Nigeria could lose as much as $1.085 billion in February if it is unable to meet its production oil quota, which was increased by the Organization of Petroleum Exporting Countries (OPEC) to 1.701 million barrels per day yesterday.
Nigeria has been able to pump just over 1.2 million per day on average in recent months, causing the country to lose desperately needed foreign exchange (forex).
With the aforementioned production volume, the country was expected to lose about 500,000 barrels per day next month, totaling 15.5 million barrels.
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It would be worth about $1.085 billion if multiplied by a pessimistic oil price of $70.
According to the Nigerian Upstream Regulatory Commission (NURPC), 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, according to the latest figures.
However, with OPEC increasing Nigeria’s previously 1.683 million bpd to 1.701 million bpd in January 2022, meeting the target next month will be difficult, if not impossible.
The impact of the severely hampered production is expected to be felt by Nigeria’s three tiers of government, which rely heavily on oil revenues for survival.
For example, the Nigerian National Petroleum Company (NNPC) Limited was only able to remit N10.5 billion to the federation account last month, which was only 8.5 percent of its projected N122.7 billion.
However, the national oil company blamed the decline in production on the inability to restart oil wells that were shut down in 2020 after OPEC forced member countries to cut production.
It also listed issues with host communities, vandalism, constant force majeure on major assets, and technical issues that result in shutdowns as some of the industry’s challenges.
The main culprit, however, is Nigeria’s aging upstream infrastructure, which has been neglected for years due to a lack of investment in expanding and modernizing the assets.
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Despite the fact that the Minister of State for Petroleum, Mr Timipre Sylva, and the NNPC’s Group Managing Director, Mallam Mele Kyari, set a deadline of 2021 to improve Nigeria’s production and meet the quota, that deadline has not been met.
The producers’ group stated in a statement issued after the 24th OPEC and non-OPEC ministerial meeting on Monday that it was sticking to the gradual plan to unwind in light of current oil market fundamentals and consensus on its outlook.
“(We) confirm the production adjustment plan and monthly production adjustment mechanism approved at the 19th OPEC and non-OPEC ministerial meeting, as well as the decision to adjust monthly overall production by 0.4 million barrels per day for the month of February 2022,” it said.
OPEC also urged its members, such as Nigeria, to meet their production quotas and urged those who had exceeded their allocation to reach an agreement on a compensation plan by June of this year.
“We emphasize the critical importance of full conformity and the compensation mechanism, taking advantage of the compensation period extension until the end of June 2022.”
“Compensation plans should be submitted in accordance with the 15th OPEC and non-OPEC ministerial meeting statement,” it continued.
In the meantime, oil prices have risen about 2% in response to the news, despite the cartel’s assertion that the Omicron coronavirus variant will have only a minor impact on demand.
Brent crude, Nigeria’s benchmark, was up $1.48, or 2%, to $80.48 a barrel, the highest since November, while US West Texas Intermediate (WTI) crude was up $1.48, or 2%, to $77.56 a barrel.
Furthermore, global manufacturing activity remained strong in December, implying that Omicron’s impact on output was minor.
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The supply shortage caused by members’ inability to meet production targets could worsen, as Libyan output is expected to fall by 500-600,000 bpd in the coming weeks, more than offsetting the planned monthly increase in OPEC+ output.
Due to maintenance on a main pipeline, the country’s oil firm said on Saturday that oil output would be reduced by 200,000 bpd for a week, adding to disruptions two weeks ago when militia blocked operations at the Sharara and Wafa oilfields.
Sanusi Barkindo, the Secretary General of OPEC, stated before the meeting that the outlook for 2022 correlates with a generally positive trajectory in terms of market fundamentals.
While there were some concerns, particularly about coronavirus mutations, he added that there were signs that the global economic recovery, which was aided by the contribution of the ‘Declaration of Cooperation’ participating countries to oil market stability, could continue in the coming year.