By Omoh Gabriel
Indications are that the 2013 budget is already facing challenges and may not be fully implemented. The budget may have to be reviewed with the oil bench assuming a far lower benchmark than the $75 proposed by the executive. This is because Nigeria crude oil sale is facing difficulty finding market. The United States of America which takes a huge chunk of Nigeria crude will from this month, January add about 900,000 per day to its daily production of 6.5million barrel per day thus raising its total output to 7.4 million barrel per day.
Already on the New York Mercantile Exchange, light, sweet crude futures for delivery in March traded at $96.04 a barrel in the Globex electronic session. Also March Brent crude on London’s ICE Futures exchange fell $0.14 to $113.14 a barrel.
The crude oil production in the US, according to the latest monthly report of EIA, averaged about 6.5 million barrels per day in September 2012. As a fact, this is the highest volume in almost 15 years. In the US, Shale oil production is mainly concentrated in Texas and North Dakota. Drilling in the Permian Basin and the Eagle Ford shale formation has enabled oil production in Texas to grow from 31,661,000 barrels per month in September 2008 to 61,500,000 barrels per month in September 2012. Oil production in North Dakota is mainly from the Bakken shale formation. According to estimates of the US Geological Survey there are about 4.3 billion barrels of recoverable oil in Bakken and drilling in this formation has helped North Dakota’s oil production to shoot by more than 250,000 barrels per day (between September 2011 and September 2012).
The IEA predicts the US to overtake Saudi Arabia and Russia as the world’s biggest producer of oil by 2017. Also, on the anvil: US becoming self-sufficient in oil by 2035 and North America trudging on to become a net oil exporter sometime around the year 2030. Exxon Mobil Corp.’s annual outlook, for its part, expects North America as an exporter of oil and gas ‘by the middle of the next decade.’ Both these reports, if you care, are closely monitored by oil investors. If you’re one, do factor the EIA prediction of oil production at 6.8 million barrels per day in 2013, which will put in the oil prices at about $3.44 per gallon next year as against the 3.64 gallon in 2012. Yet, from the long- term perspective this is definitely a good time to be in a region with immense potential for growth.
This is coming on the heels of the warning issued by IMF Managing Director, Ms Christine Lagarde at the World Economic Forum in Davos, Switzerland that the world economy will slow down again in 2013. The International Monetary Fund, she said, has cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery. The world economy, she said, will expand 3.5 per cent this year, less than the 3.6 per cent forecast in October, in an update of its World Economic Outlook report. While the fund projects growth this year increasing from last year’s 3.2 per cent pace, it expects the 17-country euro area to shrink 0.2 per cent in 2013, instead of growing 0.2 per cent as forecast in October. If Nigeria oil is to seek market in Europe, it certainly will have a hard job to do. To buttress why the budget may not be realisable in its present form, available data indicates that as at the middle of January 2013, the United States gets so much crude from its own shale deposits that Canadian exporters to US are compelled to sell as far afield as Europe, showing how deeply the U.S. energy revolution is transforming global oil flows.
According to US Government’s Energy Information Administration (EIA), as recently as 2011, close to 100 per cent of Canada’s crude exports went to its neighbour, the United States. But January trade and shipping sources said more than two million barrels of light crude from Canadian offshore oilfields have gone to Europe in the last month, in a taste of what is to come. The change is due to technological advances the U.S. expects will bring 900,000 barrels per day (bpd) record jump in its oil output to 7.3 million bpd in 2013, from places like the Bakken shale deposit in North Dakota that now feeds U.S. East Coast refineries served by Canada.
According to international oil market reports, US refineries’ traditional suppliers, Nigeria, is to seek alternative customers and is feeling the pinch of the new Canadian competition in its established European markets. Besides Canada, other traditional suppliers to US market will seek customers in Europe and Asia. If most suppliers of crude are now to face a shrinking market in Europe, one thing is sure, the price of crude will nosedive southward, meaning a crash in prices of crude. This apparently will derail the 2013 budget, no doubt.
Informed Presidency sources said this is probably why the President is yet to sign the 2013 budget and may ask for a review of the budget benchmark to accommodate the new reality in the international oil market in order to edge against a foreseeable crash of oil prices. Looking at the global economic outlook from the IMF perspective, there is no hope that Nigeria may have the financial muscle to achieve the 2013 budget outlay. Mr. Olivier Blanchard, chief economist at the International Monetary Fund, speaking at a news conference about an update of the IMF’s World Economic Report said the IMF cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery.
Blanchard said “In particular, the growth numbers are not enough to make a dent to the unemployment rate in advanced economies.” The IMF foresees Spain leading the contraction in the euro area, while growth slows in Germany, the region’s largest economy.
