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Mixed Fortunes For Nigeria As Egina Increases Oil Production While OPEC Slashes Production Quota

–By Fred Ojiegbe

This is an interesting time for the Nigerian oil and gas industry, as the country is witnessing improvement in crude oil production with the addition of 200,000 barrels per day from Egina Floating Production Storage and Offloading (FPSO). At the same time, the nation is expected to observe the cut in crude oil production from the Organisation of Petroleum Exporting Countries (OPEC).


OPEC had on December 7, 2018 agreed to cut crude oil production by 1.2 million bpd from January 2019 for the first half of the year in order to support growing imbalance between global oil supply and demand ahead. With this agreement, Nigeria would cut production from 1.738 million bpd to 1.685 million bpd. It could be recalled that Nigeria and some other countries were exempted from the production cut in January 2017.

With the new OPEC deal coming at a time when the Egina FPSO adds 200,000 bpd to the nation’s crude oil production, it is left to be seen how the managers of the industry would handle this development. Austin Nweze, lecturer, Pan-Atlantic University, Lagos, and economic analyst, said the situation in the oil sector is an interesting one.

According to him, the government must balance rise in production with the OPEC cut and at the same time look for funds to finance capital projects. He said the country is facing a bit of a dicey situation, either to store the excess crude oil for future sells or look for alternative means of selling them.

“Our problem is not just the oil price but also the quota cut from OPEC. Unless we decide to sell the excess at the black market or exceed the OPEC quota and face the sanction. We can also talk to OPEC to consider the situation in the country and review our quota. Or find other alternative buyers for our product. These are the options the government can take because this is not the best of times for any government because the revenue has shrinking.”

Even Ibe Kachikwu, minister of state for petroleum resources, on December 7, said it was very difficult for Nigeria to reduce its crude oil production. Kachikwu, who spoke on ‘Bloomberg Daybreak: Europe’ ahead of the OPEC meeting in Vienna, stated that there was a need for an extension of production cuts to stabilise the global oil market.

“It is very difficult to do that but where we are now, everybody must be seen to contribute. Obviously, the smaller it is, the more amenable we are to participate; the larger it is, the more we will struggle to participate. We have got exemption three times understandably. This time round, I think there is a decision that everybody should be seen to chip in.”

But Prof. WumiIledare, Director of Energy Information Division of the Centre for Energy Studies, and oil and gas expert, said the quota cut by OPEC has nothing to do with production. He advocated that the country should use this opportunity to build production capacity. “For now we don’t have 2.5 million bpd capacity, so if OPEC still gives us opportunity to produce 2 million bpd we will not meet our full capacity.

So that is part of the oil business because nobody sells everything the moment they produce them. Therefore I don’t see that affecting the country. But we need to build capacity. And if you look at OPEC quota you will realize that some of our production lines are not included.

“But that is why we are member of OPEC and reducing quota is not bad for the country because it defers production to the future which is what we need especially when you are a nation where oil money is not used to develop infrastructure. You don’t want to keep producing and generating money without using it to build capacity, so OPEC is good for Nigeria because they are helping us for conservation.”

Likewise, Maikanti Baru, Group Managing Director, NNPC, in his End-of-Year statement acknowledged that the 200,000bpd recently included to the nation’s oil production from the Egina FPSO would contribute in improving the production in growth in 2019.

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