Oil hits $90, piles more pressure on Nigeria’s subsidy bill

THE price of Brent, the benchmark of Nigeria’s crude oil surged past $90 per barrel on Wednesday, raising fresh concerns about the sustainability of Nigeria’s ‘secret’ bill for fuel subsidies bill.

The last time that Brent settled above $90 per barrel was six months ago on October 27, 2023, and with the Organization of Petroleum Exporting Countries and allies (OPEC+) widely expected to maintain its conservative stance, analysis points to a rising trajectory.

At the current price of $90 per barrel, Nigeria earned additional revenue of $12.04 per barrel; whereas, the country’s 2024 budget was based on 1.78 million barrels per day and $77.96 per barrel.

Nigeria’s crude oil production for February recorded a decline, dropping to 1.32 million barrels per day (mbpd) in February, OPEC revealed. This reduction in output marks a setback for Africa’s largest oil producer, impacting both its economy and global oil markets.

According to OPEC’S latest monthly report, the largest economy in Africa’s February crude production fell compared to its January output, which stood at 1.46 mbpd.

The addition of blended and unblended condensates mark up the volume of production to 1.54 million bpd in February, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), indicating a short in the budget of the FG.

Higher oil price also translates to a larger petrol subsidy burden on the Nigerian National Petroleum Company (NNPC) Ltd.

This is because the Federal Government has forced a lid on the retail price of petrol, even as the landing cost has long crossed the pump price, leading to the conclusion that the government has begun subsidising the commodity.

“A combination of higher exchange rate, higher oil price, and static retail price of petrol means higher petrol subsidy bill as Nigeria’s lack of refining capacity means it imports all the petroleum products it uses locally,” Charles Akinbobola, a Lagosbased energy analyst, said.

He added: “Nigeria’s petrol subsidy programme remains a contentious issue. While intended to cushion the blow of high pump prices for consumers, its true cost and funding mechanism are often shrouded in secrecy.”

There are reports that the NNPC was using proceeds from Nigeria LNG dividends to pay subsidies on petrol while other reports suggest the state-owned company deducts the subsidy amount from the proceeds of Nigeria’s crude oil sales before remitting the remaining balance to the federation account.

The exact amount deducted by NNPC remains unclear. Estimates suggest it could be as high as N17.72 billion daily, raising concerns about transparency.

“It is expedient that its accounts are published such that the general citizenry in whose interests the NNPC manages these resources are apprised of its dealings,” said Faith Akinnagbe, an energy lawyer with the Lagos-based Center for Development Studies.

Nigeria, a pivotal member of OPEC, faces a barrage of obstacles in its oil sector, encompassing pipeline vandalism, rampant oil theft, and regulatory ambiguities, jeopardizing both production levels and economic aspirations.

Last month, Mele Kyari, the Group Chief Executive Officer (GCEO) of the Nigerian National Petroleum Company Limited (NNPC), unveiled initiative to combat oil theft, citing the deactivation of 6,409 illegal refineries in the Niger Delta region.