Pricewaterhouse Coopers Limited Nigeria (PwC), one of the world’s leading research and consulting firms, has projected that given the realities in the international oil market, Federal Government’s oil production target and earnings’ projections in the 2021 budget look feasible.
The consulting company gave this hint in its just published ‘Economic Alert: Assessing the 2021 FGN Budget’ sourced by BRTNews.ng . The Economic Alert critically appraised the Budget’s deficit and rising government debt; Finance Act 2020 and its implications for closing the budget deficit gap; Revenue; and Proposed expenditure for 2021 and analysis of the expenditure in 2020, amongst other performance parameters.
The firm stated that the oil and gas projections were achievable in the short to medium term.
It stated: “The 2021 budget is based on an oil price benchmark of US$40 per barrel and oil production output of 1.86 million barrels per day. The current global situation may support the realisation of this target, in the short to medium term.
“For instance, increased rate of vaccinations against COVID-19, the OPEC+ oil production cut, a new United States President, declining U.S. crude inventories, China’s strong economic growth as well as geopolitical tensions in major oil producing countries such as Russia/Ukraine and Israel/Iran are factors driving the recent rally in oil price.
“Market analysts and global energy organisations are projecting relatively strong crude oil demand, as economic activities commence in many countries. In a recently released report, OPEC increased its global oil demand projection by about 190,000 bpd while the International Energy Agency (IEA) ramped up projections by 230,000 bpd.1 As of April 16, 2021, the Bonny Light price traded slightly above US$65 per barrel, higher than the US$40 per barrel benchmarked in the 2021 budget.
“Nigeria will have to shed off about 313,000 bpd for the first half of 2021 in line with OPEC+ cut agreement to stabilise global oil prices. While this cut has already been factored into the oil production benchmark of 1.86 mbpd, the potential challenge lies in the possibility of another cut, should the other variants of the COVID-19 virus become more pronounced, and certain countries impose another lockdown.
“For instance, as at April 16, 2021, a new variant referred to as a double mutation, has resulted in India reporting more than 14.5 million COVID cases and over 175,600 fatalities so far. As a result, Nigeria’s fiscal space could be tightened, if these weak sentiments prevail”, the consulting firm added.
The PwC researchers projected that beyond crude oil, receipt from gas sales could well provide relative stability to government’s revenue, noting that last year, actual gas receipts exceeded its projection by 79%.
According to the experts, the fundamentals for gas remain strong especially in the light of the ongoing call for a reduction in global carbon emissions.
To ensure that the gas production and earnings targets are realised, the researchers recommended that Nigeria needed “to ramp up investment in domestic gas production and expand its capacity for gas exports.”