In 2018, we saw high expectations from investors and a willingness from key stakeholders to drive growth in the Nigerian mining sector, which led to a belief that the solid minerals sector can contribute 3% of GDP by 2025.

In a recent podcast, Chief Economist at Tressis SV Daniel Lacalle spoke about crude oil expectations for 2019, including how the USA’s status as a net exporter of oil may impact the market. In this post, we’ll discuss what this may mean for Nigerian crude oil exports and mining industry.

The USA as an exporter of oil

The fact that the US has gone from being a net importer to a net exporter of oil in a very short period of time gives rise to the theory that the energy world does not have a resources problem. Instead, the issue appears to be accessing and developing crude oil. However, because crude oil’s price is impacted by supply and demand economics, estimating global production is important for predicting global oil prices.

Mr Lacalle notes that because the economic environment is disinflationary, we’re seeing a more abundant supply of oil and a more competitive energy market. This is because the disinflationary environment is creating growth, which is in turn driving technology and diversification.

The impact on Nigeria in 2019

Nigeria remains Africa’s largest oil exporter, and hopes are that the market will balance this year because of US sanctions on Iran and Venezuela.

To secure a higher price per barrel, Nigeria is willing to reduce its oil output for the first six months of 2019. This was confirmed by a spokesman for President Muhammadu Buhari, even though Nigeria pumped well above the quota it previously agreed to in January.

Although a slowing of production may lead to a higher price per barrel (Nigeria is currently aiming for a budget benchmark of $60 per barrel), the status of the US as a net exporter of crude oil may remain problematic for Nigeria. This is because the production growth in the US, driven by shale, will lead the US to export oil in greater volumes to international markets at a time where the global economy will witness a slowdown in growth.

Shale production alone in the US will hit a record 8.4 million barrels per day in March, but Nigeria’s crude oil production fell to 1.999 million barrels per day in February, in spite of an estimated production of 2.3 million barrels per day according to the Federal Government.

Overall, oil prices have improved since December 2018, when they fell to a 15-month low. However, if Nigerian exports are to stabilise at the budget benchmark level, intensified efforts must be made to eliminate excess supply from the market and drive up the price.

If production levels can fall to around 30 million barrels per day across the Organisation of Petroleum Exporting Countries (OPEC), then prices may leap further, which would help avoid a loss of revenue for the Nigerian Federal Government and will mean that the Central Bank of Nigeria will not have to intervene in the market.

Although oil remains a key driver of economic growth in Nigeria, it appears unlikely that the changing fortunes of the sector will have a large-scale impact on the mining industry according to government officials.

At the recent Mines and Money Conference in London, Hon. Abubakar Bawa Bwari (Minister of State for Mines and Steel Development) told business leaders that the production of oil allowed Nigeria to stamp its foot on the world mining map and showcase the country’s mineral resource potential.

The Nigerian government remains hopeful that that the solid minerals sector will contribute up to 7% of GDP growth by the end of 2025, which will be a sharp increase from the 0.3% it contributed in 2015. Mr Bawa Bwari confirmed this, outlining his belief that Nigeria should not only be viewed as an ‘oil nation’, as strategic minerals of the future such as nickel, cobalt and copper remain hidden under Nigeria’s lands.

As a result, it appears that recent developments in the oil industry present an opportunity for the mining industry rather than a challenge, with the task for the solid minerals sector being to further diversify the Nigerian economy as part of the Economic Recovery Goal Project (ERGP).

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