May 31, 2022/United Capital Research
In the recently released Q1-2022 GDP estimates by the National Bureau of Statistics (NBS), the economic growth of the nation was driven mainly by the non-oil sector. According to the report, the oil sector constituted a total of 6.6% of Nigeria’s real GDP while the non-oil sector constituted 93.4% in the period under review. However, the burning concern is that the report also revealed the oil sector of the Nigerian economy contracted by 26.0% y/y in Q1-2022, its steepest decline since 1982 (as far back as NBS record show). The contraction in Q1-2022 extends the output moderation for the oil sector to eight consecutive quarters.
The steep contraction in oil sector GDP reflects the persistent downward pressure on crude oil production in Nigeria. For context, the NBS Q1-2022 GDP report showed that Nigeria recorded an average daily oil production of 1.49mbpd, 13.4% lower than the daily average production of 1.72mbpd recorded in the Q1-2021 and marginally lower than the Q4-2021 production volume of 1.50mbpd. A closer look at the Nigerian oil production trend shows that apart from the recovery in Q1-2021, production trend has failed to rebound back to pre-Covid induced slowdown in 2020. Unsurprisingly, the oil sector has average output contraction of 12.5% from Q2-2020 to Q1-2022.
The slowdown in the oil sector comes even as the Organisation for Petroleum Exporting Countries (OPEC) and its non-member alliance have continued to lift output caps for member countries. Thus, it is clear the output ceiling that limited the sector’s growth in 2020 is not the problem. Renewed attacks on upstream oil infrastructure, unabating oil theft activities, technical and cost issues associated with restarting production at wells previously shut during the pandemic have all combined to hinder a return to near-optimal output. Looking ahead, we expect the low base for oil production will support moderation in the rate of contraction in the oil sector but we expect the sector to remain stuck in the woods.
