Africa biggest oil-producing country can pump more oil from condensates as new historic deal by some of world biggest oil producers is expected to peg Nigeria’s oil production below the revised volume in the proposed amended 2020 Appropriation Act.
The Organisation of Petroleum Exporting Countries (OPEC) deal expected to help prop up prices which have been battered by a price war between Saudi Arabia and Russia, and the coronavirus crisis will see Nigeria’s oil production pegged to an average of 1.4 million bpd below the revised volume of about 1.7 million barrels contained in the proposed amended 2020 Appropriation Act.
New economic realities have change Nigeria’s expectations as Federal Government cut down the 2020 budget by over N320 billion and proposed a new budget of N10.27 trillion against the N10.59 trillion passed by the national assembly.
Condensate to the rescue
Despite the significant difference between the new OPEC output ceiling and the proposed production capacity in the 2020 budget, Minister of State for Petroleum Resources, Timipreye Sylva expressed optimism Nigeria would still break even and meet its revenue target.
The minister noted that Nigeria will now be producing “1.412 Million Barrels per day, 1.495 Million Barrels per day and 1.579 Million Barrels per day respectively for the corresponding periods in the agreement.”
He said the OPEC production quota calculation does not usually cover condensate production, which Nigeria has the advantage of using to shore up its oil production capacity with an average of between 360,000 and 460,000 barrels per day.
Wood Mackenzie estimates that export grades aside, roughly 12 percent of Nigeria’s production could be classified as condensate but that it could be higher. This cloudy, but sizeable, chunk of output could keep Nigeria from capping.
“Nigeria does produce quite a bit of condensate, but apart from Akpo it’s not really measured because it’s blended into crude,” Wood Mackenzie’s Anderson said.
What is condensate
Condensates are liquefied once extracted from high-pressure reservoirs, where they exist as a gas. Nearly all oilfields produce some condensates, usually in small amounts. Once it becomes a liquid, there is no widely agreed way to differentiate condensate from crude.
“Previously, due to the whole issue of militancy, quotas were not an issue,” said Gail Anderson, research director at consultancy Wood Mackenzie told Oilprice. But now, “if you start thinking about OPEC cuts, then the definition of crude and condensate becomes quite important.”
Irrational Plan
Most analysts have questioned the decision of Nigeria’s new production cut of 1.4 million which was arrived based on 23 percent reduction in its October oil production of 1.83 million bpd.
“Nigeria cannot afford to cut output to the suggested levels for long, — how sincere the government is about such steep production cuts will be swiftly put to a test next week, when the revised 2020 budget is expected to be put to a vote in the National Assembly,” Teneo Intelligence vice president Malte Liewerscheidt said in a note late Friday.
Production at these levels triggered by militants attacks in 2016-17 resulted in shortfalls in government revenues and foreign exchange proceeds. This led to “the largest expansion in foreign borrowing in 20 years and the introduction of measures to ration access to foreign exchange that are still in place today,” Liewerscheidt said.
Nigeria’s oil production reached 2.3 million barrels of crude per day as of April 5 with an increase planned to 3 million, according to state-owned oil company group managing director Mele Kyari.
“This does not look like a good deal for Nigeria, We should have negotiated for a 23 percent cut on production of 2.3 million bpd not 1.83 million bpd,” Charles Akinbobola, energy analyst at Lagos based Sofidam Capital said.
Akinbobola said the new OPEC decision will impact the economy adversely considering the economic significance of the commodity.
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