ABUJA, Nigeria (VOICE OF NAIJA)-The Federal Government’s plan to raise crude oil production to 2.062 million barrels per day could create tensions with the Organisation of Petroleum Exporting Countries (OPEC), according to a Bloomberg report.
The report notes that Nigeria has recently overcome a prolonged slump in production, largely due to improved security measures.
However, this recovery presents a new challenge for the government as it seeks to balance its ambition for increased output with OPEC’s production restrictions.
While the government urgently needs the additional revenue from higher oil exports to address its strained public finances, it must also comply with OPEC+ limits, which have been instrumental in maintaining global oil prices above $70 per barrel.
Nigeria’s crude oil production reached 1.48 million barrels per day last month, according to data from the Nigerian Upstream Petroleum Regulatory Commission.
This figure is just below the country’s OPEC+ output quota of 1.5 million barrels per day and marks a significant recovery from the 1.1 million barrels per day recorded in 2022, a period marked by widespread pipeline theft, vandalism, and asset sales by oil majors.
During that time, Nigeria struggled to meet its OPEC-approved production targets for both 2022 and 2023.
The turnaround is largely attributed to improved security measures and government initiatives aimed at attracting investment.
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The government is now targeting a production level of two million barrels per day the highest in a decade although analysts project a more gradual increase.
The recovery has been driven by efforts to address pipeline security, particularly in the Niger Delta. In 2022, the Trans-Niger Pipeline, which has a capacity of 180,000 barrels per day, was illegally tapped at more than 150 points, leaving producers with only a fraction of their pumped volumes.
While analysts forecast further growth in Nigeria’s output, they also anticipate potential tensions with OPEC+ over production quotas.
The Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe, has stated that the country’s immediate priority is increasing its production targets before seeking an adjustment to its quota.
He said, “Nigeria is occupied with increasing production first to meet its budget aspiration, and then will engage with OPEC to raise the nation’s quota.”
Similarly a senior analyst at Welligence, Ifeanyi Onyegiri, observed that Nigeria could negotiate a higher production quota if it maintains consistent output levels.
He said, “Nigeria should be able to negotiate an increased quota with OPEC if they can demonstrate they can sustain production. These measures are starting to bear fruit.”
Also, an analyst at Rystad Energy A/S, Pranav Joshi, noted, “Nigeria has grappled with the problem of oil theft and vandalism for decades, so there’s reason to be cautious about whether the recent improvements will last. Until the security measures are proven throughout the Niger Delta’s vast pipeline network, average production for any given month is forecast to be around 1.4 million barrels a day.
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“The main bottleneck is: Can they fix the vandalism issue in a sustained way?” he said.
While the recent output gain “is largely attributable to the improved security situation” there has also been a notable impact from “significant investment by operators,” said Dipo Ogunbiyi, an energy analyst at Renaissance Capital Africa.
It remains uncertain whether Nigeria’s production ambitions will lead to tensions with OPEC+.
In December 2023, Angola, another African oil producer, exited the cartel after refusing stricter output limits.
However, six months later, the United Arab Emirates secured a more favorable quota to reflect its expanded production capacity.
For Nigeria and other quota-challenging members like Iraq and Kazakhstan, the immediate financial gains from higher production may outweigh the priority of strict OPEC+ compliance.
“Given the country’s current fiscal situation, there’s a lot of incentive to produce more than the OPEC quota, as any incremental revenue has a direct impact on the budget deficit,” Ogunbiyi stated.
He suggested that Nigeria would likely seek to renegotiate its output limit if it demonstrates the capacity to sustain higher production.