Save for later Print Download Share LinkedIn Twitter For most oil producers, higher oil prices have provided leeway to get state finances and foreign reserves back in order. Not so Nigeria, which is underproducing, barely refining and facing a rocketing bill for gasoline and diesel imports. This, along with growing subsidies and massive smuggling, is muddying finances and depriving Nigeria’s federal treasury of revenues to aid recovery from Covid-19 and the price crash, at a time when conflict and political tensions are rising on all fronts (EC Jun.18'21). • Nigerian production is still struggling to recover to pre-Covid-19 levels. Nigerian production was initially constrained by compliance with its Opec-plus ceilings, which limited monthly output of crude. But Covid-19, which kept maintenance staff off sites, and funding issues are straining Nigeria’s aging export terminals and floating production, storage and offloading (FPSO) vessels well into 2021. International oil companies (IOCs) keen to divest onshore and shallow-water assets under pressure from the energy transition have less incentive to invest in maximizing production (EC Jul.23'21). Cash-short local firms are meanwhile struggling to recover from the oil price crashes of 2015 and 2020. Back in early 2020, Nigeria exceeded its Opec-plus ceiling but fell into line later in the year (EC Mar.12'21). When the ceiling for crude production was raised to 1.516 million barrels per day in January 2021, Nigeria averaged around 1.373 million b/d for the first half of the year, according to government data. When Opec-plus raised Nigeria's ceiling to 1.554 million b/d in July, Nigeria’s crude output tallied 1.323 million b/d. Some of the shortfall can be explained by the need to implement catch-up cuts for a period. But lifters report technical hitches and frequent delays of several days for several crude grades, which exceed the norm even for Nigeria and its reputation for inefficiency. Some buyers have complained that the regulator, the Department of Petroleum Resources (DPR), has delayed clearance of vessels for several days. Others believe that IOCs are spending less on terminal maintenance. Still others suspect the DPR is applying pressure to get local firms to cough up unpaid royalties. Recent Nigerian government data on pure crude streams shows flagship Bonny output has declined to 162,000 b/d from 219,000 b/d in the first seven months of 2021. Bonga has been in decline since April 2020: From averaging 130,000 b/d during January-July 2020, it has drifted to 104,000 b/d over the same period in 2021. Also down was Qua Iboe, from 208,000 bd over January-July 2020 to 153,000 b/d over the same months in 2021. The Royal Dutch Shell-operated Bonga FPSO is nearing the end of its life, and should by now have been superceded by the long-delayed Bonga South West scheme, years behind schedule. The Bonny terminal has separately experienced problems with at least one of its three single-buoy moorings this year. • Falling output means patronage is now stretched at the seams, and term liftings and crude-for-product swaps are feeling the pinch. With crude and condensate output languishing at around 1.639 million b/d in July, state-run Nigerian National Petroleum Corp. (NNPC), long abused as a patronage tool by politicians and power brokers, will struggle to honor its term contract liftings and the Direct Sale Direct Purchase (DSDP) crude-for-product swaps. Nigeria depends on the latter for nearly all its gasoline imports since NNPC’s refineries stopped working in June 2019, after decades of neglect and mismanagement. NNPC and its upstream subsidiary NPDC control around 750,000 b/d of production, or less than half of the total, once debts to IOCs and carried finance are factored into their share of production. Recent information supplied to Energy Intelligence suggests that NNPC awarded DSDP contracts to 17 groups for the year 2021-22 starting in August. While DSDP contract sizes have traditionally tallied around 30,000 b/d, roughly the size of one cargo of crude, recent reports suggest NNPC may have reduced some or all contract liftings to 20,000 b/d. This would imply monthly allocations to the DSDPs of between 340,000 b/d to 500,000 b/d, leaving little for the 40 or so companies awarded term contracts. At the same time, patronage-driven deals are cramming more politically connected firms and intermediaries into the consortia controlling each contract, spreading the profits more thinly. Vitol, which previously operated its DSDP alone or in tandem with NNPC, has reportedly acquired two little-known Nigerian partners, Ashgrove and JAK Energy. Dutch Trafigura and Nigeria’s AA Rano have been joined by a company called East Cross. A new batch of Nigerian companies -- Panero, Stopgap and Mainland -- now partner with Swiss Mocoh. Only France’s TotalEnergies, Nigeria’s Sahara and MRS have been allowed to keep contracts to themselves. • Subsidies and smuggling are soaring, spurred by rising oil prices.