S&P: Nigeria, Others Planning Comeback after OPEC-induced Cut on Their Oil Output

Emmanuel Addeh in Abuja

After being practically strong-armed into accepting lower oil production baselines, during their last meeting in Vienna, Nigeria and other African members of the Organisation of Petroleum Organisation (OPEC) are preparing to fight for their market share within the Saudi-dominated group, S&P Global, has reported.

Nigerians were bewildered on June 4, when news emerged that the country’s delegation had agreed a cut to production for next year from the current quota of 1.742 million barrels per day,  to 1.38 million barrels per day.

“Furthermore, Nigeria, Congo and Angola have agreed that the highest production volumes of the last six months (November 2022 – April 2023)  be used as the basis for the determination of their 2024 production quota,” the delegation added.

The quota restriction came despite Nigeria banking on the sector to revamp the economy and new efforts to ramp up production, with the new government’s directive to all stakeholders to ensure optimum performance of the sector in the coming months.

But quoting people familiar with the situation, the S&P report stated that the African delegations plan to come better prepared for future talks with pre-agreed strategies and a unified front.

According to S&P, quoting people familiar with the situation, Nigeria and other African nations were taking a page from their Middle East counterparts, who typically align their positions before contentious negotiations through pre-meeting consultations.

“OPEC’s sub-Saharan African members — Nigeria, Angola, Gabon, Equatorial Guinea and the Republic of Congo — have seen their influence in the bloc shrink in recent years as crude production has slipped well below their quotas, and now find themselves crowded out by the Saudi-Russia axis of power, following the creation of the OPEC+ coalition in 2019. Sudan and South Sudan are non-OPEC members of the coalition.

“The strategising follows a fraught OPEC+ meeting June 4 that saw the Angolan delegation storm out and Nigeria voice objections amid squabbles over production baselines, which are used to set quotas, according to sources in the room,” S&P stated.

Speaking to S&P Global on condition of anonymity, multiple African delegates said Saudi Arabia, the de facto leader of OPEC, had pushed for quota reductions based on contested production figures.

 “They were using December to April, which was our worst time,” said one delegate.

In the end, African countries saw their 2024 baselines chopped significantly, while the UAE will have the opportunity to increase oil production.

Nigeria’s quota, for instance, was reduced from 1.742 million bpd to 1.380 million bpd, while Angola’s was cut from 1.455 million bpd to 1.280 million bpd. Tiny Equatorial Guinea’s had its own almost halved.

In May, Nigeria and Angola produced 1.43 million and 1.11 million bpd, respectively, according to the latest Platts OPEC+ survey by S&P Global Commodity Insights.

In a move that one source said was, “triggered” by African members, countries have been given until November to demonstrate a higher level of production that could reset their baselines higher. The figures will come from secondary sources, including S&P Global.

“You can ignore it,” one African delegate said of the 2024 production quotas. The continent’s producers insist there is momentum in their upstream sectors post-pandemic.

“It’s not a done deal. The quotas are going to be reviewed again,” said another.

As a result, a third delegate was categorical that African members had “absolutely not” lost out in the deal, although delegates conceded the new 2024 quotas send a message to investors.

“The looming quota cut is the stick, but the five-six-month runway is the carrot (or compromise); it’s basically telling affected African producers we will let you produce as much as you physically can, just show us how much that is,” said Research Director at S&P Global, Karim Fawaz, “Framed that way, is not necessarily an unreasonable ask,” he noted.

The OPEC+ alliance is next scheduled to meet November 26 in Vienna, though ministers will also gather in the Austrian capital on July 5-6 for the OPEC Seminar, a forum including oil company CEOs, policymakers and other industry officials.

As recently as 2020, African members were making extreme production cuts under an OPEC+ deal that sought to pull the oil market out of its COVID-19 crisis.

But underinvestment, instability, climate activism and technical problems mean all except Gabon have missed recent production targets, taking African influence to its lowest level in years. Angola pumped 1.9 million bpd in 2010, while Nigeria had the capacity to produce 2.2 million bpd, but both are nowhere near.

Fawaz said countries like Nigeria with above-ground issues will find it easier to boost production than those with below-ground problems, which require serious upstream investment, such as Angola.

S&P said last year, the African contingent lost its biggest cheerleader with the death of former OPEC Secretary General Mohammed Barkindo, a longtime Nigerian oil official, who oversaw the recent additions of Gabon, Equatorial Guinea and Congo-Brazzaville.

Following the OPEC+ meeting, Saudi energy minister Prince Abdulaziz bin Salman announced a unilateral production cut of 1 million bpd from July that he termed a “lollipop” sweetener.

Several African ministers joined him at the post-meeting press conference to publicly voice their support for the deal, but several delegates said the talks had been explosive.

A member of one African delegation said they were instructed to get presidential approval for sweeping cuts after several hours of tense negotiations, in which numerous letters were drafted and sent to their president.

Angola’s Minister of Mineral Resources, Oil and Gas, Diamantino Azevedo, left for the airport before the official meeting even took place, angry at proposed changes to his country’s production quota, sources said.

“Sometimes you may have a different standpoint and can overheat yourself,” said one African delegate. “It is clear that…the value put (to Angola) was not maybe the one they were expecting.” Another delegate said the Angolans were “very angry.”

Representatives from the Saudi oil ministry were contacted for comment but did not respond.

African members have in the past been accused of failing to comply with their quotas — particularly following sweeping OPEC cuts — and have pushed for higher production baselines. While African countries have been spared cuts because of low production, the UAE has been pushing for a baseline rise. “This is a fight for interest,” said an attendee.

The alliance remained mostly united and collaborative, however, the source added. “People may see from outside that the Saudis are controlling everything. The Saudis may have a standpoint but the Saudis are also listening to the others,” they said.

Nevertheless, multiple sources said African members would talk tactics before the next meeting, likely by video call, to have “a more unified strategy”. The African Petroleum Producers’ Organisation (APPO) could also be involved. The discussions will help “really harness an African position,” said one.

Despite the friction, African delegates say OPEC membership still makes sense, with participation in the alliance giving them huge visibility to investors and high oil prices helping their weak economies.

However, if anti-OPEC sentiment starts to rise among local populations, that could change, insiders say.

“It is clear that some may have huge challenges with their own population, but it is a good ground to attract external investment, public attention,” said one delegate.

Another, however, said membership was a no-brainer: “If you are not at the table, you’re going to be on the menu.”