Economic Contraction
The IMF forecast for a second year of economic contraction reflects “delays in the transmission of lower sovereign spreads and improved bank liquidity to private sector borrowing conditions,” as uncertainty remains over ending the turmoil that has engulfed nations from Ireland to Cyprus, according to the report. The fund expects the region’s outlook to improve, forecasting a return to 1 per cent growth in 2014. It sees the world economy expanding 4.1 per cent next year, 0.1 percentage point less than in October.
In the U.S., “underlying economic conditions remain on track,” the IMF said as it cut its forecast for the world’s largest economy to 2 per cent from 2.1 per cent in 2013 and raised it 0.1 percentage point to 3 per cent next year. The priority is for Congress to avoid too much deficit reduction too soon, reach an agreement between Republicans and Democrats to raise the debt ceiling and craft a plan to reduce debt over the medium term, according to the report.
Japan Forecast
While the forecast for Japan was left unchanged at 1.2 per cent this year amid fiscal and monetary plans to stimulate its economy, the fund cut the 2014 prediction by 0.4 percentage point to 0.7 per cent. Fiscal expansion is “going to help growth in the short run, no question,” Blanchard said. At the same time “when you start with such a level of debt and without a medium term credible fiscal consolidation plan, increasing the fiscal deficit in the short run is a very risky thing to do.” Commodities exporters will feel the pinch of falling prices, with oil now seen slipping 5.1 per cent instead of 1 per cent, according to the report. While supportive policies have helped buoy growth in some emerging market countries in recent months, there’s less space for such action now, it said. Growth forecasts for Brazil were cut to 3.5 per cent this year from 4 per cent and to 4 per cent from 4.2 per cent in 2014. India was lowered 0.1 percentage point to 5.9 per cent this year and was left unchanged at 6.4 per cent in 2014.
China Forecast
The IMF didn’t change its forecast for China, seen growing 8.2 per cent this year and 8.5 per cent in 2014. “It’s not the rates that we saw before the crisis, but these rates are long gone,” Blanchard said of emerging countries. “Things in general are fine.” He also dismissed concerns about “currency wars” raised by Russia last week as “very much overblown.” European policymakers had joined Japan in bemoaning the economic cost of rising exchange rates.
“Countries have to take the right measures to get their own economies back to health,” with measures including monetary and fiscal policies, Blanchard said. “To the extent that we think the policies are appropriate, then the implications in terms of exchange rates are also appropriate.” In Europe, German growth was cut by 0.3 percentage point to 0.6 per cent in 2013 and is seen accelerating to 1.4 per cent next year, from 1.3 per cent.
Spain Contraction
Spain will contract 1.5 per cent this year, compared with 1.3 per cent in October and is seen growing 0.8 per cent in 2014, 0.2 percentage point less than before. Italy will shrink 1 per cent in 2013 rather than 0.7 per cent seen in October, and expand 0.5 per cent in 2014, unchanged from three months ago, according to the IMF report released today.
Here at home, a Nigerian financial expert, Managing Director, Financial Derivative Company Limited, Mr. Bismark Rewane, said; “There is high potential of recovery in major sectors after 2012’s slow output. There will be improved power output; inflation would decline to about 9.5per cent, food prices to trend downwards and declining interest rate. Furthermore, Nigeria’s nominal GDP is estimated to reach $300 billion in 2013. Gross Domestic Product (GDP) rebasing is expected to take place this year and as such, would alter the base year to 2008 from 1990.” He said that by carrying out the exercise, Nigeria will be emulating Malaysia and South Africa which rebased their GDPs from 2000 to 2005 each and Ghana- from 1993 to 2006. He said rebasing the GDP would make the rich richer and poor poorer while the country’s growth trajectory will decline.
Professor Akpan Ekpo, Director-General, West African Institute of Financial and Economic Management (WAIFEM), said, “Nigeria has potentials for growth. If things are right in this country, foreign investors will come into the country in 2013. There is no need for government to lavish money unnecessarily by taking government officials abroad to spend huge sums of money on accommodation, feeding and other allowances just to woo investors. Nigeria is a sleeping giant and there are potentials.”
Prof. Ekpo, however, called on the government to urgently address security problem, saying, “Foreign investors cannot come to Nigeria when the security of their lives is not guaranteed. “ Another issue bedeviling the country is governance. The issue of governance and leadership should be looked into. Our value system is not helping us where people worship corrupt leaders. I expect the CBN to reduce the interest rate so as to attract the manufacturing sector to borrow from the banking sector and also the inflation to fall so as to increase the purchasing power of the people. ”
Bade-Ajidahun noted that the trend so far in the Nigerian foreign exchange market has been quite disappointing. This, according to him, was caused largely by the poor economic performance of the country, insecurity issues, and poorly implemented economic policy.
