How Nigeria Overcame OPEC’s Pressure to Cut Output Levels

With sheer facts on its oil production levels, Nigeria was able to overcome fresh pressures mounted on it by OPEC and non-OPEC countries to cut its output, notwithstanding the exemption earlier given to the country and Libya, writes Chineme Okafor

For the second time since the deal to cut oil production to rebalance the global oil market was reached by member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries, Nigeria got the group to agree to the peculiar challenges it has with oil production, and which has left it producing less for a long time now.

Despite getting an exemption from the production cut agreement the cartel and its allies led by the Russian Federation reached in December 2016, but which kicked off in January 2017, and further renewed in May, a few members of the group had recently mounted pressure to stop the exemption and  made it cap its production levels.

Their calls came despite the country’s deliberate choice to cap its output at 1.8 million barrels per day (mbd) as against the 2.2mbd she was on before her troubles with oil production in the Niger Delta.

As it is known, Nigeria had immensely participated in negotiations for the production cut deal starting from December 2016, when OPEC countries decided to cut their crude oil production levels by almost 1.8 million barrels per day in a bid to support a market rebalancing effort that could shore up oil prices.

At the meeting, it was agreed that the cut would kick off in January 2017, but with Nigeria and Libya exempted from taking part because of the production disruptions they had in their respective oil fields.

Based on the fact that oil production from both countries had witnessed intense disruptions from violent uprising and militant activities, and were below their respective OPEC production quotas, they both were given the freedom to grow back their production to their pre-agreement levels, after which additional outputs would then be capped.

In reaching the agreement, OPEC stated that the global oil market had witnessed a serious challenge of imbalance and volatility pressured mainly from the supply side which also led to significant investment cuts in the oil industry.

This, the cartel noted, had a direct impact on offsetting the natural depletion of reservoirs and in ensuring security of supply to producers.

It explained that the market conditions were counterproductive and damaging to both producers and consumers because it threatened the economies of producing nations, hindered critical industry investments, jeopardised energy security to meet growing world energy demand, as well as challenged oil market stability as a whole.

It then asked its members to lead in the market rebalancing effort by agreeing to shave off approximately 1.2mbd of their daily production volume to 32.5mpd.

Within the deal, Algeria will have to shave off about 50,000bpd to produce 1.039mbpd, Angola will do 1.673mbpd from 1.715mbpd, Ecuador – 522,000bpd from 548,000bpd, Gabon – 193,000bpd from 202,000bpd, Iran – 3.797mbpd from 3.975mbpd, Iraq – 4.351mbpd from 4.561mbpd, and Kuwait – 2.707mbpd from 2.838mbpd.

Other members like Qatar will also do 618,000bpd from 648,000bpd, Saudi Arabia – 10.058mbpd from 10.544mbpd, United Arab Emirates (UAE) – 2.874mbpd from 3.013mbpd, and then Venezuela from 2.067mbpd down to 1.972mbpd.

Non-OPEC countries led by Russia furthered the deal by deciding to implement an almost 600,000bpd production cut.

Pressure on Nigeria, Libya

A couple of months after extending the deal and exemption for Nigeria and Libya, some members of the cartel suddenly began to request that Nigeria come into the deal notwithstanding its low production level, which was still below the 1.8mbd mark she agreed to stop at.

These members, based their requests on reports that a rise in the group’s production levels for a fourth-straight month in July was occasioned by rising output from Nigeria and Libya.

They however ignored records that  showed that many countries participating in the deal were pumping oil above the levels they agreed.

In response to this, Nigeria firmly condemned what appeared to be a deliberate arm-twisting tactics by some members of the cartel to cut short its exemption. It also stated its loyalty to the pact, hence, its decision to cap output at 1.8mbd against 2.2mbd.

Repeatedly, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who was also very instrumental to the success of the pact, stated that the country’s production level was still below 1.8mbd, and even unstable.

Kachikwu, explained that Nigeria’s exemption from the deal was good but that equally good was the country’s decision to accept a cap below its original quota, adding that the group must recognise that the incidence of militancy in the Niger Delta took a huge toll on the country’s production level.

He equally noted that actual oil production minus condensates from Nigeria was mostly below 1.6mbd, and that information on the country’s production available to member countries of the cartel was perhaps without these details.

Notwithstanding these explanations, the call for Nigeria’s abrupt participation kept showing up, with Venezuela making the last request before a recent meeting of the Joint Ministerial Monitoring Committee of OPEC and Non OPEC Countries.

To address this, Kachikwu, in a recent interaction with journalists in Abuja, made it known that, at the expiration of Nigeria’s crude-cut exemption in March, 2018, the country would seek further exemption.

He explained then: “The question is when do we join, but I will recognise stability if I can consistently say that for at least six months I’ve seen average daily productions that are within the umbrella of 1.8 million barrels.

“The market is still topsy-turvy; today I think we are around 1.6mbd. I have obviously a mark of March, next year; if I need to draw it up to that point, I will.”

He insisted that Nigeria would not jeopardise the pact, adding however: “We are going to be very transparent on this; I was the ex-OPEC President, we have the OPEC Secretary-General from Nigeria. So, my intent definitely cannot be to play games with this but at the same time we have to be very realistic.”

 

Beating off the pressure

Following from this, the Joint Ministerial Monitoring Committee of OPEC and non-OPEC Countries decided to at its last meeting in Vienna, Austria, endorse once again the earlier exemption granted Nigeria after considering the country’s factual presentation of its production conditions.

Thus, they in their endorsement maintained that the production exemption should be sustained until Nigeria stabilises its oil production.

Kachikwu had consistently maintained that although Nigeria’s production recovery efforts have made some appreciable progress since October 2016, the levels were still unstable to warrant the push to bring her into the deal.

He impressed it on the meeting that even though Nigeria’s oil production in August was 1.802mbd, it was still not  enough justification for such call and pressure on it.

He equally noted that while the country continued on its recovery efforts, it will also continue to work for the good of the group, and assured that Nigeria will cap its production once it stabilises at 1.8mbd.