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More trouble for dollar-starved Nigeria as crude production dips in August

Nigeria’s crude exports and foreign earnings currently stand on shaky grounds as the month of August marked the lowest crude oil production capacity recorded in 2021.

Nigeria’s crude oil production fell from an average 1.36 million barrels per day in January to 1.23 million b/d in August, representing a 9 percent decline. This was according to the 2021 crude oil and condensate production report released by the Department of Petroleum Resources (DPR).

On a month-on-month basis, crude and condensate production for the month of August also declined by 6.7% from 1.64 million barrels per day in July, 2021. Brent crude stood at $71 a barrel on Thursday.
This current decline in the country’s oil output emanated as a result of difficulties in some oil terminals.
Another major cause for the decline was the force majeure placed on Forcados crude oil. In August, Shell Petroleum Development Company of Nigeria declared force majeure on Forcados crude oil.

Forcados pipeline, which exports an average of 240,000 barrels of crude oil daily, is one of Nigeria’s main crude oil terminals.

Force majeure refers to a clause in contracts that allows both parties to walk out of the contract when an extraordinary event or circumstance beyond the control of the parties happen.

Read also: Oil companies face maintenance worry on Nigerian assets

Sarki Auwalu, director of the Department of Petroleum Resources (DPR) stated that “Shell’s decision to declare a force majeure on the oil terminal is reportedly due to the curtailment of production and suspension of export operations as a result of some sheen noticed on the water around the loading buoy, indicating a case of an oil spill.”

According to the DPR report, crude oil production at Forcados terminal declined consecutively since June as it slumped from 5.7 million barrels in July to an average of 2 million barrels in August, representing a 65% decline for the period under review.

With the decline in oil production, Nigeria falls below the production cap under the OPEC+ deal at 1.596 million b/d for the month under review.

Auwalu stated that optimisation of Nigeria’s oil production processes is crucial in the nation’s economic recovery drive.

He identified five pillars to its strategy for Maximum Economic Recovery (MER) for the industry, stressing that the objective of the strategy was to maximise the expected net value of economically recoverable petroleum from Nigeria’s acreages.

He further listed items in the strategy to include reserves maturation and production optimisation, exploration and resources maturation, and improved oil recovery and enhanced oil recovery (IOR/EOR) implementation in the industry.

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