Nigeria: Opec-Plus Exemplar by Choice or Necessity?

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Nigeria has surprised the oil industry in recent months, apparently transforming itself from a serial cheater to a shining example of compliance with the Opec-plus production cuts that started almost a year ago. The West African country says it managed to produce just 1.428 million barrels per day of crude oil in March -- well below its Opec-plus ceiling 1.56 million b/d. Energy Intelligence tallied Nigeria's March crude export loadings at 1.356 million b/d. While Nigeria did overproduce during some of the early months of the Opec-plus cuts, it subsequently caught up. And on average from May 2020 through February 2021 it has produced some 43,000 b/d below its quota. But it would be wrong to simply conclude that Nigeria has "seen the light" and voluntarily become a disciplined member of Opec and the broader Opec-plus alliance. Aging fields and infrastructure and various other problems appear to have played an important role in capping its output. Opec Cheerleader Nigeria has always been a big Opec cheerleader -- even when it didn't play by the group's rules. That could explain why it was appointed as the enforcer of Opec-plus production discipline in Africa earlier this year (IOD Feb.5'21). Opec's current Nigerian secretary-general, Mohammed Barkindo, and Muslims from northern Nigeria who are close to President Muhammadu Buhari have links to Saudi Arabia -- Opec's dominant oil producer. They are also sympathetic to the agenda of Saudi Crown Prince Mohammed bin Salman. In theory at least, Nigeria has the most spare capacity among all of Opec's African members. Its production baseline for the Opec-plus production cuts was set at 2 million b/d. And while that number is well above its recent output, it is also well below the country's peak production of just over 2.5 million b/d in 2010. "More Love and Attention Needed" Producers have been grappling with a raft of technical problems and other issues that disrupt their output, as well as natural decline from older fields. Aging production equipment and pipeline systems need "more love and attention than they are currently getting” one Lagos-based oil producer told Energy Intelligence. Some of the country's floating production, storage and offloading (FPSO) vessels are approaching the end of their working life and need more repair and maintenance work. Travel restrictions related to the Covid-19 pandemic also disrupted some maintenance work last year, which may have caused a backlog of technical hitches. Creaking Production and Pipeline Systems In March, the Royal Dutch Shell-operated Bonga deepwater FPSO system, which has a capacity of 200,000 b/d, loaded only 90,000 b/d -- in part because of pump failure. The aging pipelines of the shallow-water Qua Iboe system suffer periodic technical problems and there has been a major decline in output over the past decade to around 180,000 b/d. A fire at the terminal in December cut loadings below 60,000 b/d, with the effects lingering well into January. The Bonny Light system has barely managed 120,000 b/d in recent months -- roughly half of the volumes seen a few years ago. Local sources report problems with at least one of the Bonny export terminal's three single buoy moorings. Sabotage and a state of disrepair at the Nembe Creek Trunk Line also disrupt supplies from time to time. Cash-Strapped Local Firms Cash-strapped local producers are indirectly contributing to disruptions. The Department of Petroleum Resources (DPR) has delayed cargo clearance for some local firms, which have fallen behind on royalty payments. "DPR is on a drive for cash and is not afraid of strong-arm bullying tactics to get what they are owed, even if it means casualties in the industry," one local producer told Energy Intelligence. Local companies' arrears on payments of handling fees to terminal operators are also mounting, and debt collection activity may also have caused some delays in their operations, sources say. Christina Katsouris, London

Oil Supply, Crude Oil
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