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What OPEC’s decision to retain oil output cut means for Nigeria

On Sunday, November 4, the Organization of Petroleum Exporting Countries and its allies (OPEC+) met via teleconference to agree on keeping the status quo on oil production.  

A month earlier, the group had agreed to cut crude oil production by 2 million barrels per day from November 2022. 

According to Chief OPEC correspondent Amena Bakr, OPEC+ decided to keep policy unchanged after delegates from all countries voted with no objections voiced. 

The status quo remains till the end of 2023. 

Boost for Nigeria: Oil market analyst Etulan Adu told Nairametrics that the country can take advantage of the unchanged policy to meet its 1.7 million barrels per day quota.  

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According to Adu, Nigeria has been unable to meet its OPEC quota since early 2022 due to low production and crude oil theft. He said: 

  • “For the country, this has affected the federation account balance since the country relies massively on oil sales profits. This situation has increased debts for Nigeria and has affected budget estimates. This will continue to impact Nigeria’s economy with inflationary pressures.” 
  • Etulan believes that with Nigeria’s inability to meet quota, the decision by OPEC creates great opportunities for the country to boost production. But that is provided that Nigeria’s quota is not reassigned or taken over by the big oil producers within the cartel such as Saudi Arabia, Iran, and Iraq.  

On the flip side, the decision by OPEC not to increase supply does not change the position of things but could erode future earnings from oil sales since the country plans to boost production to over 2 million barrels per day in the short term.    

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Nigeria in a box: According to a statement by chief OPEC correspondent, Amena Bakr via Twitter on Sunday, there is no reason to rock the boat amidst so much market uncertainty, as OPEC+ decided to wait and see how the market reacts to the various sanctions on Russia as well as lockdowns in China. She quoted OPEC+ as stating: 

  • “The cuts are recognized in retrospect by the market participants to have been the necessary and the right course of action towards stabilizing global oil markets.” 

For Etulan Adu, this means Nigeria will be in a box, as OPEC has paused supply cuts and supply increases to see the geopolitical and market reactions.  

  • He pointed out that the Russian price cap will also affect the crude oil market in 2023 and beyond. This week, G7 countries agreed on some measures aimed at hitting Russia’s oil revenues in response to its invasion of Ukraine.  
  • The measures entail a boycott of most Russian oil imports and a $60 per barrel price cap on Russian exports imposed by the EU, the Group of Seven (G7) countries, and Australia.  
  • Meanwhile, Alexander Novak, the Deputy Prime Minister of Russia, has responded to the move, stating that Russia is ready to cut oil production amid a price cap if needed. 

Increased energy demand: Temilola George, a petroleum geologist at the African Petroleum Producers Organization (APPO), told Nairametrics that energy demand will increase following the OPEC decision. According to her, when energy demand increases African producers will make more money.  

  • “When there is an increase in energy demand, there is a probability that the price will increase and oil-producing countries are supposed to make more money with the current status quo, but those who are not producing as they ought to will struggle with budget deficits and other challenges,” she explained. 

Speaking specifically to Nigeria, George told Nairametrics that although the country is not meeting the OPEC quota, the stakeholders have identified the challenges hampering production. If they can tackle those challenges, the country might be able to boost production. She said: 

  • “The Nigerian National Petroleum Company (NNPC) is doing everything possible within its reach to stop crude oil theft. Some of the interventions are already yielding positive results like the Forcados terminal which was shut down due to crude oil theft but is back in production. I believe that if all the interventions of the NNPC are successful, Nigeria’s crude oil production will increase and the OPEC quota can be met,” she said.  

A contrary view: Disagreeing with the chance of Nigeria increasing its oil production capacity, oil analyst Kayode Oluwadare said Nigeria has enjoyed some form of a waiver from OPEC in the past due to the country’s production capacity being on a downward spiral.  

  • He acknowledged that for over a year Nigeria has been producing far below its quota. And there are currently no new production assets except for the Kolmani asset, which is more or less a future production asset.  
  • He highlighted that the Kolmani asset would not be able to add to the country’s production capacity in the next two or three years. Therefore, the scope for expanding Nigeria’s production capacity is non-existent. He said: 
  • “Based on what we are producing and what we want to produce in the coming months, I do not think we will meet our allotted quota. So, the OPEC decision is not a problem for Nigeria. Based on our current assets, we can only have nominal production output. We cannot exceed our allotted quota as it is.”  

To Oluwadare, delayed policy development, the global energy transition, reduced investments, and crude oil theft have hindered Nigeria from increasing its oil production output.  

  • He told Nairametrics that the big elephant in the room has always been the loss of investments in oil production and that challenge has a lot to do with the delay in the passage of the Petroleum Industry Act (2021). He said: 
  • “Due to the delay in the passage of the PIA, a lot of international oil companies (IOCs) had to sell off their onshore assets while retaining offshore assets. This led to a reduction in Nigeria’s oil production capacity. In the past, Nigeria had been trying to increase its reserve capacity to reach 40 billion barrels by 2020, but that goal was not attained due to reduced investments in oil and the uncertainty surrounding the eventual passage of the PIA.”  
  • Oluwadare also addressed the issue of negative sentiments trailing oil and gas investments due to the energy transition drive which is championed by the global North. He said that many IOCs are trying to reduce their investments in purely oil projects.  
  • So, instead of considering crude oil expansion projects, they are rather looking at natural gas expansion projects because some of them see natural gas as a transition fuel.  
  • “This caveat also involves banks. The European Investment Bank has stopped funding oil and gas projects as a whole since 2021, despite pressure from stakeholders. Given the fact that oil production is expensive, all these factors affect Nigeria’s capacity to produce oil. Without the participation of the IOCs and foreign lenders, it is difficult to adequately increase oil production.” 

In case you missed it: Nigeria maintained its position as Africa’s third-largest crude oil producer for October 2022, according to data from the monthly oil market report (MOMR) released by the Organization of Petroleum Exporting Countries (OPEC) on November 14.  

  • Algeria took the top spot as Africa’s largest crude oil producer for October, followed by Angola. 
  • In its State of African Energy report released on October 26, the African Energy Chamber (AEC) has projected that Nigeria’s crude oil production is expected to grow to 1.75 million barrels per day (bpd) in 2023.  
  • According to AEC, Nigeria’s crude oil production would grow from 1.65 million bpd in 2022 to about 1.75 million bpd in 2023.  


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