The organisation of Petroleum Exporting Countries (OPEC) have resolved to raise production by 1 million barrels per day in July after their gamble to cut over 1.8million bpd from global production last year paid off but Africa’s largest producer may benefit little from the deal.
According to data obtained from the ministry of Petroleum Resources, Nigeria’s production in the month of May stood at 1.8million barrels per day and this includes figures for condensate. This means that while Nigeria has struggled to maintain production at output limit imposed by OPEC, it may be unable to add new barrels.
Perhaps this informed Nigeria’s unwillingness to support a deal that will see output increase prior to the meeting in Vienna on June 23.
“I hope we will leave here with at worst, a decision that even if there will be increase, it will be a very very marginal increase,” Kachikwu told journalists before the meeting.
“I understand that the consensus with the consumers is important and that there is the need for OPEC to see if prices are too high and then to react,” Kachikwu said.
Kachikwu is basing this position on the notion that the market is not yet ripe for such decisions. However this may not be a sentiment shared by more prolific producers including Saudi Arabia and Russia.
In 2016, OPEC and some non-members including Russia agreed to cut global output by 1.8 million bpd in a bid to help rebalance the market. The measure has largely been successful with and within the last 18 months, oil prices have rebounded to around $75 per barrel from as low as $27 in 2016.
Oil prices were further helped northwards by unexpected outages in Venezuela, Libya and Angola which have effectively brought supply cuts to around 2.8 million bpd since this year.
A lull in militancy has helped Nigeria regain nearly 800,000 bpd it lost due to actions of various militant groups especially the Niger Delta Avengers. The government embarked on intense efforts at negotiations including using backchannels. The move has largely paid off as militancy has quietened.
But Nigeria has done little to encourage new production. Contrary to indications given by the ministry of petroleum resources and the Department of Petroleum Resources, (DPR) that the oil licensing rounds for marginal oil fields would in the first quarter of this year, nothing has been heard.
In September last year, BusinessDay reported that the Department of Petroleum Resources, the oil sector regulator, charged with the responsibility of conducting the bid rounds, is yet to develop guidance notes for the exercise.
A guidance note prepared by DRP states the rules that will be followed in the bid rounds. These include applicable fees, description of oil acreages up for bids, stipulated signature bonus and the method of application.
Nigeria is betting to fund infrastructure from proceeds of oil licensing round. One source said the country is seeking to raise $5billion from the oil marginal fields licensing rounds.
Udoma Udo Udoma, minister of budget and national planning last year, said government is considering raising funds through asset sales, advance payment for license rounds and infrastructure concessioning, to deal with reduced income from crude oil sales.
Meanwhile the global oil market will see prolific producers pump more barrels into the market and they stand the best chance to profit.
Saudi Energy Minister Khalid al-Falih said OPEC and non-OPEC combined would pump roughly an extra 1 million barrels per day (bpd) in coming months, equal to 1 percent of global supply.
Falih further warned that the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018, it is not clear if Nigeria production will fill the gap.
