Experts in the oil and gas industry and financial sector have said that oil price below the Federal Government’s 2024 budget benchmark and crude oil production below the budget target are threats to the realization of the Federal Government’s 2024 budget.
President Bola Tinubu had on January 1, 2024, assented to the N28.7 trillion 2024 Appropriation Bill passed by the Senate with benchmark crude oil price of $77.96 per barrel, and crude oil production target of 1.785mbpd.
On May 29, 2024, the President had said he would present the 2024 Supplementary Budget to the National Assembly (NASS). On July 17, President Tinubu, requested the Senate to amend the 2024 Appropriation Act and the 2023 Finance Act by increasing the budget with ₦6.2trn.
However, as of Monday, the Brent futures traded at $71.63 a barrel while West Texas Intermediate (WTI) crude traded at $68.45.
Also Nigeria has been unable to meet its crude oil production target.
According to the Organisation of Petroleum Exporting Countries, (OPEC) in its Monthly Oil Market Report, Nigeria’s oil productions were 1.307million barrels per day (mbpd) in July; 1.276mbpd in June; 1.251mbpd in May; 1.281mbpd in April; 1.231mbpd in March; 1.322mbpd in February and January, 2024.
In an interview with New Telegraph on Monday, an oil and gas governance consultant, Mr. Ademola Adigun, said the fall in oil price has negative impacts on government’s revenues and the economy.
Adigun, who is also Chief Executive Officer, AHA Consultancies, specifically said the fall in oil price could also have positive impacts.
He said: “The fall in oil price is a threat to government revenue and macro-economic stability. It will lead to shortfalls in expenditure. It also means that the prices of petroleum products can come down.
“So there is a benefit and there is loss. The loss is in terms of revenue to the government in terms of selling crude oil.
“But the benefit is on the retail economy. With a lower price of crude, the price of retail products like diesel, petrol and co will come down as well. The prices will go down in Nigeria. When we have a fully deregulated market, they will go down.
“What it means now is that if it gets to the price of $60 per barrel, refineries will be in the best place to sell products at lower prices. The negative thing is that the economy will suffer from loss of revenue.
“Government can mitigate the fall in revenue by cutting down the cost of governance and ensuring more financial and fiscal discipline in governance.”
Professor of Business and Entrepreneurship, Awodun Muritala said the crude oil underproduction and consistent oil price below FG’s benchmark have negative impacts.
He urged the federal government to review its budget downwards in view of the current realities.
Muritala said: The crude oil underproduction of Nigeria to the budget target is already a failure on its own. Production is not something you can adjust overnight.
“So if you get your production projections wrong, then you will be in trouble all through. If you say, you will produce 1.7mbpd and you are at 1.4mbpd and you have not put infrastructure or capital investment to reach that 1.7mbpd, then you will obviously have 1.4mbpd to sell and you will have income for 1.4mbpd.
“Ofcourse that budget projection cannot hold. With oil price fall and if we can not ramp up our production, it will impact revenue negatively.
“On the fall of oil price, it will have an impact on it. At a certain time in the year, it went above the projection, and it can still go further above that $68 before the end of the year. So what the government has projected in terms of $77 is just an average. It is not that it will just be consistently at that $68 till the end of the year.
“Their project is based on the average. As long as their projection is still within the average, then it will not affect it significantly. Between January and August, it was within their projection and above. When it was above their projection, that is what they put in their excess crude account.
“When it is below their projection, we have a short fall. And if their excess can be used to take care of their shortfall, but as long as their average is till what they have at the end of the year, their budget is not threatened.
“Just as the government used to send revised budgets to the National Assembly, you will see that most times, they revise their budget upwards.
“There is nothing stopping them revising the budget downward in view of the current reality. So they can send a revision to the National Assembly to revise downwards. It does not have to be upward alone that should be revised.”