Low crude production, price crash may threaten 2025 budget, local refineries

Nigeria’s 2025 budget might be threatened as crude oil prices slip below the projected $75 per barrel. This, coupled with the recent drop in average daily crude oil production, is also expected to affect local refineries like Dangote and others.

According to oilprice.com, benchmark Brent crude stood at $70.73 on Wednesday. Similarly, the West Texas Intermediate crude oil was $67.57. Reuters reports that those were the lowest closes for Brent and WTI since December 2024.

It was reported that the Organisation of Petroleum Exporting Countries and allies like Russia, known as OPEC+, decided to proceed with a planned April oil output increase.

Though the fall in crude prices is good news to an average Nigerian who knows this could lead to cheaper petrol and diesel, it might be giving the Federal Government sleepless nights as it threatens the 2025 budget revenue projections.

In the 2025 budget, the Federal Government puts the price of crude at a minimum of $75 per barrel. But this has not been the case in the past few weeks, though crude prices rose above $80 at a point in January.

The budget is anchored on a benchmark oil price of $75 per barrel and an ambitious production target of 2.06 million barrels per day. Approximately N19.60tn, up to 56 per cent of the initially projected N34.8tn revenue, is expected to stem from oil, reflecting Nigeria’s heavy reliance on oil for fiscal sustainability.

However, with the fall in crude prices and the fact that the country’s average daily crude and condensates production slipped from 1.7mbpd in January to 1.6mbpd in February, the revenue projection may not be realistic at the moment.

However, the country may still be making some reasonable revenue from foreign exchange earnings, which is still about N100 above its projected N1,400 to a dollar.

Refineries may suffer

Apart from the fact that the country may not achieve the projected oil revenue unless the government ramps up oil production in the coming months, the drop in production may hinder crude supply to the Dangote Petroleum Refinery and others.

While speaking about the naira-for-crude deal on Monday, the spokesman of the Nigerian National Petroleum Company Limited, Olufemi Soneye, said the first phase of the deal would terminate while supply will be subject to crude availability.

“The contract for the sale of crude oil in naira was structured as a six-month agreement, subject to availability, and expires at the end of March 2025. Discussions are currently ongoing towards emplacing a new contract,” he stated.

The NNPC spokesperson disclosed that 48 million barrels of crude oil have been made available to the Dangote refinery since October 2024, when the deal started. He added that 84 million barrels had been made available since the refinery commenced operations in 2023.

“Under this arrangement, NNPC has made over 48 million barrels of crude oil available to Dangote Refinery since October 2024. In aggregate, NNPC has made over 84 million barrels of crude oil available to the Refinery since its commencement of operations in 2023,” Soneye noted.

However, sources have told our correspondent that the Dangote refinery is still importing crude oil from the United States, Angola, and other countries as it plans to attain its 650,000 capacity this month.

In January, Nigeria exceeded its OPEC quota by over 30,000 barrels, receiving accolades from industry stakeholders, who said the Federal Government and other agencies were serious about the ambitious 2.06mbpd.

But this achievement was eroded with the latest data from the NUPRC, which showed that the country lost about 74,000 bpd last month. Similarly, oil production (crude and condensate) dropped from 1.78mbpd in January to 1.67mbpd in February.

The NUPRC remarked, “Lowest and peak production in February were 1.60 million bopd and 1.76 million bopd respectively. The daily average production in February was 1,671,953 barrels per day, comprised of both crude oil (1,465,006 bopd) and condensate (206,948 bopd). The average crude oil production was 98 per cent of OPEC quota (1.5 mbpd).”

Experts have observed that this drop in production may deal a devastating blow to the domestic crude supply obligation. In the naira-for-crude deal, the 450,000 barrels of crude oil earmarked for local refineries were to be sold to Dangote refinery and other oil-producing ones in local currency.

However, it was gathered that the refinery still struggles to get enough feedstock for its ramp-up plans as the NNPC supplies about half of what the refinery needs daily.

At the beginning of the year, the Nigerian Upstream Petroleum Regulatory Commission disclosed that the Dangote refinery, the Port Harcourt refinery, and six others would need 770,500 barrels for daily fuel production.

