In a bid to support OPEC’s effort towards moderating the oversupply of oil in the global oil market, Nigeria may have agreed to limit its oil production to 1.8 million barrel per day.
A Bloomberg report quoting oil minister Emmanuel Kachikwu on Wednesday, discloses that the output limit would come into play when Nigeria can stably pump 1.8 million barrels a day. That’s about 100,000 barrels more than it’s currently producing. The country’s output has recovered this year after militant attacks had damaged export pipelines and other facilities.
“As a serious member of OPEC, we stand ready to support the cuts when we are sure that we can have a stable predictable production,” Kachikwu said. “You have to watch it for a couple of months to be sure that what you see as peace is in fact sustained.”
Recall that Nigeria and Libya were exempted from cuts agreed to by OPEC and other large producers in an effort to trim a global glut. OPEC decided late last year to reduce its output by 1.2 million barrels a day to 32.5 million starting Jan. 1.
Other producers including Russia joined the deal, which was extended through March 2018. Iran was allowed to raise production by 90,000 barrels a day as it was recovering from sanctions.
OPEC’s Secretary-General Mohammad Barkindo told Bloomberg Television on Wednesday at a conference in Istanbul that the group wants an “orderly recovery” in oil production from Libya, Nigeria and Iran, and as such, has a flexible output target under its cuts agreement to accommodate more crude from the three member nations.
Nigeria still produces below 1.8 million barrel per day
“We still are below the 1.8 million barrel a day benchmark set for us by OPEC,” Kachikwu said. “I think that over the next one or two months, hopefully, we can get to that point where we can say the recovery has been tested, it is systemic and predictable.”
Nigeria, which hasn’t been above that level since February 2016, has a capacity of 2.2 million barrels a day, according to data compiled by Bloomberg.
Nigeria may not be able to control the global oil price nor avoid the production cap by OPEC, but it is very expedient that the nation gets it acts together and ensure peace in the Niger Delta so as to boost its current production, at least to 1.8 million barrel per days.
What this Means for Nigeria:
This oil production cap would imply that Nigeria’s benchmark of 2.2 million barrels per day as stated in 2017 budget may no longer be feasible. The 2017 budget was based on the production of 2.2 million barrels per day at the reference price of $44.5. On the flip side, Nigeria would have to hope for a global oil price above the $44.5 set in the budget.
Revenue from oil which has been a major source on foreign earnings for the nation is expected to serve as a cushion to the estimate high capital expenditure in the budget.
Moreover, with this oil production cap, the FGN would have to further seek for an alternative means to finance the 2017 budget.
This means Nigeria should hope for oil price @ $54.27 to make the same daily revenue projected for 2.2 million barrels @$44.4.