By Adefolarin A. Olamelekan
Nigeria’s crude oil output has fallen short by 46.4 million barrels between January and April 2025, posing a serious threat to the N55 trillion federal budget, which hinges on an optimistic daily benchmark of 2.06 million barrels per day (bpd). With actual production averaging 1.6 million bpd, this shortfall has already translated to an estimated $3 billion revenue loss, based on a Brent crude average of $65 per barrel.
This alarming decline is documented by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and signals not just a revenue crisis, but a broader economic threat given Nigeria’s continued dependence on crude oil for about 90% of its export earnings.
Breakdown of Output Shortfall
Production from major terminals—Bonny, Brass, Qua Iboe, and Excravos—have seen steady drops, while only Forcados showed marginal improvement from 8.8 million barrels in January to 9.3 million in April. Collectively, production has remained well below the 61.8 million barrels monthly target required to meet budgetary projections.
Root Causes of Underproduction
Industry analysts and economists cite several key challenges:
- Oil theft and pipeline vandalism: Despite progress, theft remains endemic. In 2022, losses were pegged at 108,000 barrels per day.
- Infrastructural decay: Years of neglect and lack of investment have rendered key oil installations obsolete or underperforming.
- Insecurity and sabotage: Militant activities in the Niger Delta continue to threaten oil infrastructure and deter investment.
- Global market pressures: Rising production from non-OPEC countries, weak global demand, and policies like U.S. tariffs are depressing prices and demand.
- Budgetary overreliance: The unrealistic daily benchmark of 2.06 million bpd is far removed from current output realities.
The Economic Fallout
The implications are wide-reaching:
- Revenue shortfall: With projected oil revenues of N36.35 trillion for 2025, the current deficit already challenges the government’s ability to fund essential programs.
- Exchange rate volatility: A weaker oil sector affects forex inflows, impacting Nigeria’s ability to stabilize the naira.
- Increased borrowing: A funding gap will likely push the government into further debt, aggravating fiscal pressure.
Urgent Solutions: Policy Recommendations
To address the crisis, the following measures are recommended:
1. Strengthen Security Around Oil Infrastructure
- Deploy advanced surveillance (drones, AI-enabled sensors).
- Establish and enforce community-based security models with oil-producing communities.
- Prosecute oil thieves with transparency and deter future sabotage.
2. Incentivize Investment in the Oil Sector
- Offer fiscal incentives and tax holidays to attract international oil companies (IOCs).
- Resolve disputes surrounding Production Sharing Contracts (PSCs).
- Reduce bureaucratic bottlenecks in licensing and regulatory approvals.
3. Revamp the National Refineries
- Fast-track rehabilitation of the four state-owned refineries to reduce dependence on imported refined products.
- Explore public-private partnerships (PPPs) for efficient management and operations.
4. Accelerate Economic Diversification
- Build resilience in non-oil sectors—particularly agriculture, manufacturing, ICT, and services, which contributed 94.49% of GDP in 2024.
- Provide credit and tax relief for SMEs and industries with export potential.
5. Review the 2025 Budget Assumptions
- Revise the oil production benchmark to reflect current realities.
- Adopt conservative pricing models based on Brent forecasts and global volatility.
6. Unify and Stabilize Foreign Exchange Regimes
- Ensure sustained implementation of forex market reforms.
- Align fiscal and monetary policy to maintain investor confidence.
7. Regional and Global Diplomacy
- Leverage Nigeria’s OPEC status to advocate for favorable production quotas.
- Engage in bilateral agreements for technology transfer and infrastructural investment.
Conclusion
Nigeria’s crude oil underproduction is more than a statistical concern—it is a warning signal. Without decisive action to plug theft, restore infrastructure, and rebuild investor confidence, the country risks deepening its fiscal crisis. Reassessing the 2025 budget, restoring refineries, and boosting non-oil revenue will be key to navigating the challenges ahead. For Nigeria to secure its economic future, energy reform must go beyond rhetoric to result-oriented policies.