NUPRC data sourced from the Nigerian Midstream and Downstream Petroleum Regulatory Authority puts the country’s refining capacity at 974,500 barrels per day. The NUPRC estimated that eight refineries would need 123.5 million barrels of crude oil in the first six months of 2025.

The refineries include the Dangote refinery, Port Harcourt refinery, Warri refinery, Kaduna refinery, Opac refinery, Waltersmith refinery, Duport Midstream Company Limited, Aradel refinery, and Edo refinery.

According to the crude oil production forecast of producing oil companies and the refining requirement of functional refineries in Nigeria signed by the NUPRC Chief Executive, Gbenga Komolafe, the Dangote refinery is forecasted to need 550,000 barrels of a blend of Nigerian crude oil daily, 17.05 million barrels monthly, and 99.55 million barrels between January and June 2025.

Unless the country ramps up oil production, local refineries may resort to importation, or some may shut down if they cannot import.

Experts speak

An Energy Professor at the Lagos State University, Dayo Ayoade, said the drop in crude production prices will affect the budget adversely, though it will bring down fuel prices.

Ayoade also posited that the government must do its best to achieve two million barrels per day or the refineries will have to resort to imports, which may impact the fuel prices. According to him, the budget is a projection, and the government can adjust if it fails to meet the projections.

“The crude price crash, if persistent, means the government will not get enough funds for whatever it plans, so implementation becomes difficult. In some cases, the government may want to borrow to fund the budget. I don’t support borrowing, the government should just cut down its spending,” he said.

On the supply of crude to local refineries, the don maintained that refineries would suffer a crude shortage if production declined further.

“The government is issuing licences to more refineries, but it is not thinking about crude supply. More refineries are coming, and if they have to import, the cost of fuel may be higher, and fuel importers will sell below the one refined locally. So, the government should do all it could to ramp up oil production to two million barrels per day,” he said.

Similarly, Professor Adeola Adenikinju of the Department of Economics, University of Ibadan, argued that the decline in crude oil prices is like a two-edged sword. He said it would lower the prices of refined products like PMS.

“But macroeconomically, it’s going to have implications, especially for government revenue, simply because the two critical assumptions, you know, that would change the budget were the oil price and oil volume. So, if oil prices go down and persist, then that will mean that budget implementation will be very difficult.

“And also, the reported decline in oil volume between January and February, if that trend continues and persists, then the budget, again, will be difficult to implement. And at some point, either the Federal Government will submit a revised budget, or it will have to cut some of the expenditures in the budget; but it should try to avoid borrowing,” Adenikinju stressed.

He added that one has to see whether this trend will be permanent or just temporary. “If it’s temporary, we don’t have to worry much, it will run out in the long term. But then, if it’s a more permanent feature, we have to be concerned,” he told The PUNCH.

The economist said the fall in production would make the refineries import crude oil. He expects that the refineries have some reserves and should be able to import to supplement the gap in domestic production.

“So, if this drop in production persists, then maybe the refineries have to import some crude, or they operate at a lower level of capacity, which, in some cases, will then lead to them having to adjust their prices to cover the overall cost of operations. So, it’s not very clear now what the impact will be until it becomes a sustainable thing. And, if the refineries import, that means that it will drive up the average cost of production, and then that will lead to increasing prices at the pumps,” he noted.

At the moment, fuel importers are set for a price war with the Dangote refinery as the landing cost of petrol dropped below N800 per litre.

Recently, the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, said Nigeria can achieve the production of three million barrels of oil per day in 2025.

Lokpobiri said this would include crude and condensates, adding that the country would raise production without having issues with the Organisation of the Petroleum Exporting Countries.

He expressed satisfaction that the current administration was able to raise daily oil production from one million barrels per day to 1.8mbpd.

“When we came, we barely did a million barrels. Today, we are doing 1.8mbpd, and we can do more. From a million barrels, we have achieved an 80 per cent addition.

“I want to see how we can do 2.5 to 3 million barrels this year. And we can do it. I was talking to someone, and the person told me that the bulk of what we produce is condensate. But because we are putting the condensate and the crude in the same container, oil is now branded crude oil. If we properly dedicate some reservoirs in our terminals for condensate and dedicate another to crude oil, we will do three million barrels,” he stated.