Says at 1.8mbd output, 2018 budget will leverage oil price increase
Kunle Aderinokun in Lagos and Chineme Okafor in Abuja
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has said the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC allies led by Russia did not give Nigeria and Libya specific figures to cap their oil production when the decision to extend supply cut was taken on Thursday in Vienna.
Kachikwu, who spoke with journalists including THISDAY during the meeting in the Austrian capital, explained that Nigeria and Libya, which had enjoyed exemption from the cap were technically allowed to maintain their status quo. However, with pledges, they would watch the volumes of oil they will bring to the market in 2018 so as not to disrupt the market rebalancing efforts.
OPEC and non-OPEC members had, at their last meeting, agreed to extend the agreement they reached in 2016 to cap the amount of oil they bring into the market in their efforts to shore up prices and stabilise the market. Both agreed then to cut volumes by as much as 1.8 million barrels per day (mbd) with OPEC members contributing 1.2mbd of that while the balance would be provided by non-OPEC members. The agreement was thus rolled over at their November 30 meeting.
But providing details of its proceeding and outcomes vis-à-vis Nigeria’s position, Kachikwu, said Nigeria was emphatic in placing its position before the group to get its exemption, which would expire in March to be rolled over as well.
“At the time we joined this, we were producing about 1.2mbd, and my case was that there was absolutely no way anyone was going to keep me down to those 2016 numbers. They said what we were producing at that time, stay with it and give us a cut, and I said no, what I was producing at that time was nowhere near my capacity of 2.5mbd, we stopped producing 2.5mbd some seven years ago due to all kinds of problems, so they then gave us a freeway in the expectation that somehow when we are recovering we wouldn’t impact so much in the market, but we’ve recovered fairly dramatically.
“We are doing about 1.75mbd of pure crude, 350,000bd of condensate. Largely, we have done recovery in excess of 2mbd including condensates,” said Kachikwu.
Expatiating, Kachikwu further stated: “Exemption means you are not participating in the cut, remember OPEC agreed to cut 1.2 million barrels when all of these started in 2016. The whole idea was to tighten the market and improve price. Two countries were exempted and even with that exemption, there were some responsibilities tied to it, it wasn’t an open carte blanche to just flood the market.
“The exemption technically stays, because no number has been fixed. If you look at the agreement that was signed, it is still a blank for Nigeria and Libya. It took a lot of fight over the last few weeks.
“The obligation to be responsible still continues, and they will like to project that unlike what happened in 2017, when we were audacious to move from 1.2mbd to 1.7mbd, that they will not expect that kind of volume of movement in 2018, that they will like to see 2018 predicated on the marks of 2017. They however understand there might be fluctuations here and there, but the hope is that you are not throwing too much. So, there is no obligation, there is an explanation, there is an information but you are still enjoying the exemption.”
The minister said while there was a lot of pressure to bring Nigeria to join the production cap, his argument against it was accepted.
According to him: “Representing Nigeria and Libya, I was able to say that it was until March, that we’ve a signed commitment, we have not recovered enough, militancy was still hanging on us and that Nigeria has paid its price over the seven years when we moved from 2.5mbd to about 2.2mbd, and worse still when we did 1.2mbd, we donated more than 1mbd to everybody to help stabilise the market.”
“My point was that you cannot take away an exemption before the time runs, and now you’re rolling over for one year, roll us over for one year. We have not behaved irresponsibly, you knew we always had capacity for 2.5mbd and that our last production was 2.2mbd before we started having problems and we have not done anything to show we are taking advantage of the market, and those arguments were bought thankfully.”
Kachikwu also spoke on how the 2018 national budget and how it would be funded even if Nigeria produced less oil as projected in the budget.
“Local budget was predicated on 2.3mbd. We could rightly say that in swing production, the highest we ever did this year was 1.85mbd, even if we assume to take that as existing capacity, we also did about 350,000bd in terms of condensates, so taking it together, it is about 2.2mbd.
“I think that you could have some swings in terms of condensates and oil in that parameters to keep it at 2.3mbd, but more importantly is that, even if you don’t, the prices have swung from the budget figure of $45 to $63 per barrel for Nigeria, so, we have 30 per cent increase in pricing which should be able to compensate adequately for this.”
Asked what would likely happen at the June 2018 review meeting of group considering his claims that some members were opposed to Nigeria’s continued exemption from the deal, the minister explained: “You live to fight another day, let me celebrate what I have gotten over the last one year, and then continue to fight.”
“It is a possibility, which is why understanding the dynamics of oil politics is key to doing this. Over the last two weeks, I paced from here to Saudi Arabia, UAE, and Iran, just to build in consensus, getting my African members to understand why it is important that we are stable, and all that played out.
“If you don’t understand the oil dynamics, you will fail, and so it is going to be a continuous battle, but I think so far, we’ve done it three times and succeeded, hopefully, we are getting better at doing it. And the key thing is also being able to forward-forecast.
“I knew when these was happening at the 1.2mbd stage, that the issue would come down to condensates, and unlike what Nigeria had never done before, we separated it from oil and went round in six months to get secondary sources to accept this. Had this not happened, it would have been a different ball game,” he added.
In another development, an economist and former chairman of Goldman Sachs Asset Management, Jim O’Neill, has estimated that strong global economic growth and Saudi Arabia bringing a risk premium to oil prices could send Brent oil prices surging to $80 in 2018.
“While oil prices could be about $60 per barrel in November 2018, my guess is that they will have risen to about $80 per barrel in the meantime,” Oilprice.com quoted O’Neill to have said.
According to a report by oilprice.com, while O’Neill admitted that predicting oil prices was a tough job at which he failed when he said in January 2015 that prices would not continue to fall, he now differed from most of the analysts who expect oil prices to be around $60 next year. He, however, didn’t believe oil prices would stagnate for a year.