• Sunday, June 16, 2024
businessday logo


Stricter adherence to OPEC cut may worsen oil and gas GDP of – 6.6%


Oil and gas GDP of – 6.6 percent may worsen if Nigeria adhere strictly to its production cut agreement with other major oil-producing countries, a decision which may bite harder on the people in 2020 fiscal year as the federal government adjusts to the realities of dwindling oil revenue.

Due to lower oil prices and the partial compliance to Organisation of Petroleum Exporting Countries (OPEC) output cuts, Nigeria’s oil and gas sector recorded a sharp reduction in real GDP by 6.6 percent, according to National Bureau of Statistics (NBS).

NBS data also revealed Nigeria had an average daily oil production of 1.81 million barrels per day while oil growth decreased by –11.69percentage points when compared to Q1 2020 which recorded 5.06percent.

“The slowdown in the oil sector reflected partial compliance to OPEC output cuts,” analysts at Afrinvest, a Lagosbased investment banking firm said.

Africa’s biggest crude producer failed to fully comply with the initial cuts of 1.4 million bpd when the cartel reduced production by 9.7 million barrels a day to shore up prices amid the pandemicinduced unprecedented price crash.

Read also: Nigeria may not tap into OPEC’s 2021 boom forecast on delayed oil sector reform

Compliance from Nigeria stalled at 66 percent, according to July OPEC data, though improved from the 50 percent in May, the first month of the pandemic- related slash in production.

“Specifically, we expect the performance in the oil sector to remain downbeat, due to lower oil prices and reduced production levels in compliance with OPEC+ cuts,” analysts at CSL Stockbrokers said.

OPEC has been clamping down on member countries that have been non-compliant with production cut agreements meant to support the market amid pandemic influenced-low oil prices.

Nigeria’s full compliance to the OPEC+ deal hangs on a key oil grade being treated as a condensate.

Since OPEC+ allowed ultra-light oil to be exempt from its production cut deal, the West African nation’s Agbami has been a bone of contention.

The challenge is that nobody from international oil companies to those that monitor OPEC output can agree on whether it should be classed as a crude or not.

Nigeria’s oil ministry officials are asking international oil companies like Chevron and Equinor to reclassify Agbami as a condensate rather than a crude, sources close to the matter said last week.

A representative at Nigeria’s oil ministry confirmed Agbami as a condensate, saying the pressure-volume temperature analysis characterization of Agbami’s reservoir fluids prove it is not crude.

But the field’s partners are not on the same page.

Chevron, which operates the Agbami field and FPSO, have always listed the grade as a crude on their website, and markets it as light, sweet crude oil to its customers.

Similarly, equity partner Equinor also classifies the grade as light, sweet crude, according to its website.

Trading sources have told S& P Global Platts that the grade is marketed as light, sweet crude, as it is not derived from a gas condensate field.

Lagos- based Famfa Oil, which also holds a stake in the oil field, has also termed it as a crude oil on its website.

Agbami has an API of over 47.9 degrees and a sulphur content of 0.04 percent, with production ranging between 160,000 b/d and 250,000 b/d in the past 12 months, according to Platts estimates.

Agbami is a popular grade among global refiners, and is regularly exported to a wide array of countries like India, Australia, Spain, the Netherlands, China, and Brazil.

It is very similar in quality to Akpo, which is, however, called a condensate by all parties

Ministers of the cartel met last Wednesday to review compliance, during which it was agreed that members such as Nigeria that were pumping above limits in May-july would trim more in August-september as compensation.

A combination of lower oil price and lower oil production have often meant Nigeria, Africa’s biggest oil producer, can earn less in foreign exchange and fund its budget deficit. This is because oil accounts for 90 percent of Nigeria’s foreign exchange and 85.6 per cent of Nigeria’s total export.

Also, data from NBS also revealed the Oil sector contributed 8.93percent to total real GDP in Q2 2020, down from figures recorded in the corresponding period of 2019 and the preceding quarter, where it contributed 8.98percent and 9.50percent respectively.

In q2 2020, average oil production was -0.21mbpd lower than the daily average production of 2.02mbpd recorded in the same quarter of 2019, and – 0.26mbpd lower than the first quarter 2020 production volume of 2.07mbpd.