Hard road to Nigeria’s oil output recovery
Nigeria has lost more than 700,000 barrels of oil production per day because of attacks on pipelines and platforms by the Niger Delta Avengers. The country’s production output is currently hovering close to 30-year lows of less than 1.5 million barrels per day.
Curiously, Nigeria’s crude oil output increased in the month of June despite the incessant bombings of oil installations by militants in the Niger Delta region, the July 2016 report of the Organisation of Petroleum Exporting Countries has shown. The country’s crude oil output increased by 97,000 barrels per day, up from a total of 1.426 million barrels per day that was recorded in April to 1.523 million bpd in June, according to OPEC, though that is still a far cry from the 2.2 mbpd target by the 2016 budget.
The country’s earnings from crude oil export have continued to fall. Data from the Central Bank of Nigeria showed that the volume of crude export dropped by 10.23 million barrels in the month of May. At the official exchange rate of N315.5 to a dollar, and an average of $47.59 per barrel of crude during the review period, Nigeria’s earnings from the export of the commodity dropped by N153.5bn in May.
Nigeria’s crude oil export opened at 1.45 million barrels per day or 44.95 million barrels in the month of January, but it recorded declines in the preceding months and reduced to 0.9 million bpd or 27.9 million barrels in May. The drop in oil export was largely due to destruction of oil and natural gas infrastructure in the Niger Delta by militants.
Following the decline in oil production from the projected 2.2million barrels per day to an average of 1.5mb/d, the Federal Government has planned to make up for the shortfall in the 2016 budget with an excess production of 900,000 barrels per day when normalcy returns to the restive Niger Delta.
“It is going to be difficult to catch up with the 2.2million barrels on which the 2016 budget was based. But we are certainly going to try, once things have calmed down and there is full production. We will need 900,000 bpd excess production to catch up and that is the projection that we are working on now,” said Emmanuel Kachikwu, Minister of State for Petroleum Resources.
Ceasefire: To be or not to be?
The Avengers said recently that they were willing to engage in dialogue with the government and enter into a ceasefire.
Before the announcement, the issue of the ceasefire was mired in a controversy. The Federal Government insisted that it was negotiating with the real militants in the Niger Delta geopolitical zone, despite claims by the Niger Delta Avengers that the government was not holding any discussion with the group. Officials at the Federal Ministry of Petroleum Resources and the state oil company, the Nigerian National Petroleum Corporation (NNPC) stated that the government was in talks with the restive group in the region.
But the NDA in a statement by its spokesperson, Mudoch Agbinobi, denied being in any talks with the Federal Government, stressing that the President’s claim was insincere and aimed at deceiving Nigerians and the international community.
Similarly, the Ijaw Youth Council (IYC) queried the federal government’s position, urging it to stop deceiving Nigerians and the international community about talks with the militants on how to stop attacks on oil facilities in the Niger Delta region.
Ambitious oil price benchmark?
The Federal Government has set the fundamental assumptions for the 2017 budget. Udoma Udoma, Minister of Budget and National Planning, said that next year’s budget would be based on oil benchmark of $42.5 per barrel and average daily oil production output of 2.2 million barrels per day.
As part of the key assumptions, the Minister said crude oil benchmark price and production under the 2018-2019 MTEF would be at $45 per barrel and $50 per barrel respectively. The government also set oil production output for 2018 at about 2.3 million barrels per day and 2.4 million barrels per day in 2019.
Quite ambitious target but Udo Udoma, thinks otherwise.
“Government is being very conservative in terms of the reference price of crude oil, even though we are expecting it to go higher than this, but we are keeping to an extremely conservative price scenario,” Udoma said.
But with the ceasefire now agreed, that raises the prospect of a return of oil production if the attacks stop and companies can make repairs to damaged infrastructure. However, the signs of recovery look very bleak. The outcome of the negotiations with the militants is far from assured, not least because the militants in the Niger Delta are splintered, and the Avengers do not speak for everyone.
Four of Nigeria’s main export crude grades, Qua Iboe, Bonny Light, Brass River and Forcados are currently on force majeure, with more than 700,000 b/d of production affected. The oil majors are not offering any clues into when they can lift the force majeure on several key streams of crude from the region.
FRANK UZUEGBUNAM