10 February 2015, Abuja – Analysts at ARM Research have projected that the slump in the prices of crude oil in the international market will make Nigeria uncompetitive for investments in 2015.The analysts, in their report titled, “Oil Stains on Economic Growth Picture,” also projected further crisis regarding Nigeria’s fiscal savings, saying that state governments will resist any attempt to save some money in the Excess Crude Account, or Sovereign Wealth Fund.
Furthermore, they warned that the crude oil price decline will bring about a delay in reaching final investment decisions, FIDs, on exploration and production activities in the country, while also negatively affecting the production capacity of small and marginal oil fields operators.
They declared that the price slump will heighten the funding challenges of oil and gas companies, as banks will be wary of lending to the sector for fear that the oil companies might default.
The analysts said, “Aside delaying final project decisions on domestic E&P activities, current bear trend in prices should immediately impact production of small independent marginal field operators, who accounts for 11 per cent of Nigeria’s oil production in 2013, by driving increased focus on profitable fields and limiting overall drilling activity.
“Over the medium term, recent warnings from the Central Bank of Nigeria, CBN, to banks on oil and gas credit exposures should result in a contraction in lending to upstream oil and gas projects as project feasibility weakens under subdued price assumptions.
“Farther out, the opportunity costs of delayed PIB passage now appears manifest as the bearish oil price outlook should result in shelving of offshore E&P projects, in particular, which limit scope for volume driven gains in oil output. Overall, these developments suggest oil GDP growth will likely stay negative in 2015.”
They, however, warned that unless the Federal Government takes adequate steps to cushion the economy against the expected shocks, the country may face long term risks.
They said, “On a less positive note, the depressed oil receipts and resulting contraction in FAAC allocations is likely to stoke further resistance towards institutionalisation of fiscal savings from the states, dimming scope for sizable inflows into the NSIA over 2015—and the FGN has to prepare accordingly or face longer-term risks.