‘OPEC cap of Nigeria’s oil production is a dis-incentive for new investments’
Stakeholders in the Nigerian oil and gas industry say Monday’s OPEC decision to cap Nigeria’s oil production is a bad omen for the oil industry and Nigeria’s economy, especially when the budget proposal is based on 2.2 million barrel per day and at $44.5 per barrel.
They spoke against the background of the decision of the Joint Technical Committee, which monitors compliance with cuts in oil production by members of OPEC and non-OPEC members at their Monday’s meeting in St Petersburg, Russia, where they had agreed Nigeria would join the deal by capping output at 1.8 million bpd.
According to Felix Amieyeofori, managing director of Energia Limited, restricting the country’s production level will not be good for the economy, as the budget was based on a projection of 2.2 barrels million per day at $44.5
“So, restricting production at 1.8 million may pose serious challenge for the entire country. For producer, what this would mean is that there will not be incentives to add fresh production. That will affect work programme activities,” he said.
He said expectedly, the loss in revenue should be compensated by higher oil prices beyond budget benchmark.
Biodun Adesanya, president, Nigerian Association of Petroleum Explorationist (NAPE), in his reaction to the development, told BusinessDay that capping the oil production was not the real problem but the ability of the country to evacuate what the country was producing and exporting it to the outside world.
He said frequent attack on the nations evacuation facilities by militants has been the problems and not whether there is cap or not on production level.
According to Adesanya, the country can currently produce between 2.5 and 2.6 million barrels per day but it is difficult evacuating this to the terminal because of militant attacks.
OPEC moved on Monday to cap Nigerian oil output and called on several members to boost compliance with production cuts to help clear excessive global stocks and support flagging prices.
OPEC has agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million barrels per day (bpd) from January 2017 until the end of March 2018.
OPEC states Libya and Nigeria were exempted from the limits to help their oil industries recover from years of unrest.
The deal to curb output propelled crude prices above $58 a barrel in January but they have since slipped back to a $45 to $50 range as the effort to drain global inventories has taken longer than expected.
Rising output from U.S. shale producers has offset the impact of the output curbs, as has climbing production from Libya and Nigeria.
The monitoring committee, known as JMMC and which met in the Russian city of St Petersburg, did not give the timeframe for when this would happen, saying it would track Nigerian production patterns in the next weeks.
The committee did not back capping Libyan output as it said its production was unlikely to exceed 1 million bpd in the near future compared to its capacity of 1.4 million-1.6 million bpd before unrest erupted in 2011 and plunged the nation into chaos.
Brent oil prices rose about 1 percent at about $48.50, helped by news of a cap on Nigeria and by comments from Saudi Energy Minister Khalid al-Falih that the kingdom’s exports would fall to 6.6 million bpd in August as demand at home was rising, effectively representing a cut of 1 million bpd year-on-year.
He said global stocks had fallen by 90 million barrels, but were still about 250 million barrels above the five-year average for industrialised nations, which is the level OPEC and non-OPEC states are targeting with their output curbs.
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