At a conservative price of $70 per barrel, Nigeria might lose as much as $1.085 billion in February as a result of its likely inability to meet its production oil quota which was increased to 1.701 million barrels per day by the Organisation of Petroleum Exporting Countries (OPEC) yesterday.
On the average, Nigeria has managed to pump just over 1.2 million per day in the last few months, thereby losing the desperately needed foreign exchange (forex) by the country.
With the aforementioned production volume, the country was projected to lose about 500,000 barrels per day next month, which would amount to about 15.5 million barrels for the month.
When multiplied with a pessimistic oil price of $70, it would give about $1.085 billion.
Latest figures from the Nigerian Upstream Regulatory Commission (NURPC), for instance, indicated that the country was only able to pump 1.23 million barrels per day in August, 1.24 million barrels per day in September, 1.22 million barrels per day in October and 1.27 million barrels per day in November.
But with the increase of Nigeria’s hitherto 1.683 million bpd in January 2022 to 1.701 million bpd by OPEC, meeting the target next month would be an uphill task, if not impossible.
Nigeria’s three tiers of government that depend largely on oil revenues for survival are also forecast to continue to feel the impact of the severely hampered production.
For instance, the Nigerian National Petroleum Company (NNPC) Limited was only able to remit N10.5 billion, which was 8.5 per cent of its projected N122.7 billion to the federation account last month.
But the national oil company had blamed the inability to restart oil wells shut down in 2020, when OPEC compelled member countries to cut production for the declining production.
Added to that, it had listed issues with host communities, vandalism, incessant force majeure on major assets as well as technical issues leading to shutdowns as some of the challenges bedevilling the industry.
However, the major culprit remains Nigeria’s ageing upstream infrastructure, following years of under-investment in expanding and modernising the assets.
Although the Minister of State, Petroleum, Mr Timipre Sylva and the Group Managing Director of the NNPC, Mallam Mele Kyari, had set the end of 2021 to improve Nigeria’s production and meet the quota and that has not materialised significantly.
In a statement after the 24th OPEC and non-OPEC ministerial meeting where the decision to allocate an additional 400,000 barrels per day to its members was arrived at on Monday, the producers’ group stated that it was sticking to the gradual plan to unwind in view of the current oil market fundamentals and the consensus on its outlook.
“(We) reconfirm the production adjustment plan and the monthly production adjustment mechanism approved at the 19th OPEC and non-OPEC ministerial meeting and the decision to adjust upward the monthly overall production by 0.4 mb/d for the month of February 2022,” it announced.
Furthermore, OPEC asked its members such as Nigeria, to meet up their production quota and urged those who had exceeded their allocation to agree on a compensation plan by June this year.
“We reiterate the critical importance of adhering to full conformity and to the compensation mechanism taking advantage of the extension of the compensation period until the end of June 2022.
“Compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC ministerial meeting,” it added.
Meanwhile, in view of the development, oil prices rose about two per cent on yesterday, even as the cartel said there were indications that the Omicron coronavirus variant would have only a mild impact on demand.
Brent crude, Nigeria’s benchmark was up at $80.48 a barrel, highest since November, while the United States West Texas Intermediate (WTI) crude rose by $1.48, or 2 per cent, to $77.56.
Also, global manufacturing activity remained strong in December, suggesting that Omicron’s impact on output had been subdued.
The supply crunch caused by members’ inability to meet production may even be worse as Libyan output is likely to be about 500-600,000 bpd lower in the coming weeks, more than offsetting the planned monthly increase in OPEC+ production.
The country’s oil firm said on Saturday oil output would be reduced by 200,000 bpd for a week due to maintenance on a main pipeline, adding to disruptions two weeks ago after militia blocked operations at the Sharara and Wafa oilfields.
Speaking before the OPEC meeting, its Secretary General, Sanusi Barkindo, stated that in 2022, the outlook correlates with a generally positive trajectory with regard to market fundamentals.
He added that while there were some uncertainties, particularly related to mutations of the coronavirus, there are signs that the global economic recovery, supported by the contribution of the ‘Declaration of Cooperation’ participating countries to oil market stability, can continue in the year ahead.