February 6, 2023

Twice within space of two months, the Organisation of Petroleum Exporting Countries+ (OPEC+) has revised downward, its oil demand growth projections for 2023. While Nigeria should have risen to the occasion to take advantage of the situation, the country has further fallen in the pecking order as leader of African oil producing countries. How can the country take over and benefit from the revenue rush accruing from a booming oil market? MUYIWA LUCAS asks.

THE global oil market has witnessed a mixture of highs and lows. Hopes were raised early on in the year of a huge boom in the sector that was predicted to continue the trend early into 2023. And for oil producing countries, it was good news especially in the face of the rising crude price. It was therefore not surprising that the Organisation of Petroleum Exporting Countries (OPEC+) alliance at its last February meeting via video conference, unanimously approved a 400, 000 barrels per day (bpd) monthly production hike for its members for the month of March.

The decision was based on the predictions of analysts and industry stakeholders who had hoped that given the bullish surge of oil price in the recent past which culminated Into hitting the production output quota would be increased significantly. For instance, Goldman Sachs had expressed the view that OPEC+ would announce a larger production increase for March than the usual 400,000 bpd, considering the oil price rally to S90 and the potential for renewed discontent from major oil importers at these high price levels. Subsequent months enjoyed such raise until the effect of the Russia/ Ukraine war which began on February 24, began to creep in.

This began a new chapter in the production outlook envisioned by the OPEC+. To safe guard the industry the oil alliance had to announce a two million barrel per day cut in production output and subsequently a reduction across board.

It is believed that OPEC’s interventions would make a positive impact, as the global oil market would continue to record instability in 2023 and beyond, thereby impacting negatively the economy of nations, including Nigeria.

In its October 2022 Monthly Oil Market Report, (MOMR), released by the OPEC, the body painted a picture of an uncertain oil market when it stated: “For 2023, world oil demand growth is revised down to stand at about 2.3 mb/d. “Uncertainty about the geopolitical situation remains high, and there is potential for further US shale liquid production,” the report hinted.

Strategic

Stakeholders and analyst in the oil sector are convinced that OPEC+ decision to cut the volume of production output is not without strong consideration for the market, price and the ability of its members to meet any huge output in-crease.

An economist and oil market analyst, Mayowa Sodipo, contended that over the period the body has increased output quota, members have found it difficult meeting the target set for them. According to him, many oil producing nations within the OPEC+ group are struggling to pump to their quotas, thereby causing dislocations in the production chain.

Besides, with the inability to meet these allocated quotas, an increasingly huge gap between production increase on paper and actual growth in output now exist, which has made the market tighter than stakeholders had anticipated a few months ago.

Challenge

For Nigeria, the challenge before her is meeting the 1.8m bpd quota allotted to her. The country’s dwindling average oil output, including condensate, dropped Year-on-Year (YoY). by 7.4 per cent to 1.37 mil-lion barrels per day. mb/d in the first 10 months this year. from 1.48 mb/d in the corresponding period of 2021. This showed a shortfall of 317,940 barrels when compared to the 1.69 mb/d which the 2023 budget was based on at S70 per bar-rel. However, on Month-on-Month (MoM), the average oil output in-creased by 7.8 per cent to 1.23 mb/ d in October 2022, from 1.14 mb/d, recorded in the preceding month of September 2022.

A fortnight ago, Nigeria dropped from being the highest producer on the continent to become the fourth biggest oil producer as Angola. Libya and Algeria produced more crude oil than Nigeria in September as the country’s oil output dipped below one million barrels per clay for two months straight. In October, Algeria produced 1.060 mbpd, Angola produced 1.051 mbpd, Libya’s output was 1.163 million while Nigeria’s oil production stood at 1.024 million bpd.

This is why stakeholders are worried that for a country that has failed to meet its production quota in over five months the development does not augur well especially as the country struggles with revenue challenges and its huge deficit in the next fiscal year.

Several factors are said to be mitigating against the ability to meet the production target. One of such is the huge cost of-restarting fields and pipeline vandalism in the country. Sodipo noted that the level of vandalism is very high such that oil firms like Agip, Shell and some other companies have suffered serious damages to their facilities, thereby limiting their ability to contribute to production as a result of the shutdowns that usually followed such attacks.

“Unfortunately, when you experience a shutdown in your operation, restarting them is not straight forward, as restarting a facility cost money,” he explained.

Last year, for instance, a combined shortage of 1.62 million barrels was recorded at Qua lboe terminal, with 200.000 barrels due to production shut-in arising from flare management and low well head pressure. Another 530,000 barrels were lost to shut-ins following tank top concerns. 650.000 barrels as a result of production cut-back as directed by the then Department of Petroleum Resources (DPR) as well as a loss of 240.000 barrels due to a gas leak on one of the assets.

For years, losses from the Forcados facility, which shed 200,000 barrels. 84.000 barrels, 30. 000 barrels and 80,000 barrels respectively on different days, with reasons ranging from leak repairs. tank top issues, a fire incident and declaration of a force majeure.

Still, Forcados had continued its shut-ins, shedding an additional 405,000 barrels of crude oil at the Uzere/Afisere/Kokori axis following a shutdown as a result of pro-tests by community workers as well as a loss of 80, 000 barrels due to a fire incident.

In the same vein, Anyala Madu shed 105,000 barrels, Bonny suffered total shut-ins of 335,000 barrels, Ugo Ocha lost 30,000, Okono’s shutdown led to loss of 96.000 barrels, while Sea Eagle lost 750.000 barrels.

Yet. stakeholders like Kayode Oyedele, an public analyst, warned that if the trend of declaration of force majure by some of the Inter-national Oil Companies (loCs) persists this year as experienced previously, then the 1.8mbpd allocation by OPEC+ to the country may be unattainable.

The issue of divestment by the 10Cs remains a sore point against the march to meeting production capacity, with some of the multinational oil companies discreetly withdrawing their investment in the industry.

Reviving hope?

But the revival of crude oil ex-ports at the Forcados Oil Terminal by Shell Petroleum Development Company Limited (SPDC) last month has brought back hope for the addition of 400,000 bpd of crude oil to Nigeria’s daily output.

Located at the western Niger Delta. the Forcados Oil Terminal, which has a nameplate capacity to export 400.000 bpd of crude oil per day. receives crude oil from the Forcados Oil Pipeline System, the second largest pipeline network in the oil-producing region, after the Bonny Oil Pipeline System in the eastern Niger Delta. Some inter-national oil companies (IOCs) and Nigerian independents operating in the western Niger Delta pump oil to the Forcados Oil Terminal for exports. However, with the closure of the export terminal for re-pairs. about 20 oil fields were been shut in.

The Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, is also optimistic that the country expected to add 500.000 bpd to its output by the end of last month, mainly by restarting activities on the Shell Plc-operated Forcados export terminal and Trans-Niger pipeline (TNP).

The TNP with a capacity of about 180,000 bpd and the Aiteo-operated Nembe Creek Trunkline (NCTL) are the two major pipelines in the eastern Niger Delta that transport Bonny Export Terminal.

What next

For now, stakeholders are hopeful that with a further improvement to the prevention of damages to the oil facilities, including drastic reduction in oil theft, the country will in no time regain its lost position.

Leave a Reply

Your email address will not be published. Required fields are marked *