- Nigeria, Africa’s largest oil producer, has historically relied on oil revenue as a cornerstone of its economy.
- Despite its vast reserves and status as a key member of the Organization of Petroleum Exporting Countries (OPEC), the nation has faced significant challenges in meeting its oil production targets.
For 2025, the Nigerian government set an ambitious oil production budget target of 2.06 million barrels per day (mbpd). However, two persistent issues—pipeline vandalism and underproduction—threaten the achievement of this goal, jeopardizing the nation’s fiscal stability and economic prospects.
Oil production is the backbone of Nigeria’s economy, contributing over 80% of government revenue and 90% of foreign exchange earnings. Meeting production targets is both a fiscal necessity and a matter of economic stability, underpinning infrastructure, public services, and debt servicing.
In 2023, Nigeria’s oil revenue contributed significantly to funding infrastructure projects, public services, and debt servicing obligations. Falling short of production targets not only undermines these priorities but also exacerbates the country’s already fragile fiscal health.
Despite the potential, Nigeria’s production has consistently underperformed relative to its OPEC quota and budgetary expectations. The ambitious 2025 target of 2.06mbpd was set to address the revenue shortfall and stabilize the economy, but the persistent issues of pipeline vandalism and underproduction have emerged as significant roadblocks.
Pipeline vandalism: A persistent challenge
Pipeline vandalism remains a critical issue in Nigeria’s oil sector, especially in the Niger Delta region, the hub of oil production.
Benjamin Eromose, a senior analyst at a leading oil company, highlights the cascading effects of pipeline vandalism on Nigeria’s oil sector.
“Pipeline vandalism is a multi-layered problem that impacts not just production but also investor confidence and environmental sustainability,” Eromose explained.
“The financial losses are staggering—billions of dollars annually—but the human and ecological costs are equally profound. Without a collaborative approach involving security agencies, local communities, and oil companies, this issue will continue to undermine Nigeria’s economic stability.”
Acts of sabotage, illegal tapping, and theft have become alarmingly frequent, causing extensive damage to infrastructure, reducing production output, and increasing operational costs.
According to data from the Nigerian National Petroleum Company Limited (NNPC), an average of 200,000 barrels of crude oil is stolen daily. This staggering figure translates to an annual loss of over $7 billion, assuming a conservative oil price of $100 per barrel.
The economic consequences are profound, with these losses representing funds that could have been allocated to education, healthcare, and infrastructure development.
In addition to theft, vandalism damages pipelines and necessitates costly repairs and shutdowns. In 2023, production was deferred by approximately 300,000 barrels per day (bpd) due to incidents of vandalism. This disruption affects export revenues and undermines Nigeria’s credibility in the global oil market.
Beyond economic losses, pipeline vandalism has devastating environmental impacts. Oil spills caused by sabotage contaminate water sources, degrade soil quality, and destroy ecosystems.
A 2023 report by the United Nations Environmental Programme (UNEP) highlighted the extensive damage in the Niger Delta, where decades of spills have left lasting scars on the environment.
The ongoing Ogoni cleanup project, estimated at $1 billion, underscores the high cost of addressing these environmental challenges.
The Nigerian government and NNPC have implemented several measures to curb pipeline vandalism, including deploying advanced surveillance technology and collaborating with security agencies.
Despite these efforts, vandalism persists, driven by a combination of poverty, unemployment, and weak law enforcement. Until these root causes are addressed, the menace of pipeline vandalism will continue to undermine Nigeria’s oil production aspirations.
While pipeline vandalism significantly undermines oil production through theft and infrastructure damage, it is not the only obstacle Nigeria faces.
Operational inefficiencies and ageing infrastructure further compound the country’s inability to meet its ambitious production targets, contributing to the broader issue of underproduction.
Underproduction: A growing concern
Underproduction in Nigeria’s oil sector is another significant challenge. Despite its vast reserves, the country has consistently struggled to meet its OPEC production quota. Operational inefficiencies, regulatory bottlenecks, and security issues have all contributed to this persistent shortfall.
