Nigeria’s attempt to scrape every barrel continues as the West African nation has requested an increase in its oil production quota due to dwindling oil revenue. According to OPEC, Nigeria produced 1.23 million barrels per day in August, relatively less than 1.32 million barrels per day produced in July.
Both months’ production levels are still far off Nigeria’s production quota based on the agreement reached by OPEC at 1.6 million barrels per day (excluding condensate).
The baseline reportedly stands at 1.829 million barrels per day. In the first quarter of 2021, the figures presented by the National Bureau of Statistics (NBS) put oil production at 1.72 million barrels per day, higher than the 1.56 million recorded in the last quarter of 2020.
Nigeria requests a production quota review… again
The Petroleum Minister (State), Timipre Sylva said the country has requested that OPEC review the production quota, and is hoping for the green light as Nigeria has the capacity for more production than what they are currently producing now. The Petroleum Minister made this assertion at the Gastech conference in Dubai.
For the umpteenth time, Nigeria is requesting a higher oil production quota. The last request saw the West African nation’s bread land butter-side down as OPEC declined to re-evaluate the baseline. As they attempt to make this new request, Nigeria’s Petroleum Minister has corroborated the nation’s stance that Nigeria has shown in the past that it has the capacity to produce up to 2.6 million barrels per day.
The historical data presents the country with a legitimate basis for its request for an increased baseline to the tune of 2.2 million barrels per day. “We have the capacity, and we have proven it,” were the words of Timipre Sylva as he knows his country’s foreign earnings are largely dependent on its oil revenue.
Additionally, there have been calls from back home if Nigeria should leave the Organisation of the Petroleum Exporting Countries. It would not be unprecedented. Other countries have left OPEC in the past as they opted for autonomy of their production levels. Ecuador withdrew from the organization in 2020, Qatar terminated its membership in 2019, and Asian giant, Indonesia suspended its membership in 2016.
Nigeria, which joined OPEC in 1971, can join the United States, one of the largest oil producers in the world in pursuing its own objectives separate from OPEC. If you recall, when the world was awash with oil no one needed, there was a heavy debate for the United States to join OPEC+ in cutting production. But the United States antitrust law prohibits oil companies from coordinating and influencing their production as there is no direct mechanism for the government to dictate production levels to private oil companies.
The then President of the United States argued that U.S. production has already been cut because “they are a market-driven economy and oil is very market-driven” making it difficult to “cut” production by executive order.
Can Nigeria walk the talk of producing to optimum capacity?
However, most analysts doubt the Giant of Africa can walk the talk of producing to optimum capacity. Olumide Adesina, an analyst at FxEmpire said “Nigeria, which is Africa’s leading oil producer is facing a dynamic complexity in producing optimally partly because of the recurring problem at Africa’s largest economy’s upstream sector in the area of investment.”
He further added that “If we look at the data, NNPC recently reported that investment was down by 30% on the bias that the world increasingly moves to renewables, coupled with the growing security risks around Nigeria’s oil infrastructure with sporadic theft and vandalism of pipelines staying in play.”
Some other stakeholders have also attributed the nation’s struggling production to “huge costs of restarting fields and under-reported pipeline vandalism in the Niger Delta.”
But what is the data saying? According to the U.S Energy Information Administration, Nigeria has not produced up to 2 million barrels in a while. With Shell in talks with the Nigerian government to sell the Anglo-Dutch company’s stake in onshore oil fields – there is a belief they might technically struggle to reach the 2 million barrels per day benchmark.
So, let’s look at the Nigerian Petroleum Minister’s words.
“What we are saying is that the data we have with OPEC on which they based our quotas was crisis time data. It was produced during the Niger Delta crisis,” Sylva said. “We believe that now the Niger Delta crisis is no longer there, we can produce a lot more than that.”
To counter what the Honorable Minister said, we would recall the statement put out by the Shell CEO in May 2021 on why they are divesting their onshore oil stakes.
The Shell CEO, Ben van Beurden said, “We cannot solve community problems in the Niger Delta, that’s for the Nigerian government perhaps to solve. We can do our best, but at some point in time, we also have to conclude that this is an exposure that doesn’t fit with our risk appetite anymore.”
So does the Niger Delta situation present an albatross on the country’s production capacity or is it water under the bridge as the Petroleum Minister suggested?
Now although production is restoring normally, there have been infrastructure and technical issues that have hindered production. It is reported that loading operations at Nigeria’s Forcados oil terminal have now fully resumed after a leak disrupted crude exports for over three weeks.
The NNPC Managing Director, Mele Kyari, confirmed this as he spoke to reporters at the Gastech conference in Dubai.
– “We had some trouble with one of the terminals, but we fixed that,” the NNPC MD said.
Despite the Minister of Petroleum’s bullish stance, the jury is still out if Nigeria can produce more and attract investments to the oil industry amidst the Niger-Delta uncertainties.
With regards to leaving OPEC+, I have written earlier in the year, it would not be uncalled for if Nigeria takes a stance and chooses their national interest just as the United Arab Emirates, Mexico and Russia have done in recent months.
Besides, increased subsidy payments show we are not benefitting as a nation from higher oil prices (which is the thinly-veiled objective of OPEC+). Recall the Minister of finance, budget, and national planning, Zainab Ahmed saying subsidy milks over 150 billion monthly from the government’s purse.
With a projected increase in global crude demand approaching the 2021 second-half target of the joint committee of ministers from Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC countries, it is imperative Nigeria fixes their supply problems.