2025 budget hangs on production target, Trump’s energy policy

The prospect for a successful implementation of the 2025 budget relies heavily on Donald Trump’s ambitions in the upstream oil sector and Nigeria’s ability to ramp up oil earnings, a review of the budget document shows.

President Bola Tinubu is proposing an N47.9 trillion 2025 budget with at least 60 percent going to recurrent expenditure (N14.2 trillion) and debt services (N15.3 trillion), even as government spending continues to outpace revenue.

The federal government dreams of raising N19.60 trillion or 56 percent of its revenues from the oil sector and N15.22 trillion or 43 percent of total revenues from non-oil sources.

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This indicates that it has to earn more money. Oil is a major source of income. In the budget, the government has planned with the anticipation that oil will sell above $75 per barrel and Nigeria would produce at least 2.06 million barrels per day (bpd).

Oil prices are currently facing a period of heightened uncertainty, with market watchers including CitiBank predicting a significant decline in 2025 as the upcoming administration of President-elect Donald Trump has raised concerns among market analysts.

Trump’s rhetoric, which has often included promises of boosting U.S. energy production through policies such as “drill baby drill,” could contribute to downward pressure on oil prices.

Trump has also called for energy prices to be lowered, a stance that some analysts believe could result in a significant decrease in oil prices.

Citi analysts forecast that Brent crude will average $60 per barrel in 2025, which is far below the current price levels.

However, some analysts are even more pessimistic, predicting that prices could dip as low as $40 per barrel if the market becomes flooded with oil due to an unwinding of OPEC+ cuts and an oversupplied market.

Matt Smith, lead oil analyst at , has pointed out that if oil were to fall to below $40 per barrel, retail gasoline prices would also see a significant reduction, providing relief to consumers at the pump but wreaking havoc on producers’ profit margins.

Prolonged low oil prices could impact Nigeria’s budget stability and government spending, with knock-on effects on inflation and economic growth as Nigeria heavily relies on oil exports for government revenue and foreign exchange.

“Reduced oil revenue could lead to a chain reaction impacting not only the government’s budget but also other industries and households reliant on oil-sector jobs,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies said.

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In 2023, the net oil and gas revenue which accrued to the Federation Account was N4.93 trillion. This is N306.0 billion, about 6.6 percent above the target of N4.6 trillion.

As of August 2024, net oil and gas revenue inflows to the Federation Account amounted to N8.50 trillion. This is N2.86 trillion or 25.3 percent less than the target of N11.3 trillion.

“Declining oil income may force cutbacks in public spending on critical sectors such as infrastructure, healthcare, and education,” Mohammed said.

Beyond oil prices, Trump repeatedly vowed to impose stricter sanctions on Iranian and Venezuelan crude, which could lead to a decrease in the global oil supply and drive-up prices in his campaign trail.

“Conceptually, the impact of a potential second Trump term on oil prices is ambiguous, with some short-term downside risk to Iran oil supply … and thus upside price risk,” Goldman Sachs commodities analysts wrote in a research note. “But medium-term downside risk to oil demand and thus oil prices from downside risk to global GDP from a potential escalation in trade tensions.”

On Sunday, Trump named oil and gas industry executive Chris Wright as his pick to lead the US Energy Department.

Wright said in a statement on X that his focus would be on “making American energy more affordable, reliable, and secure”.

“Energy is the lifeblood that makes everything in life possible,” he posted.

Wright’s proposed appointment marks another big win for the US oil industry, which supported his candidacy, and gives him a key role in enacting the president-elect’s plans to increase liquefied natural gas exports.

He is expected to fulfil the president-elect’s promise to increase fossil fuel production – an aim summed by the campaign slogan “drill, baby, drill”.

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Wright is the founder and CEO of Liberty Energy, which serves companies extracting oil and gas from shale fields in a process known as “fracking”.

Wright is a climate change sceptic who previously said he does not care where energy comes from, “as long as it is secure, reliable, affordable and betters human lives”.

In a video posted to his LinkedIn profile last year, he said: “There is no climate crisis, and we’re not in the midst of an energy transition either.”

Apart from lower oil prices, another major concern for Nigeria is struggling oil production.

Between 2013 and 2023, Nigeria consistently missed its crude oil production targets outlined in annual budgets, primarily due to infrastructure challenges, oil theft, and OPEC+ production cuts.

In 2013, the production target was set at 2.5 million barrels per day (bpd), but actual output ranged between 2.1 and 2.2 million bpd, falling short by about 300,000 bpd.

The following year, the budget estimated production at 2.3883 million bpd, while actual production averaged 2.05 million bpd, a shortfall of 450,000 bpd.

By 2015, the target dropped slightly to 2.27 million bpd, but actual output was just 1.9 million bpd, missing the mark by over 300,000 bpd.

In 2016, the country aimed for 2.2 million bpd, but disruptions caused production to plummet to 1.4 million bpd mid-year, with an average of 1.6 million bpd by year-end.

The 2017 budget again set the target at 2.2 million bpd, but actual production was approximately 2.04 million bpd. In 2018, the target increased to 2.3 million bpd, though actual output only reached 1.84 million bpd.

For 2019, the projection remained at 2.3 million bpd at a benchmark price of $60 per barrel, but production fell to 1.5 million bpd by December.

In 2020, amid the COVID-19 pandemic, the target of 2.18 million bpd at $57 per barrel was drastically missed, with actual production falling to around 900,000 bpd. In 2021, the target was 1.86 million bpd, but OPEC+ restrictions limited output to an average of 1.4–1.5 million bpd.

The 2022 budget projected production at 1.6 million bpd, yet actual output ranged between 1 and 1.24 million bpd due to persistent theft and sabotage.

By 2023, Nigeria’s production, including condensates, stood at just 1.39 million bpd—well below the budgeted target of 1.69 million bpd, continuing a decade-long trend of underperformance in crude oil production.

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Africa’s largest oil producer has averaged 1.5 million barrels per day (bpd) of crude oil output this year, significantly below its estimated capacity of 2.2 million bpd.

The shortfall has been attributed to theft, underinvestment, and technical challenges at aging fields, according to S&P Global Commodity Insights.

Despite these challenges, Mele Kyari, the group chief executive officer of the Nigerian National Petroleum Company (NNPC), announced a production increase to 1.8 million bpd of crude and 7.4 billion cubic feet per day (Bcf/d) of gas.

He credited collaborative efforts by the government, security agencies, and joint venture partners in tackling theft and sabotage.

“The interventions that led to the recovery of production cut across every segment of the production chain, with security agencies closely monitoring the pipelines,” Kyari explained.

Earlier in the year, lawmakers estimated daily crude theft at 400,000 bpd.

Kyari noted that output had risen steadily from 1.43 million bpd in June to 1.7 million bpd in August and 1.808 million bpd in November. He expressed optimism about reaching 2 million bpd by the end of 2024.

However, he did not specify which fields or projects were responsible for the increased production.

The announced figures differ from official statistics from Nigeria’s upstream petroleum regulator and the Platts OPEC Survey by Commodity Insights. These sources estimated October output, excluding condensates, at 1.32 million bpd and 1.44 million bpd, respectively.

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“If these numbers reflect reality, it provides some relief for the federal government,” Clementine Wallop, director for sub-Saharan Africa at Horizon Engage told S&P Global. “1.8 million b/d is above the benchmark used in the [Bola] Tinubu administration’s budget, after months of falling short. However, market participants remain cautious given recent optimistic forecasts from the ministry and NNPC.”