Nigeria’s crude oil production has been on a downward trend for over a decade. In July 2014, the country’s output averaged 1.65mbpd, but by November 2024, it had fallen to 1.48mbpd—a decline of 10.3%. This is still a shortfall when compared to Nigeria’s OPEC quota of 1.5mbpd, let alone the 2025 target of 2.06mbpd.
Data from OPEC’s Monthly Oil Market Report for December 2024 revealed that Nigeria’s production levels have remained significantly below expectations.
This underperformance is largely attributed to pipeline vandalism, theft, and operational challenges, including the delayed maintenance of critical infrastructure like the Trans Forcados Pipeline.
Ageing infrastructure and technical difficulties have also contributed to Nigeria’s underproduction woes. Many oil fields operate below capacity, with some completely shut down due to maintenance issues.
The lack of investment in exploration and production further exacerbates the situation, as declining output from mature fields is not offset by new discoveries.
The Petroleum Industry Act (PIA) of 2021 was heralded as a game-changer for Nigeria’s oil and gas sector, promising to attract investment and streamline operations.
However, its implementation has been slow, and regulatory uncertainty continues to deter international oil companies (IOCs) from committing to long-term projects in Nigeria. Companies like Shell and TotalEnergies have increasingly shifted their focus to other regions, citing high operational costs and security risks in Nigeria.
Insecurity in the Niger Delta remains a significant barrier to oil production. Frequent attacks on facilities, kidnappings of workers, and community unrest have forced many operators to scale back their activities.
Austin Okafor, an oil explorer with over a decade of experience in the Niger Delta, describes the operational difficulties faced by industry players in the region.
“Operating in the Niger Delta feels like navigating a minefield. Beyond the daily risks of sabotage and theft, there’s the human cost of violence and fear. These challenges discourage investment and make it increasingly difficult to sustain production levels,” Okafor stated.
Additionally, unresolved issues with host communities, including demands for revenue sharing and benefits, often result in operational disruptions.
Economic implications of low production
Failing to meet the 2.06mbpd target has dire consequences for Nigeria’s economy. Oil revenue remains the backbone of the national budget, and any shortfall directly affects the government’s ability to fund critical projects and meet debt obligations.
In 2023, Nigeria’s oil revenue fell short of projections by 30%, leading to a budget deficit of over $10 billion. If the trend continues in 2025, the government will face significant challenges in maintaining fiscal stability.
Underproduction diminishes Nigeria’s share in the global oil market, affecting its geopolitical influence and bargaining power within the Organization of the Petroleum Exporting Countries (OPEC).
A reduced production capacity limits Nigeria’s ability to negotiate favourable terms and assert its interests in global energy discussions. This diminished influence can lead to less favourable agreements and a weakened position in international energy markets.
The inability to fully exploit its oil potential also hampers economic diversification efforts. The lack of revenue from oil underproduction constrains investments in other sectors such as agriculture, manufacturing, and services.
Such trends highlight the need for a balanced economic structure to ensure resilience against oil market fluctuations.
Also, the shortfall in oil production and revenue contributed to inflationary pressures, leading to higher fuel prices and increased living costs.
To mitigate the revenue shortfall, the Nigerian government has resorted to borrowing, increasing the national debt burden.
The World Bank approved a $2.25 billion loan in 2024 to support economic reforms and address the cost-of-living crisis.
While such loans provide immediate relief, they also impose future repayment obligations, potentially diverting funds from essential services and infrastructure development.
The Dangote refinery effect
As Nigeria grapples with the twin challenges of pipeline vandalism and underproduction, the Dangote Refinery emerges as a potential game-changer for the country’s oil industry.
Commissioned in 2023, the refinery is the largest single-train refinery in the world, with a processing capacity of 650,000 barrels of crude oil per day.
Its strategic importance lies not only in refining crude oil but also in boosting Nigeria’s capacity to meet domestic and international energy demands.
While the refinery itself does not directly influence crude oil production, its operations create a ripple effect that can help Nigeria achieve its 2.06mbpd target.
By providing a guaranteed domestic market for crude oil, it incentivizes increased production from local oil companies. Additionally, the presence of a world-class refinery attracts investment in upstream activities, as producers are assured of a stable and profitable outlet for their output.