Amid the collapse of oil prices and demand, Nigeria’s oil and gas sector saw its contribution to the economy tumble in the second quarter of this year as it recorded negative growth.
For the first time in more than three years, the nation’s economy shrank in Q2 2020 as the Gross Domestic Product fell by 6.10 per cent, compared to a growth of 1.87 per cent in the previous quarter.
The NBS, in its GDP report for the second quarter of the year, said the oil sector, which grew by 5.06 per cent in Q1, declined by 6.63 per cent year-on-year in Q2, indicating a decrease of 13.80 per cent compared to the same period of 2019.
“The oil sector contributed 8.93 per cent to total real GDP in Q2 2020, down from figures recorded in the corresponding period of 2019 and the preceding quarter, where it contributed 8.98 per cent and 9.50 per cent respectively,” it said.
The NBS said the average daily oil production in the country fell to 1.81 million barrels per day in Q2 from 2.07 million bpd in the previous quarter and 2.02 million bpd in Q2 2019.
The Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+, agreed in April to an output cut to offset a slump in demand and prices caused by the coronavirus crisis.
They decided to cut supply by a record 9.7 million bpd for May and June but the deal was extended in July by one month.
Under the April deal, Nigeria was expected to cap its production at 1.41 million bpd in May and June but the country overproduced during the period.
The Lagos Chamber of Commerce and Industry attributed the low level of crude production in the period under review to OPEC+ production cut agreement aimed at rebalancing the oil market.
The LCCI said, “We also note that the economy experienced stockpiles of unsold crude cargoes particularly in April and early May, due to collapse in crude demand from Asia and Europe.
“In addition to these, the steep contraction was also fuelled by weakening oil prices witnessed in the quarter. We note that oil prices averaged $33 per barrel in Q2 2020 compared to $51 per barrel in the first quarter.”
The OPEC+ production cuts have helped lift the price of the international oil benchmark, Brent crude, from a low of around $16 per barrel in April. It stood at $45.91 per barrel as of 6:45pm Nigeria time on Tuesday.
The Director-General, Budget Office of the Federation, Ben Akabueze, had said in May that the nation’s oil revenues had declined by nearly 90 per cent amid the slump in prices caused by the coronavirus pandemic.
He noted that prior to the oil price decline, the Nigerian economy was already fragile and vulnerable, with sluggish growth, low revenue to GDP ratio, constrained fiscal space, among others.
According to him, oil and gas represents only about 10 per cent of Nigeria’s GDP, but accounts for about 50 per cent of government revenues and over 90 per cent of export earnings.
The contribution of the power sector to the economy also suffered a decline in Q2.
According to the NBS, the electricity, gas, steam and air conditioning supply sector recorded a year-on-year growth of 8.64 per cent in Q2 2020, down from the 29.75 per cent growth rate recorded in same period of 2019 and 17.51 per cent in Q1 2020.
It said, “The contribution of electricity, gas, steam and air conditioning supply to nominal GDP in second quarter 2020 was 0.92 per cent, higher than the contribution made in the corresponding quarter of 2019 at 0.82 per cent and higher with its contribution of 0.38 per cent in the quarter before.”
“In real terms, however, the sector declined by –3.00 per cent in Q2 2020, a decrease from the growth rate of 0.43 per cent recorded in the same quarter of 2019. When compared to the immediate past quarter, this was a decrease of –0.69 per cent.”