Nigeria’s indigenous oil producers are itching to pump more oil as part of a wider plan to lift the nation’s output to 2.5 million a day far beyond the 1.8 million barrels a day agreed with the Organisation of Petroleum Exporting Countries (OPEC), according to reports.
The country’s total planned increase is 700,000 barrels a day with over a third coming from the state-run Nigeria Petroleum Development Co., a third from independents, and the remainder from oil majors. The expansion depends, among other things, on peace being maintained in the Niger Delta.
The independent producers are specifically aiming to pump almost 250,000 barrels a day of more crude by 2020.
This is coming at a time when OPEC and allies like Russia are trying to restrict output and prop up prices. However, the current plan is geared to building capacity for increased production to meet rising demand after the OPEC pact expires at the end of the year.
The International Energy Agency this month revised up its growth estimate for world oil consumption by 100,000 barrels a day, taking it up to 1.4 million.
Again, part of the planned production increase may go into feeding the new Dangote oil refinery, the continent’s largest, due to start operating next year.
Reports say Shoreline Group, the third-biggest independent, wants to double output by December with Seplat Petroleum Development Co., the second largest, also intending to produce more.
Analysts say the planned output raise for the Dangote refinery would help rid the country of its dependence on fuels produced overseas but wouldn’t extricate it from its commitments to OPEC.
“If they can pump more in Nigeria, I don’t see why they wouldn’t,” said Warren Patterson, a commodity strategist at ING Bank NV. “If you get Nigeria exceeding the cap, then you’re going to get others who pump a little bit more. The longer the deal goes on for, the more likely it’s going to fall apart.”
Nigeria is not alone in the dilemma of staying within the cap or bursting it.
Countries and companies both inside and outside OPEC are looking to add production. Iraq is building infrastructure to allow a huge increase in capacity, while Iran’s oil minister has said the country can produce more almost instantly.
An Angolan field will come on stream by year end and add 250,000 barrels daily, while companies in Russia pushed to pump more before the country renewed its supply-curbs deal with OPEC late last year.
Along with Libya, Nigeria’s involvement was critical when OPEC agreed with non-member producers to extend global curbs to oil production until the end of 2018. It pledged not to let output exceed 1.8 million barrels a day in 2018.
Back in 2016, Shoreline had to cancel a planned $500 million Eurobond. With oil prices rallying, the company is making a comeback. It agreed a $530 million deal with financiers led by Vitol Group, the world’s biggest independent oil trader, as it seeks to double crude output to 100,000 barrels a day by year-end.
“It represents a massive vote of confidence in the future growth of our operations and of Nigerian upstream producers,” Kola Karim, chief executive officer of Shoreline, told Reuters.
Shoreline’s progress mirrors that of other Nigerian independents. Seplat, said to be among companies bidding for Petroleo Brasileiro SA’s African oilfields, expects to ramp up drilling this year after output recovered from militant attacks and low prices, according to company statements.
“We are on course,” Emmanuel Kachikwu, Nigeria’s minister of state for petroleum resources, said Thursday of the goal to pump 2.5 million barrels a day by 2020.
“Capacity-wise, the volumes are there. Infrastructure-wise we suffer a little bit in terms of being able to deliver.”
There are at least a dozen small to mid-sized Nigerian producers pumping between 5,000 and 100,000 barrels each day. Together, they plan to add incremental supply of at least 150,000 barrels a day this year. Aiteo E & P Ltd., Nigeria’s largest independent, didn’t immediately comment about its expansion plans.
Half a decade ago, these producers were hailed as the future of Nigeria’s production because of their potential to pump 40 percent of the OPEC member’s output. They had bought oilfields that hold at least a third of the West African nation’s 37.5 billion barrels of crude reserves from companies including Royal Dutch Shell Plc, Total SA and Eni SpA.
Frontpage September 17, 2019