Nigeria and Libya may have been short changed in the new crude oil production cuts agreed by the Organisation of Petroleum Exporting Countries (OPEC) on November 31.
OPEC may have assumed a lower crude oil production output of 1.594 million barrels per day for Nigeria in arriving at its decision to limit crude oil production for the cartel to 32.5 mbpd.
Nigeria currently produces about 1.628 mbpd of crude oil per day due to shut-ins caused by militant activities in the Niger Delta but at full production without militant activity, the country is able to produce about 2.2 mbpd.
“The exemption of Libya and Nigeria means an accommodation has been made for higher production from both countries. OPEC is aware that Nigeria is not producing at its usual average due to militant attacks” said Dolapo Oni, head of energy research, Ecobank.
However, the 2.2 mbpd figure is what the country’s 2017 budget is based on with the assumption that current dialogue with militant youths in the Niger Delta will result in a peace deal that would allow the country return to its full production capacity.
Even though OPEC has exempted Nigeria from making any cut on its crude oil production in arriving at its new production ceiling, the exemption is based on the assumption that Nigeria would not raise it production capacity above the current 1.6 mbpd which is about 600,000 below the country’s normal production capacity.
Data obtained from the website of OPEC shows that the 14-member cartel had total production of 33.64 mbpd in October 2016. Nigeria’s share in OPEC’s total production volume stood at 1.628 mbpd.
OPEC had used this total production figure of 33.64 mbpd in October to reach its decision to cut oil production by 1.2 mbpd. This effectively means that Nigeria’s production is capped at 1.628 mbpd.
If Nigeria decides to move its production volumes to its full capacity of 2.2 mbpd, then it could take OPEC’s total production to 33.1 mbpd, just below the pre-cut level of 33.643 mbpd.
OPEC had also used a lower production capacity of 351,000 bpd for Libya against recent production capacity of 550,000 to 600,000. This effectively means that if Libya and Nigeria pumps at full capacity, both countries could add between 900,000 and 1 million bpd almost wiping off the 1.2 mbpd cut that OPEC is seeking to take off the market.
OPEC may have decided cap both countries production at lower levels in a bid to avoid the biggest member in the cartel, Saudi Arabia taking a big hit on its production which in October stood at 10.53 mbpd.
Details later
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