Nigeria’s Oil Production Helps Keep Oil Prices Low

Nigeria's Oil Production Helps Keep Oil Prices LowAlong with Libya and Venezuela, Nigeria is an OPEC wildcard. Exempt from the promised production cuts started in January, Nigeria (along with Libya) have been offsetting OPEC’s reduction, adding nearly 100,000 b/d in output from May to June alone, a quarter of OPEC’s total increase. A few days ago, Nigeria voluntarily agreed to limit its oil output to 1.8 million b/d.

For over 20 years, there’s been a Niger Delta insurgency over who controls the oil revenues in Nigeria – exacerbated by elements of struggle between ethnic groups. The main militant group is the Delta Avengers, following the MEND faction in the 1990s and 2000s. The most common strategy has been the same: attack oil pipelines and production platforms to strike at the heart of the Nigerian economy and central government’s budget. Thieves can take 33% of the oil that flows along pipelines in the Delta. Last Monday alone, Nigeria’s crude output dropped 150,000 b/d after militants vandalized the Trans-Niger pipeline in Ogoniland. Combined with maturing basins, attacks have lowered oil output from 1.9 million b/d in 4Q15 to 1.4 million b/d in 1Q17.

Yet, Nigeria’s production is recovering, keeping oil prices lower than when OPEC first announced its cuts. oilfields in Nigeria have been brought back as militant activity has subsided, and there is still some space left to rise. Nigeria though will still have short-term changes in security conditions, and the 2020 production target of 2.5 million b/d is unlikely: it hasn’t been met since 2005. Now, Oil Minister Emmanuel Ibe Kachikwu says that the focus is on “stability and consistency” in the Delta.

New investment by foreign operators isn’t an easy sell, but emerging Nigeria is Africa’s largest economy and a fast growing, highly-resourced nation. Nigeria has nearly 40 billion barrels of proven oil reserves, with a petroleum resource that could be 10-15 times higher, given a lack of exploration that makes Africa such an exciting place for future oil and gas development.

And Nigeria has nearly 85 million kids under the age of 14. Unacceptably, nearly 80% of Nigeria’s 190 million people live on less than $2 a day: “Nigeria needs to invest $267bn on electricity by 2040 – Report.” Indeed, it’s tragic that the majority of Nigeria’s developed oil is exported. Again, “Oil And Natural Gas Companies Could Be Heroes In Africa” by working to develop modern fuels for domestic growth, not just for export to rich, distant lands. Simply put, horrifically exacerbated by corruption, Africa’s massive resources are being used to help others, not to help Africans themselves. Does Al Gore know that 650 million Africans have no electricity whatsoever?

The case of Nigeria is important to why global oil supply could rise by 1.9 million b/d next year if no OPEC deal is struck to lower production beyond March 2018. And with oil demand potentially growing just 1.2 million b/d, ongoing oversupply means sustained downward price pressure, keeping oil oscillating around the $50 per barrel market for three or four years.