• Friday, March 29, 2024
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BusinessDay

Production troubles force oil firms to defer $1.6bn crude output in 1yr

crude oil output

Due to above-the-ground challenges, oil companies in Nigeria deferred the production of over $1.6 billion worth of crude oil between January 2020 and January 2021, in an economy with a yawning need for cash.

Shut-ins at several crude oil terminals in Nigeria due to force majeures, leaks, and other technical challenges mean that crude oil worth over $1.6 billion could not be pumped, BusinessDay analysis shows.

Analysts say this deferment essentially means the oil is left in the ground because problems at the surface prevent it from being pumped. But this raises concerns because the government cannot earn royalties or taxes on crude oil output that is not produced. Unfortunately, the oil companies deferred the production not because of lack of capacity but due to production challenges.

“Royalties are only paid on actual export volumes,” said Joe Nwakwue, chairman of the Society of Petroleum Engineers (SPE), suggesting the possibility that the figure could be higher.

It impacts Nigeria’s overall production capacity and constrains its ability to argue for better quotas during periods of price decline when the Organisation of Petroleum Exporting Countries (OPEC) and allies impose quotas. A country’s production capacity is a key factor in deciding its output cap.

Nigeria produced a total of 1.76 million barrels of oil and condensate per day in February, according to data from the Department of Petroleum Resources (DPR).

This situation underscores the stark reality facing oil companies in Nigeria where technical and non-technical challenges existing at every turn compound the problem of insecurity and starve the country of valuable revenue.

These challenges were largely due to leaks, fire incidents, force majeure, power outages, technical difficulties, and shutdowns due to maintenance.

Crude oil terminals exist because demand and supply is unpredictable hence, the need to make provision for storage where buyers could conveniently come to load products for onward shipment to buyer’s tank farm or port of destination.

According to data from the DPR, Nigeria has 25 terminals. 20 are offshore while five are onshore. The FPSO lead the pack with 15 different platforms followed by FSO that are six in number.

The largest of them is the Qua Iboe terminal with 8.52 Bbls followed by Forcados and the popular Bonny terminal with 8,289,832 and 5,700,00 Bbls respectively.

But production shut-in constraints mean they are operating below capacity in a country that should be in a hurry to ramp up production before the world moves away from oil.

A closer examination of these outages reveals a disturbing pattern, some shutdowns can prolong for weeks often on account of a malfunctioned device, fire, or other technical faults pointing that these creaking infrastructure are long overdue for an overhaul.

At the Yoho terminal, production was shut down from December 24, 2020 to January 5, 2021, leading to a cumulative loss of production within the period of 155,000 barrels.

Then from January 18 to 31, production was halted following a leak on ‘HP Separator’ constraining another 434,000 and a cumulative loss of 589,000 barrels of oil which is two times more than Ghana’s production capacity.

In January a total of 3.7m barrels of crude oil could not be produced and shipped to the terminals.

In the NNPC’s FAAC remittance report for January, the corporation said overall crude oil lifting was 6.31 million barrels both export and domestic crude translating to a 12 percent decrease relative to the 8.04 million bbls lifted in December 2020.

Nigeria’s oil sector is be-devilled with teething challenges which increase the cost for companies. Top on the list is insecurity where oil workers are targeted for kidnapping and companies keep private airlines on the payroll to ferry their expatriate staff, adding a chunk to the cost.

Many also contend with hostile host communities some of whom now have outsourced the responsibilities for providing social amenities, a role traditionally suited to governments that extract taxes from them to oil companies. When they balk at some outrageous demand, their facilities are destroyed and they harried for damaging their environment.

Yet, some oil companies have been accused of irresponsibly managing leaks that occurred through their own fault, but vandalism clearly is on the rise.

According to the NNPC, in December 2020, 43 pipeline points were vandalised, representing about an 18.60 percent increase from the 35 points recorded in November 2020. Mosimi area accounted for 56 percent of the vandalised points while Kaduna and Port Harcourt accounted for the remaining 33 percent and 12 percent respectively.