Can Nigeria Meet Its Production Output?

After much appeal and lobbying amid the soaring global price of crude oil, the Organisation of Petroleum Exporting Countries (OPEC) finally gave the nod for the country to increase her oil production quota. But, going by the events of the last six months, will Nigeria be able to grab and fully utilise the opportunity, MUYIWA LUCAS asks.

It was perhaps the shortest meeting so far in its history as it lasted for only 16 minutes. The ministers of the Organization of Petroleum Exporting Countries (OPEC+) alliance, who met via video conference, approved a 400, 000 barrels per day (bpd) production hike for its members for March.

This is against the expectations and 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 $90pb mark, 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 $90 and the potential for renewed discontent from major oil importers at these high price levels.

Strategic

Stakeholders and analysts in the oil sector are convinced that OPEC+  decision to retain the same volume of production output, albeit, with modest increase, like it has done in the last seven months, is not without strong consideration for the market, price and the ability of its members to meet any huge output increase.

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 1.718m bpd quota allotted to her for March. Going by antecedents, at 1.54 mbpd allocated quota has remained a problem for the country.

Last August, the country managed a paltry 1.23mbpd, which was a major drop from the 1.32mbpd it produced a month earlier, while it produced 1.246mbpd in September and 1.227mb/d in October. This was at a time when the country’s had 1.6mbpd as its production output target.

This is why stakeholders are worried that for a country that has failed to meet its production quota in over five months the new allocation may also be squandered opportunity to make the critical revenue needed to finance this year’s budget and other critical infrastructural needs in the country.

Several factors are said to be mitigating against the ability to meet the production target. One such is the huge cost of restarting fields and pipeline vandalism.

Sodipo noted that the level of vandalism is very high such that oil firms like Agip, and Shell 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 afacility costs money,” he explained.

Last year, for instance, a combined shortage of 1.62 million barrels was recorded at Qua Iboe 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.

This was followed by 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 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 protests 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, a public analyst, warned that if the trend of declaration of force majure by some of the International Oil Companies (IoCs) persists this year as experienced previosly, then the 1.718mbpd allocation by OPEC+ to the country may be unattainable.

The issue of divestment by the IOCs 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.

Which way

The question on stakeholders’ lips is: With all these issues, including that of  oil bunkering bedeviling production, how do Nigeria meet its OPEC+ quota?

The Nation