Ministers fear that 2017 budget will suffer as a result of Opec directive to cut crude production

NIGERIA has reluctantly agreed to reduce its crude oil output in line with directives issued by the Organisation of Petroleum Exporting Countries (Opec) in a move that has raised fears about the government being unable to fund its 2017 budget.


Traditionally, Nigeria has had an Opec quota of 2.5m barrels a day and when crude was selling for about $100 a barrel, the government found it easy to fund its annual budget, which stood between $18bn and $20bn. This year, the budget is about £27bn by the government is having to grapple with a combination of low oil prices and now reduced global prices.


In response to falling prices, Opec has asked its members to reduce their output in a bid to reduce supply in an attempt to stimulate the market. Minister of state for petroleum, Dr Ibe Kachikwu, said Nigeria will reduce output but raised concerns that the growing uncertainties in the global oil market would affect the execution of the 2017 budget, noting that the country had already come short of the projected oil production levels upon which the budget was predicated.

However, Dr Kachikwu restated that Nigeria was committed to the Opec deal and would do whatever would be required to keep it intact. He, however, pointed out that the country has to watch her oil production to get a predictive level of comfort to voluntarily join.


Dr Kachikwu said: “We are fairly in consensus of what our position is and there is no disagreement on that but just to set the record straight, the price of oil today is hovering around $44.70 cent per barrel, so there is a bit of upsurge trajectory which is good, which means the price for Nigeria is probably in the $46 type range. Definitely below the $50 mark which is where we’ll feel comfortable and a lot of the reasons for this are a lot of aggressive shale production and obviously barrels coming out from Nigeria and Libya because of the exemption but I needed to clarify this first, it is true that Nigeria has begun to recover but that recovery has been gradual.

 “Over the last one and half months, we’ve basically began to recover some of our assets that were vandalised and we’ve been getting a lot more cooperation from the militants that they are letting us continue to try and grow those barrels but that recovery is going to be gradual, we’ll still have below the benchmark set for us by Opec and I think that over the next one or two months, hopefully we can get to that point when we can say the recovery has been tested, is systemic, and predictable. We need to watch that for a couple of months so that we can get to a predictive comfort and then we voluntarily go to Opec and see how we can contribute.


Speaking on the 2017 budget, Dr Kachikwu explained that a couple of capital projects in the budget may be affected by this development. He, however, explained that the ministry of finance was working on measures to cushion the impacts of the shortfall from oil production on the budget.

According to Dr Kachikwu, while the oil production benchmark in the budget was 2.2m barrels per day, the country is currently producing about 1.7m barrels, of oil without condensate and was still within the price band of $42.50 per barrel which the budget has. Opec has said that the world demand for its crude will decline next year as rivals pump more oil to create a market surplus in 2018.