OPEC Misses Production Target over Nigeria, Others’ Under-performance

*Producers pumped 620,000 barrels below target in December 2021
*Nigeria’s compliance hits 239%

Emmanuel Addeh in Abuja

The inability of Nigeria and other members of the Organisation of Petroleum Exporting Countries (OPEC) to pump enough crude oil has resulted in the overall failure of the group to meet its target production for December 2021, according to a survey.

The 13-member countries of OPEC and its allies led by Russia pumped some 620,000 barrels of oil per day below their combined quota, the survey showed while a survey by S&P Global Platts showed that OPEC’s overall compliance stood at 116.5 per cent for the month with Nigeria’s compliance at 239 per cent.

One of the secondary sources stated that whereas the target for Nigeria was 1.67 million barrels per day for the month, it only produced 1.44 million barrels per day in December and 1.49 million barrels per day in November.

The development widened the gap between the production quotas set by OPEC and its allies and their actual production.

Nigeria has been struggling to meet the quota allocated to it by OPEC but ageing infrastructure caused by years of under-investment in the upstream of the oil and gas sector has made it difficult for the country to achieve its target.

Sabotage caused by vandalism, technical issues, as well as difficulties with restarting oil wells the country shut down last year in the heat of the Covid-19 pandemic, have worsened the challenges.
But despite the limitation, the largest individual increase in production was in West Africa, where Angola boosted output by 90,000 bpd to 1.2 million bpd. Although this was the highest monthly level in 2021, Angola was still 190,000 bpd below its December quota.

West Africa also saw the biggest individual decline last month, with Nigerian output tumbling and defying state-owned Nigerian National Petroleum Corporation (NNPC) Group Managing Director, Mallam Mele Kyari’s forecast that the country would reach its target by the end of last year.

The S&P data showed that OPEC’s 13 countries pumped 28.04 million bpd of crude, up 190,000 bpd from November, while nine non-OPEC partners pumped 13.98 million bpd, an increase of 120,000 bpd.
Fourteen out of the 18 members with quotas fell short of their targets, including even its largest producer Russia, whose compliance rose above 100 per cent for the first time since February 2021, when severe winter temperatures shut-in wells and reduced pipeline flows.

But gains by Venezuela, Kazakhstan, Saudi Arabia, Iraq and Angola far outstripped losses by Libya and Nigeria, making December the 10th straight month that OPEC+ output increased.
The 19 members, subject to production targets, pumped some 620,000 bpd below their combined caps, the survey showed.

The bloc has been hiking its quotas by a collective 400,000 bpd each month, which would put it on pace to restore production to pre-pandemic levels by late 2022.
But many countries are already maxing out their output levels or are close to it, lifting trader sentiment that was once quite bearish for the first quarter in anticipation of a major supply glut.

But despite its bullish outlook, Platts Analytics said it still expects the market to be oversupplied in the first quarter but estimates OPEC+ sustainable spare production capacity will shrink to 800,000 bpd by June if it maintains its monthly quota rises, creating “an uncomfortably thin market buffer in the second half of the year.”
The alliance is scheduled to next meet on February 2 to decide whether to proceed with another 400,000 bpd quota increase for March.

OPEC members such as Iran, Libya and Venezuela are exempt from quotas under the agreement, while non-OPEC Mexico quit the deal in July 2020 and thus was not included in the survey, though the country continues to send a representative to the group’s meetings.

The survey stated that Iraq was also up 60,000 bpd in the month to 4.31 million bpd, continuing to exceed its quota, according to the survey, while non-OPEC Kazakhstan posted a 70,000 bpd gain to 1.68 million bpd, well above its quota.

Libyan output is expected to recover in short order to about 1.2 million bpd after authorities reached an agreement with the militia to reopen and lift force majeure on some oil terminals.
But Nigeria’s prospects remain clouded, with deteriorating infrastructure that has seen all of its key export grades, including Agbami, Bonny Light, Forcados and Qua Iboe face severe production issues throughout the last year.

OPEC has recently reassured the market that the group intends to unwind its cuts at a pace that ensures demand does not outstrip supply.

However, the measured supply to the market has ensured that oil prices continued their surge hitting a two-month high during the week, amid projections that a lack of production capacity and limited investment
in the sector could lift crude between $90 and $100 a barrel this year.

A tight supply and easing concerns about the potential hit to demand from the Omicron coronavirus variant, combined to jack up prices as Brent sold for $85.04 a barrel on Thursday and the United States West
Texas Intermediate (WTI) crude futures were up to $82.90.

Brent prices have not touched $90 and $100 since 2014 when they were retreating from a record high above $115 to as low as $57 by the end of the year.

Though the Omicron coronavirus variant has pushed COVID-19 cases far above peaks hit last year, it is expected that oil prices will be supported by the reluctance of many governments to restore the strict restrictions that hammered the global economy when the pandemic took hold in 2020.

The news is both good and bad for Nigeria which should ordinarily earn more foreign exchange from the sale of crude but now has to deal with paying more subsidy since there’s a positive relationship between the international prices of the commodity and how much Nigerians get the product at the pump.
On December 22, the National Assembly approved a N17.126 trillion ($38 billion) budget for 2022, anchored on an oil price benchmark of $62 per barrel.

The approved oil price assumption was higher than the $57 per barrel price that President Muhammadu Buhari had proposed to the parliament on October 7 and also higher than the oil price benchmark of $40 per barrel adopted by the government for the 2021 budget.

In addition, Nigeria retained the oil production target of 1.88 million bpd, including condensate production of between 300,000-400,000 bpd, for its revenue calculation in 2022.
This is as compared to the output target of 1.86 million bpd the government had set for the 2021 fiscal year.