A landmark $5 billion oil-backed Saudi loan agreement between Saudi Arabia’s state oil giant Aramco and Nigeria is reportedly at risk as falling crude oil prices complicate negotiations. According to sources cited by Reuters, the recent 20% drop in oil prices since January has delayed finalization of the deal, which would represent the largest oil-backed loan Nigeria has ever secured and Saudi Arabia’s most significant financial engagement with an African OPEC member.
The plunge in prices has increased the volume of oil Nigeria would need to allocate for repayment. It is estimated that the country may need to commit at least 100,000 barrels per day (bpd) to cover the loan, adding pressure to an already strained production system. Nigeria is currently using about 300,000 bpd to service existing oil-backed Saudi loan taken by its national oil company.
Nigeria Struggles to Meet OPEC Output Quotas
Nigeria’s ability to commit additional oil to back the Saudi loan is uncertain due to its ongoing struggles with production shortfalls. In the first quarter of the year, Nigeria averaged just 1.4 million bpd in crude output, well below its 1.8 million bpd quota set by OPEC. The shortfall has been attributed to longstanding issues, including oil theft, sabotage of infrastructure, and aging facilities.
Speaking at a local energy conference, Nigeria’s Minister of State for Gas, Ekperikpe Ekpo, urged international and domestic oil producers operating in the country to work collaboratively to increase output. Despite various efforts, Nigeria has consistently failed to meet its OPEC production targets in recent years.
Widespread theft and pipeline vandalism have deterred major international oil companies from operating in the region. These challenges have led to frequent declarations of force majeure at key crude export terminals, further disrupting output and revenue generation.
New Investments Offer Hope, But Challenges Remain
In response to the ongoing production crisis, Nigerian authorities have intensified efforts to combat oil theft and boost output. These initiatives are beginning to attract attention from international investors. Earlier this month, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) announced that ExxonMobil plans to invest up to $1.5 billion in offshore oil and gas exploration and development in Nigerian waters.
Such investments offer a glimmer of hope for Nigeria’s oil sector. However, until the country can significantly stabilize and increase its production, the viability of backing large-scale loans with crude oil remains questionable. The current impasse with Saudi Arabia underscores how fragile the situation is, relying heavily on both commodity prices and operational stability.
The fate of the $5 billion Saudi loan could set a precedent for future financing arrangements within Africa’s largest oil-producing nation. As negotiations continue, both Riyadh and Abuja will need to navigate the twin challenges of volatile oil markets and systemic production issues to reach a deal.
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