Falling Oil Prices Could Cost Nigeria $24 Billion in 2015

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--If crude oil prices fail to rise from current levels, Nigeria could lose more than $24 billion in revenue in the coming year. Based on the price of $68 per barrel, against the $101 price in June 2014, the revenue loss would be more than $33 per barrel, or more than $2 billion per month, at a production level of 2 million barrels per day, or 730 million barrels per year.

OPEC member countries could lose $362.5 billion annually, or $3.6 trillion over a decade, if the current fall in the oil price continues.

In the period of January to June 2014, Nigeria earned about $40 billion from crude oil exports. The latest figures to be released by the Central Bank of Nigeria's show that $3.4 billion was made from gross receipts in April 2014.

The government lowered the proposed budget price for oil to $65 per barrel. This was the second reduction in less than a month, indicating that government revenues for Africa's largest crude oil producer are set for a steep decline.

Global oil prices have plunged more than 33% since June 2014, forcing policy makers to devalue the Nigerian naira for the first time in three years. This threatens erosion of public finances in a country where 70% of government revenue comes from crude sales.

According to a forecast by Morgan Stanley (NYSE:MS) (New York), the crude oil benchmark could fall to $43 per barrel in the second quarter of 2015. The forecast base case for Brent crude for 2015 was $70 per barrel. Brent crude delivery for January 2015 fell to $67.73 per barrel, near the previous week's trough of $67.53, which was the weakest level since October 2009. On Tuesday, Brent settled at $66.84.

The Morgan Stanley report said that without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015. With OPEC on the sidelines, oil prices face their greatest threat since 2009, but a volatile 2015 trade is expected rather than a one-way trade, it said.

Facing this possibility, Nigerian Finance Minister Ngozi Okonjo-Iweala made assurances that Nigeria's would not resort to printing money, or imprudent borrowing, as it adjusts to lower oil prices.

"This is not the first time this country has gone through lower oil prices and it will not be the last," the minister said at a conference in the Nigerian capital Abuja. "We should avoid the kind of fear that will paralyze us or make us do the wrong things out of fear and alarm."

The government has taken steps to improve recovery of the oil revenue and tighten the audit of the petroleum sector.

For related information, see October 6, 2014, article - U.S. Imports of Nigerian Crude Plummet to Zero in Short Time,and November 25, 2014, article - Chevron Increases Gas Supply in Nigeria, Cuts Gas Flaring.

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