Crude oil output recovery by Nigeria, Libya threatens OPEC deal
There are fears that crude oil output recovery from Nigeria and Libya could complicate OPEC’s attempt to accelerate oil market rebalancing.
The six-month supply cap deal, which expires in June, will be up for review at OPEC’s next meeting on May 25, with some ministers saying the production cuts should be extended to continue drawing down global inventories.
Nigeria’s government has intensified engagements with the Niger Delta militants with the Acting President Yemi Osinbajo and the deputy minister of petroleum resources, Ibe Kachikwu, leading the charge to let-up in militancy.
“But while Libya has seen a renewal of fighting that threatens to derail its recent fragile oil output recovery, Nigeria appears well on the way to full restoration of its output that could see it pressured by its fellow OPEC members to end its exemption from the production agreement,” says an analysis by Platts.
“As things stand at present, potentially the new dynamic that will need to be resolved is if Nigeria’s militant attacks die down, there will be a case to bring Nigeria into the quota system,” Richard Mallinson, geopolitical analyst with Energy Aspects told Platts.
“That’s unlikely to be something that Nigeria would welcome, but that would be a part of the negotiations.”
The OPEC deal calls for the producer group to lower output by some 1.2 million b/d from October levels and freeze production at around 32.5 million b/d, while exempting Libya and Nigeria from any cuts.
The latest S&P Global Platts OPEC survey released Monday found the group is about 340,000 b/d above that ceiling.
OPEC Secretary General Mohammed Barkindo has said the organization is closely monitoring news from the two exempt countries.
“Every barrel that they can produce and export will be accommodated by OPEC, as well as non-OPEC producing countries, as well as the market,” Barkindo said in February at the IP Week conference in London. “By accommodation I mean that both OPEC and non-OPEC…will continue to review developments in Nigeria, as well as Libya, and will take those into account.”
Nigeria’s major oil export terminal, Forcados, has not been opened basically because the company fear attacks.
Forcados, a gasoil-rich sweet crude blend, is one of Nigeria’s top export crudes averaging some 250,000 b/d of output. But there have been no loadings since the terminal was bombed a year ago, save for a brief resumption in October that was quickly halted after further attacks.
Once the terminal resumes service and offshore crude grade Bonga, which averages 225,000 b/d, returns from maintenance in April, Nigeria will be at its full output capacity, assuming militancy remains quelled.
Kachkiwu has set a June 2017 goal of 1.9 million b/d of crude production plus 300,000 b/d of condensates, for a total 2.2 million b/d output.
Meanwhile, Libya’s output, which appeared to have returned to growth as the state-owned National Oil Corp. Politically navigated the various militias that have controlled the country’s oil infrastructure now look set to fall below 600,000b/d, if not further, according to analysts.
The Benghazi Defense Brigades seized control of the Ras Lanuf and Es Sider oil export terminals on Saturday from a rival militia. Exports from the two terminals have been suspended, and ship owners have refused to load from Libya’s eastern ports during the clashes.
Libya’s production in February was 670,000 b/d, flat from January, according to the latest Platts OPEC survey.
“For now OPEC is saying that it is considering the option of maintaining the cuts in the second half of the year. But if Libya and Nigeria manage to increase supplies from current levels there will not be a lot of room for the rest of OPEC next year,” said Oliver Jakob, an analyst with Petromatrix.