The Group Chief Executive Officer of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, disclosed in a press briefing that the nation will stop fuel importation by 2023. In addition, the Federal Government, through the Minister of Petroleum Resources, Timipre Sylva, has reiterated that the country would meet its OPEC+ quota by next year. If these announcements come to fruition, the potential upside for the oil & gas sector and a petrodollar-dependent Nigeria is enormous.
The primary benefit would be on FG revenues, both directly and indirectly. The government accrued monthly losses of c. $700.0mn by failing to meet its OPEC quarter between Mar-2022 and Sept-2022, and an increased output would improve taxation remittances in the sector. The cessation of the importation of petroleum products would vastly improve the nation’s trade balance. The Q3-2022 Foreign Trade report revealed that the importation of petroleum Oil Products amounted to N1.6tn in the period under review, accounting for 28.5% of total imports. This will also reduce foreign exchange pressures on the Naira, reducing costs for in-country fuel marketers and preventing further national scarcities.
The probability of the FG meeting the above targets is low as the performance and outlook for the Oil and Gas Sector remain deplorable. The Q3-2022 GDP numbers showed the sector contracted for the 10th consecutive quarter by 22.7% y/y due to the perennial challenges in the industry, such as oil theft, infrastructure vandalism and the lack of investments in the sector. However, tailwinds such as the discovery of crude in northern Nigeria, the various agreements signed between the Federal Government & IOCs and the anti-theft initiatives seem to be propelling growth, with statements from NNPC Upstream Investment Management Services revealing daily oil production went as high as 1.6mbpd in Nov-2022 45.5% higher the first ten-month average of 1.1mbpd. Sustaining this reported improvement in crude oil production will serve as a major gamechanger for the Federal government budget in 2023 as well as bolster FX reserves.