Practice, Dr. Ayodele Oni, expressed concerns that should the drop in oil prices continue, we will have a serious budget deficit and may have to borrow more than anticipated.

‘‘Although, in my view, the dynamics of the shale production versus dropping oil prices is ironic because ordinarily, the lower crude oil prices, the less attractive/ less profitable shale becomes because conventional crude is cheaper to produce and less technologically compared to shale. Thus, I doubt that shale, is at the moment or immediate future a real threat to crude prices.’’ He said.

Nigeria has earned a total of $236.15 billion from petroleum exports over the last five years, a new report by the Organisation of Petroleum Exporting Countries has shown.

OPEC, in its 2019 Annual Statistical Bulletin, put the value of Nigeria’s petroleum exports at $75.196billion in 2014; $41.168billion in 2015; $27.295billion in 2016; $37.983billion in 2017, and $54.513billion in 2018.

In 2018, the value of the country’s petroleum exports was the sixth biggest in the 14-member group, behind Saudi Arabia’s $194.358billion, UAE’s $74.94billion, Iraq’s $68.192billion, Iran’s $60.198billion and Kuwait’s $58.393billion.

Both Nigeria and the United States are big producers of the kind of light sweet grades that are ideal for refining into gasoline.

Energy traders say Nigerian oil suffered its slowest sales of the year recently as August supplies are yet to be sold off even as the United States exports are targeting Nigerian traditional markets in Europe and Asia.

The changes are a demonstration of the US President Donald Trump’s strategy of “energy dominance” which is reshaping oil markets worldwide, with its oil exports surging from 260,000 barrels per day in June to a monthly record of 3.16 million bpd, reports Reuters.

Crude from Africa’s top exporter has largely been pushed out of the US market in the last decade due to booming domestic output. Exports to the United States slid to zero for three weeks in July, the US Energy Information Administration said.

This comes as shale oil from the US Permian basin continues pouring into traditional strongholds for Nigerian oil in Western Europe, India, and Indonesia.

According to IHS Markit, Europe has imported around 46 per cent of Nigeria’s oil since the beginning of 2019, India nearly 18 per cent, and the rest of Asia about another 10 percent.

“They’re facing bigger competition from the U.S., and in the last few weeks, U.S. exports have really picked up,” one major buyer of West African crude told an online medium recently.

As many as forty cargoes for export in August were still in need of buyers when Nigeria began publishing its preliminary programme for September exports beginning on Jul. 18.

It was the largest oversupply so far in 2019, with about 25 cargoes the monthly norm.