By Okafor Joseph Afam
October 8, 2024

The Nigerian government is placing its hopes on oil to rescue the beleaguered naira. With the national currency hitting record lows against the dollar and other major currencies, economic stability has become closely tied to a decisive target—achieving consistent oil production of two million barrels per day (bpd).

Nigeria’s oil and gas sector, long the backbone of government revenue and foreign exchange, is in dire straits. Despite its vast reserves, the country has struggled to maintain production levels. As of 2024, the average output has often fallen short of two million bpd, a figure that industry experts believe is crucial for restoring fiscal balance.

Olusegun Omisakin, director of research and chief economist at the Nigeria Economic Summit Group (NESG), insists that Nigeria cannot dream of economic recovery without hitting that production target. “We are barely touching what we have,” Omisakin said during a quarterly macro-economic outlook webinar. “For some years now, and currently, we are doing below two million barrels of oil production per day. We cannot continue to dream of a better country when we don’t know how to optimize our national resources.”

The decline in oil production has exacerbated the country’s foreign exchange woes. Oil exports are Nigeria’s primary source of dollar earnings, and without significant inflows from the sale of crude, the Central Bank of Nigeria (CBN) is limited in its ability to intervene in the FX market to stabilize the naira. This has created a cycle of scarcity that drives up demand for the dollar, worsening inflation and increasing the cost of imports.

The Security Dilemma

A major factor contributing to the shortfall in oil production is the lack of security surrounding Nigeria’s oil infrastructure. In the Niger Delta, militants frequently sabotage pipelines and kidnap oil workers, particularly expatriates, disrupting production and delaying critical operations. These activities, often involving collusion between criminals and corrupt officials, have resulted in significant losses for the government and oil companies alike.

Despite the sector’s critical importance to the economy, the government’s efforts to protect oil assets have been largely inadequate. Until security is strengthened, experts argue, Nigeria’s ability to meet the 2M bpd target will remain elusive. The financial implications of these disruptions are staggering, as each day of lost production represents millions of dollars in lost revenue.

The Shift to Independent Producers

Amid these challenges, international oil companies (IOCs) have been steadily divesting from Nigeria’s onshore and shallow water assets, shifting their focus to offshore operations or exiting the country altogether. The exit of these major players has created a vacuum, but it also presents an opportunity for local independent producers to step in.

Bolaji Ogundare, group executive director of Newcross Group and Pan Ocean Oil Corporation (Nigeria), believes that Nigeria’s oil future lies in the hands of these independent producers. “Investing in exploration is crucial for future growth, and because it is risky and expensive, companies need more incentives,” Ogundare said in an interview. “True exploration requires million-dollar investments, and it’s highly capital-intensive.”

To sustain oil production in the face of declining IOC interest, the Nigerian government will need to provide the right environment—offering incentives for exploration and ensuring security for operations. Independent producers, while smaller in scale, are capable of filling the gap left by the IOCs if they are given the necessary support to expand their exploration efforts.

The Path Forward

The Nigerian government’s ambitious oil production target of 2M bpd is not just a number; it is the lifeline that could stabilize the naira and, by extension, the economy. Achieving this goal will require more than just rhetoric. A comprehensive approach that addresses the security of oil infrastructure, incentivizes local producers, and ensures long-term investment in exploration is essential.

Without a robust strategy to boost production and secure vital oil assets, Nigeria will continue to struggle with the same vicious cycle of naira depreciation, inflation, and economic instability. As oil remains the country’s most significant economic lever, the path to a stable naira and a healthier economy begins with hitting—and sustaining—the 2M bpd oil production mark.