• Tuesday, June 18, 2024
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Can Nigeria pump enough oil to meet OPEC cuts?

Oil glut on horizon as non-OPEC supply surges, IEA warns

Nigeria, Africa’s largest crude producer, has remained an outlier in the Organization of Petroleum Exporting Countries and Allies (OPEC+) coalition’s efforts to curb oil production, hampered by persistent inefficiencies and infrastructural challenges.

OPEC+ agreed to extend most of its deep oil output cuts well into 2025 in a bid to stabilise global oil markets, but Nigeria’s capacity to comply remains doubtful.

Despite commitments to the OPEC+ production agreement, Nigeria has struggled to meet its targets, plagued by operational inefficiencies, theft, and ageing infrastructure.

The country’s oil output has consistently fallen short of its allocated quota, casting doubt on its ability to contribute meaningfully to any potential new cuts.

In November 2023, OPEC increased Nigeria’s oil production quota to 1.5 million barrels per day (bpd) for 2024 following decisions made at its latest ministerial meeting. On Sunday, the oil cartel declared that Nigeria should maintain its production at the current rate of 1.5 mbpd until the end of 2025.

Industry analysts point to chronic issues in Nigeria’s oil sector, including underinvestment, divestment, pipeline vandalism and inadequate investment, as key obstacles.

“If Nigeria were on track to meet its production target, the new OPEC quota would result in delayed returns on investments. However, this could potentially be balanced by higher global oil prices due to production cuts,” Kasse Gbakon, a petroleum economist.

According to him, Nigeria should prioritise increasing its current oil production levels to meet the OPEC quota, emphasising that while the production target of 1.78mbpd is aspirational, it should not be the main focus of current discussions.

In the 2024 budget, the federal government established a daily oil production target of 1.78 mbpd to meet revenue goals. The budget set the benchmark price of crude oil at $77.96 per barrel. However, the country has struggled to meet this target due to various obstacles. OPEC’s monthly oil report for May revealed that Nigeria’s crude oil production stood at 1.28mbd, still far from its target.

Austin Avuru, executive chairman of AA Holdings said Nigeria requires $25 billion annually to stabilise its oil production at 2 mbpd.

“We need to invest $25 billion annually to stabilise production at 2 million barrels per day,” Avuru said. “This investment is crucial to ensure the sustainability of the sector and its contribution to the national economy.”

He added, “The decline in investment started after 2014 when the sector recorded an inflow of $22.1 billion.”

In the first half of 2023, foreign direct investment (FDI) in the oil and gas industry dropped to less than half a billion dollars.

With inflows topping $22.1 billion, Nigeria drew the greatest amount of foreign direct investment (FDI) of any African nation in 2014. Large-scale undertakings like deepwater exploration and the development of new oil fields were made possible by this money inflow.

However, the case is not the same now as oil FDI stood at a mere $750,000 in the first quarter of 2023.