Nigeria’s economy begins major shift as oil sector rebounds

There are indications that Nigeria’s economy is reversing back to oil-sector led development while the gains made in non-oil sector is now reversing.

Average rig count, an index of measuring activities in the upstream sector, rose year-on-year, YoY by 62 per cent to 15 between June and October 2023, compared to nine recorded in the corresponding period of 2022.

A month-on-month breakdown of the data compiled by OPEC for five months period covering June – October 2023 put Nigeria’s rig count at 16, 14, 18, 15 and 13 in June, July, August, September and October 2023, respectively.

This shows a significant improvement compared to the 11, 11, 10, 7 and 8, recorded in June, July, August, September and October 2022, respectively.

The organization did not specify the driving factors, but checks by Vanguard pointed to the continued positive response of stakeholders, especially investors to Nigeria in the post-Petroleum Industry Act, PIA regime.

The PIA, a comprehensive legislation was signed into law by former President Muhammadu Buhari to bring about restructuring and repositioning of the oil and gas industry for new investments while enhancing transparency and accountability.

Oil production rises to 1.4m bpd

The nation’s oil output has recorded a huge rise by over 40 percent from the low base of below one million barrels per day (mbpd) last year to 1.45 mbpd in October 2023.

Specifically, Forcados terminal recorded a massive 6,028.5% YoY rise just as Bonny terminal recorded 1,875.7% rise, while Brass recorded 245.5%  rise and Escravos rose by 24.0%).

All other terminals reported uptick in production for the first time in recent years.

Impact of Nembe crude

Checks by Vanguard indicated that the nation’s total oil output has been impacted by the recommencement of production and export of Nembe crude by the NNPC/ Aiteo Joint venture.

The OML 29, acquired from Shell in 2014 was previously blended with the popular Bonny Light grade and exported via the Bonny Oil & Gas Terminal.

Already, two cargoes of 950,000 barrels each of the Nembe Crude Oil grade have since been exported to France and the Netherlands, thus signaling the beginning of activities at the Nembe Crude Oil Export Terminal, NCOET, which was licensed in line with the extant laws and Crude Oil Terminal establishment regulations.

Europe gasps for Nigeria’s oil

Executive Director, Crude & Condensate, Maryamu Idris, NNPC Trading Limited, said in a panel presentation at the just-concluded Argus European Crude Conference in London that the Nigerian crude flow to Europe has increased in a bid to fill supply gaps left by the ban on Russian crude.

She pointed out that six months before the Ukraine war, 678,000 bpd of Nigerian crude grades went to Europe, compared to 710,000 bpd six months later and 730,000 bpd so far this year.

According to her, NNPC Limited has secured vital partnerships with notable financial institutions to promote upstream investments to restore and sustainably grow production capacity in the coming years.

Analysts’ insights

Giving their perspectives on the impact of the development in the oil sector, analysts at Afrinvest West Africa, a Lagos based investment house, stated: ”Following expectations of a continued increase in oil production, we anticipate the oil sector would play a larger role in contributing to the overall real GDP for the full year of 2023.

”Also, ramping up oil productions to levels around 1.8mbpds would position Nigeria to capitalize on potential exchange rate revaluation gains from crude oil sales”.

”Higher oil output translated to improved quarter-on-quarter, QoQ, GDP performance of 2.6%.”

Non-oil sector reverses trend

But while the oil sector is recording massive rebound, growth in non-sector has reversed.

Giving insight into this development, analysts at CardinalStone stated: ”The weaker growth in the non-oil sector may have stemmed from the dual actions of the CBN. First, the CBN pulled back from the direct development finance interventions orchestrated by the former CBN leadership.

”The second action of the CBN was the sustained hawkish rendition, which resulted in material increases in the domestic interest rate.

”This elevated borrowing rate might have dampened sentiment in the Manufacturing sector, which recorded a marginal increase of 0.48% YoY (vs. 2.20% YoY in Q2’23).

”In addition, the lingering currency pressures further stoked the weak outturn in the manufacturing sector, as we note that 60.00% of companies on the NGX 30 have significant FX needs.

The OPEC challenge

Meanwhile, the OPEC and non-OPEC Ministerial Meeting, ONOMM, has forecasted Nigeria’s oil output at 1.5 million bpd in 2024, indicating that a production cut back would put Nigeria’s quota around that level, down from 1.8mbpd.

At its 36th ONOMM held via videoconference monitored by Vanguard, Thursday, ONOMM, stated: “In accordance with the decision of the 35th OPEC and non-OPEC Ministerial Meeting, the completion of the assessment by the three independent sources (IHS, Wood Mackenzie and Rystad Energy) for production level that can be achieved in 2024 by Angola, Congo and Nigeria as follows: Angola at 1,110 t/bd, Congo at 277 t/bd and Nigeria at 1,500 t/bd.”

Experts comment, make case for more investment

With the recent shifts in Nigeria’s economy bringing the oil sector back to dominance, industry experts and economists are recommending best positioning for the country to maximize the value to create inclusive growth.

The Founder and Executive Chairman of AA Holdings, Mr. Austin Avuru, has called for massive investment to meet set targets in the future.

He said: “The IoCs are leaving and will continue to divest. The IoCs are not hiring and investing as much as they used to invest in the oil and gas industry. It is only a few Independents that are still investing.

“The nation’s oil and gas reserves have been standing at more than 30 billion barrels and 203 trillion cubic feet respectively for too long. We need to increase investment to hit the 40 billion barrels reserves and 600 trillion standard cubic feet of gas in the coming years. That would require the deployment of many rigs.

“We need to increase funding. Significant infrastructure is required. We need to invest in infrastructure not only in the upstream sector but also in the midstream and downstream sectors.”

Reacting on the implications of the recovery of oil sector, Prof Uche Uwaleke, President, Association of Capital Market Academics of Nigeria, ACMAN, said: “Largely on account of improvement in oil production from 1.22mbpd in Q2 2023 to 1.45mbpd in Q3. At current favourable oil price level, a further increase in oil production to meet OPEC quota of 1.74mbpd will significantly move the needle into the positive territory thereby boosting overall GDP in the process

”Industry and agriculture sectors appeared hugely impacted by economic headwinds during the quarter.

”The sudden removal of fuel subsidy in May 2023 could be blamed for the performance of the Transportation sector still in the negative territory (-35.85%)

”The Agriculture sector (comprising 4 activities, though dominated by crop production) recorded a declining performance over Q2.  (1.30% still far from its pre COVID’19 levels).

“In my view, this identified growth pattern, weighted in favour of the services sector, is not healthy for a developing economy such as ours. Little wonder, economic growth does not appear inclusive reflecting in rising unemployment and poverty levels (new NBS methodology attempts to mask this)

”Indeed, structural change is strongly recommended (by UNCTAD) as one of the ingredients of building productive capacities.”

In his own reaction, Tajudeen Olayinka, CEO, Wyoming Capital and Partners, said: “Even though it is still a far cry from what is considered to be a transformative number for the economy, it should still be considered a good development. Any effort to improve dollar liquidity in the economy is much appreciated at this time.

”The sad experience of oil theft and banditry we suffered under former President Muhammadu Buhari must not be allowed to continue. It was as if we had no government.”