They argued that the budget size of N4.75 trillion on oil production estimates of 2.48 million barrels per day, is not in tune with current realities, in view of the fragile peace in the nation’s oil-rich Niger Delta, the threats of another round of global recession if the Euro Zone collapsed, OPEC quota restrictions as well as the volatility of the international oil market, which has witnessed d output.
Dr. Diran Fawibe, Chief Executive Officer, International Energy Services (IES), said in a telephone interview that given the above scenarios, estimates not exceeding 2.3 million bdp would have been more appropriate.
He said, “2.48 is very ambitious and optimistic because it did not consider the fortunes of the industrialised countries, particularly the Euro Zone, that is under the risk of possible collapse, and this might trigger even a worse round of global recession much more than the 2008 levels, and where is the market that will absorb all the production?
“Within these scenarios, oil production will be affected. And assuming we have the capacity to produce that much, based on the assumption that the relative peace in the Niger Delta will remain, but we can’t be certain of that because there are still intermittent attacks, Shell recently declared a force majeure on some of its crude production.”
Fawibe, a former President of the Society of Petroleum Engineers (SPE), further noted that if ” the Organisation of the Petroleum Exporting Countries, at its meeting on December 14, decides to enforce individual countries’ quota, and there is a cutback, then there will be a problem. Don’t forget Libya’s oil is back into the market as well as crude from other non-OPEC countries, and this may affect supply and cause glut if another round of recession sets in.”
But the President of the Nigerian Association of Petroleum Explorationists (NAPE), Mr. Afe Mayowa, was not so magnanimous, as he insisted that the production estimates for 2012 are simply “unrealistic”.
This, he argued, is because “They (government) has not done anything to encourage production; the Niger Delta peace talk is still very fragile and not something to put much hope on.”
Besides, he noted, having come up from a little above 1million bpd earlier this year, “to now jump to 2.48 for 2012, for me is pushing it too far.”
In his opinion, “When you are preparing a budget, you have to be very conservative given the prevailing circumstances, and the Euro Zone may even collapse sooner than analysts are predicting and where is the market for all the oil. OPEC quota is another issue and all these factors have not been taken into consideration.”
“Crude oil production estimates above 2million bpd is simply unrealistic and not realisable,” he stressed.
Fawibe and Mayowa, however, agreed that the $70/bbl price benchmark is very feasible, because anything lower will not encourage further production.
Analysts, who equally described the price assumption of $70 as reasonable, also faulted the crude oil production estimates on the basis that it is higher than the nation’s current production figure, which had posed problems for the Federation Account Allocation Committee.
Ms. Razia Khan, regional head of research, Africa, Standard Chartered Bank Group, said, “While the oil price assumption of $70 per barrel was largely expected, and remains well below our average oil price forecast for 2012, the output assumption of 2.48 million barrels per day is higher still than the 2.45 million previously anticipated, and higher than the more modest assumptions of 2.35 million barrel per day that had already posed problems for the FAAC allocation in the recent past.”
Also, the Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said, “The proposed budget to me marks a year of fiscal discipline. However, the assumption of 2.48 million barrels per day is not apt.”