Nigeria losing market share to peers as oil sector troubles crimp production

The reality of energy transition is forcing oil producers to speedily push more volumes to the market while they can, but above ground troubles are causing Nigeria to lose market share to peers.

This is coming at a time when oil prices have climbed back to $70 dollars a barrel, a development that could have meant more revenue for the Nigerian government starved of cash and tangled in huge debt.

Oil production in Africa’s biggest oil producing nation fell by 100,000 barrels per day in August, the biggest decline among oil producers. According to data from the Organisation of Petroleum Exporting Countries (OPEC), oil rigs in Nigeria fell by 2 in August, an indication of declining production.

However, OPEC’s 13 members averaged 27.11 million barrels a day in August with Saudi Arabia ramping production by 200,000 barrels a day to 9.63 million, while Iraq pumped 110,000 a day more pushing volumes to 4.08 million.

OPEC has returned nearly half of the production volumes cut off to deal with the impact of the coronavirus pandemic. The cartel and its allies plan to return the rest in monthly increments 400,000 barrels a day through 2022.

These benefits could elude Nigeria who isn’t even able to meet its allocated quotas let alone raise production. It makes a mockery of the government’s ambition to grow production by 3 million barrels a day.

“Nigeria’s oil production is currently struggling at levels never seen before,” Charles Akinbobola, energy analyst at Lagos-based Sofidam Capital told BusinessDay,

He added, “The leakage has gone on for too long and should be halted”.

Above the ground challenges, including oil theft, insecurity, pipeline vandalism, community agitations is causing Nigeria to cede market share in an oil market where peers are rushing volumes to take advantage of rising prices.

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Nigeria’s major oil terminals are exporting lower volumes on account of fallen production. In July, this paper reported that half of the crude oil sent through the 180,000 barrels of crude daily capacity Trans Niger Pipeline was stolen.

Exports from the Forcados terminal are under force majeure due to a leak according to a Reuters report, shuttering nearly 200,000 barrels daily on many days.

Worse still, oil theft in the Niger Delta is assuming industrial scale level with even community leaders and security personnel said to be participating in a craft long dominated by illegal refiners and smugglers who sell on the black market in Asia.

Frequent sabotage on the pipeline is costing Nigeria billions in lost revenue, constraining the country’s capacity to meet its 1.5 million bpd quota under OPEC and further worsening environmental degradation in the Niger Delta.

It is contributing to a situation where higher oil prices have done little to shore up shrinking foreign reserves. The country’s reserves decline often due to lower oil receipts, dip foreign investments, and unbridled borrowing.

Nigeria is also spending a fortune on securing and maintaining its pipeline infrastructure in the country. In May FAAC report, it cost the country N4.1billion to safeguard the assets with over N1.5bilion alone going to fix ruptured points that month alone.

The Federal Government says it spends N60 billion yearly securing the pipelines and losses crude oil volumes as high as 200,000 barrels per day (bpd).

At the $72 per barrel forecasted average oil price for 2021, this translates to an annual loss of $5.256 billion this year. When converted at the current exchange rate, Nigeria could be losing an estimated N2.155 trillion by December.

This figure is about 16 percent of the entire 2021 budget and higher than the N1.7 trillion budgeted for health and education by the Federal Government in 2021.

While Nigeria struggles to maintain steady oil output, the end of oil draws ever closer. Advances in battery technology and fallen cost of renewable energy systems is leading to increased adoption of alternative energy.

Some countries are betting on new forms of energy such as hydrogen and investors are losing appetite for lending to fossil fuel projects but Africa’s biggest production is yet to fully embrace this reality.