Nigeria faces budget implementation worries as crude oil price drops and Qatar leaves Opec

NIGERIA is facing the prospect of being unable to fund her annual budget due to recent fall in global oil prices which could worsen over the coming weeks following Qatar's announcement that it will leave the Organisation of the Petroleum Exporting Countries (Opec) on January 1.


As at end of November 2018, international crude oil prices had crashed below the 2019 federal budget oil benchmark of $60 per barrel. Oil price had peaked at $86 per barrel in early October, offering the government hope that it would be able to fund its budget but with Bonny Light Crude now only selling for about $57 a barrel, there are fears that Nigeria may not generate enough revenue to fund her budget.


There are also fears that global oil prices may tumble further amid the bearish news that Qatar is pulling out of Opec early next year and will sell its oil directly. Qatar's energy minister Saad Sherida al-Kaabi, made the announcement just a few days before an impending Opec meeting


Sheikh al-Kaabi said: "The withdrawal decision reflects Qatar's desire to focus its efforts on plans to develop and increase its natural gas production from 77m tonnes per year to 110m tonnes in the coming years. We are a small player in Opec and I'm a businessman, so it doesn't make sense for me to focus on things that are not our strength and gas is our strength, so that is why we've made this decision.


"Our decision to increase the supply of natural gas is to develop a future strategy based on growth and expansion, both in our activities at home and abroad. Achieving our ambitious growth strategy will undoubtedly require focused efforts, commitment and dedication to maintain and strengthen Qatar's position as the leading natural gas producer."


Qatar is the first Gulf country to leave Opec, the bloc of oil-producing countries. At the moment, Qatar is facing a diplomatic blockade on Qatar from fellow Arab nations Saudi Arabia, the United Arab Emirates (UAE ), Egypt and Bahrain.


Al Jazeera's Charlotte Bellis said:  "They say it has nothing to do with the blockade on Qatar and that they have been thinking about it for several months now. They also said that if you want to withdraw from Opec it had to be done before the end of the year, adding that they wanted to do this now and be transparent ahead of a December 6 Opec meeting."


Since 2013, the amount of oil Qatar produced has steadily declined from about 728,000 barrels per day in 2013 to about 607,000 barrels per day in 2017, or just under 2% of Opec's total output. However, Opec's total production during the same period increased from 30.7m barrels per day to 32.4m barrels per day.


Earlier this week, Opec and Russia, who together produce about 40% of the world's oil, said they agreed on new oil production cuts to ensure prices do not drop too much in the coming months. Qatar is the world's biggest supplier of liquefied natural gas (LNG), producing almost 30% of the global total, so the decision to leave Opec could have a big impact.



Nigeria’s National Economic Council gears, however, that the combination of the recent price drop and Qatar's decision to leave Opec could affect the massive backlog of capital project finance and execution.  According to Nigeria's ministry of budget and national planning, only about 40% of the capital projects outlined in 2017 were implemented as of at end of June 2018, the statutory life time of the 2017 budget cycle.


This means that about 60% of the capital projects have either been abandoned or postponed, with inadequate revenue playing a large part in this. Similarly, the 2018 budget which is about five months in the implementation cycle, is said to be facing similar revenue constraints.