The Organisation of Petroleum Exporting Countries (OPEC) is planning to cap Nigeria’s crude oil production at 1.8 million barrels per day (mbpd) as a way to boost prices in the market.
The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC), which met in St. Petersburg for its fourth meeting yesterday, also called on several members to boost compliance with production cuts to help clear excessive global stocks and support prices.
By the OPEC’s decision, Nigeria, which pegged its crude oil production at 2.2 million barrels per day to finance the 2017 budget, would have to struggle with a shortfall of 400,000bpd.
At the current market price of $47 per barrel, the country would be losing about $188 million (N57.528 billion) daily, which would have been part of the revenue needed to finance the 2017 budget.
OPEC and 11 other producers, including Russia, had agreed in December to reduce their combined output by almost 1.8 million barrels per day (bpd) in the first half of this year, to support prices and curb oversupply.
But Nigeria and Libya were exempted from output freeze due to domestic challenges already limiting the countries from producing to a maximum level.
The committee, in a report obtained from OPEC website on Monday, said that it would continue to monitor Nigeria’s production patterns in the next weeks to determine when to implement the output.
The ministerial committee of OPEC and non-OPEC, said at the meeting that it had agreed Nigeria would join the deal by capping or even cutting its output once it stabilises at that level from 1.8 million bpd.
Nigeria’s current production output as at June 2017 stood at 1.733 million bpd, according to the statistics from the OPEC monthly report.
The committee met yesterday to review the June 2017 report as well as the first six months of the Declaration of Cooperation, as submitted by the Joint OPEC-Non-OPEC Technical Committee (JTC).
OPEC explained that the JMMC further welcomed the flexibility of Nigeria in this regard, which, despite its commitment to recover its pre-crisis production level, voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8 mbpd.
At the event, OPEC Secretary-General, Mohammad Barkindo, said Nigeria had no intention of going beyond its oil production target of 1.8 million barrels per day (bpd) until the end of March 2018.
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said the market had faced pressure in recent weeks due to weaker OPEC compliance with cuts and rising production from Libya and Nigeria, which have been exempted from the reductions.
On the implication for Nigeria’s economy, Yusuf, said it would put more pressure on domestic financial system. According to him, it would increase the country’s debt service burden and capacity to fund budget. “There is a limit to what we can actually borrow as a country, especially when our borrowing is almost reaching a saturation point. It is going to impose a lot of strain on the economy,” he said.
Yusuf urged the Federal Government to build an economy that is not too reliant on oil. “We can only do that by putting policy in place to attract investment. We should concentrate on creating the right environment to boost investment in non-oil sector. Apart from the output cut, we are also suffering from low oil prices.”
Though Nigeria has been struggling to increase crude oil production, Head, Energy Research Ecobank Group, Dolapo Oni, said technically, Nigeria could achieve the 1.8 mbpd level. “We can, what we’ll need to do is spend money on joint ventures to achieve that,” he said.
Oni believes the country’s production recovery is “sustainable” and that there is more “flexibility in the system now.”
As crude exports become increasingly unpredictable, other options may start to open up.
Professor of Energy Economics, University of Ibadan, Adeola Adenikinju, stressed the need for the country to focus on domestic use of its crude oil resources.
“Nigeria is left with a sector that emphasizes revenue generation rather than economic development. Hence, we have a sector that exports crude oil rather than processing the crude for the use/need of the economy.
“We export Liquefied Natural Gas (LPG) while we have no gas to fuel our electricity sector to power our homes, industries and businesses and yet still import LPG for domestic cooking.”
He said that Nigeria’s public policy choices must prioritise investment over consumption, “fuelling our economy first before producing oil and gas to grow other economies.”
Meanwhile, Acting President Yemi Osinbajo has raised the alarm that the oil proceeds not accounted for are being used to fund terrorism activities across the world.
At the opening of the extra-ordinary meeting of the Council of Ministers session of the African Petroleum Producers Organization (APPO) in Abuja yesterday, Osinbajo said concerted efforts must be made to account for all crude oil that is produced so as to prevent the misuse of the funds.
“Around the world today, we are increasingly seeing crude oil, often of untraceable origins, funding the activities of terrorist groups and other purveyors of violence and conflicts. Many of these groups constitute a threat or a potential threat to the safety and security in our member states.
“APPO, therefore, needs to build the capacity to maintain a reliable statistical database and to deploy technology to track every molecule of crude oil extracted from our territories. This is an important step, not only for global security, but also for fiscal transparency, accountability and of course, the required levels of international collaboration and cooperation that an organisation like APPO is well-placed to muster,” he said.
Osinbajo hinted that the fall in the prices of oil has forced many governments around the world into rethinking the mode of inventing development models that do not rely heavily on crude oil.
“The volatility has triggered much soul-searching and governments are compelled to ask themselves difficult but necessary questions about the present and the future. Besides, the reality of the future, where demands for and revenues from oil drop sharply is already upon us; and almost every major oil importing country today has embarked on an aggressive non-fossil fuel alternative programme. China, Japan and some Scandinavian states have already set dates within the next 10 to 15 years, to produce and use only electric vehicles,” he said.
Osinbajo posited that for oil producing countries to exit recession and other economic challenges foisted by drop in oil prices, they needed the whole range of the petrochemical enterprise and other untapped options for growing industrial opportunities, creating jobs and increasing chances of delivering on national and continental commitment for inclusive growth.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, warned that the world oil community was nearing extinction. “With the current trends in technology and environmental concerns, it is clear that over the next 20 to 30 years, oil would become a fading, if not a faded, product.
“The thing is that most countries that still harbour oil and are getting into oil exploration, have only about a 30-year span to harness, explore, find, carry and enjoy the full benefits of oil, because after that, most of the consumers of oil would have moved on to a cleaner source of energy.”
The Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Maikanti Baru, disclosed at the meeting yesterday that Nigeria had lost 150,000 barrels per day to the nefarious activities of vandals as attacks were launched on the Trans Niger Pipeline in Ogoniland on Monday.
