Oil revenue crash: a symptom of Nigeria’s aging infrastructure, global market challenges

Nigeria’s oil revenue performance for the third quarter of 2024 has brought to light critical challenges that could have far-reaching implications for the nation’s economy. According to the Central Bank of Nigeria (CBN), ageing oil pipelines and operational inefficiencies have been identified as primary contributors to a 24.72 per cent drop in oil revenue, which fell to N1.30tn from the second quarter.

While crude oil production experienced a modest increase to 1.33 million barrels per day (mbpd), up from 1.27 mbpd in the previous quarter, the gains were undermined by systemic issues. Frequent pipeline shutdowns due to theft, vandalism, and deteriorating infrastructure severely constrained the country’s ability to meet its OPEC production quota and achieve revenue targets.

Beyond domestic challenges, global economic factors exacerbated the situation. The average spot price of Nigeria’s Bonny Light crude dropped by 5.45 per cent to $82.23 per barrel, mirroring subdued demand in the international market. This decline, alongside falling prices for Brent and the OPEC Reference Basket, further strained revenue projections.

“It was also 75.39 per cent short of the quarterly target due to shut-ins, arising from ageing oil pipelines and installations.”

The fiscal consequences have been significant. Federally collected revenue fell 23.71 per cent short of the budget benchmark, even as the fiscal deficit widened by 43.88 per cent relative to the quarterly target. Despite this, a 7.48 per cent increase in quarter-on-quarter revenue highlights modest progress in fiscal management.

Interestingly, Nigeria’s economy as a whole showed resilience, with GDP growth climbing to 3.46 per cent, driven largely by a robust non-oil sector that contributed 3.18 percentage points to total growth. However, the oil sector’s contribution continued to dwindle, with year-on-year growth slowing to 5.17 per cent, compared to 10.15 per cent in the previous quarter.

The CBN’s report underscores the urgency of addressing Nigeria’s aging oil infrastructure, which has not only hindered production efficiency but also jeopardized the nation’s target of achieving 2mbpd by the end of 2024.

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