Amid FX Crisis, Nigeria Loses $3.89bn to Crude Oil Underproduction in Q3

Emmanuel Addeh in Abuja

Despite the marginal gains in crude oil production in September, Nigeria’s total losses to underproduction of the commodity was an estimated $3.89 billion in the third quarter of 2023, a THISDAY analysis of industry data has shown.

This is happening as the country continues to shop for new loans, with the federal government last week disclosing that it had concluded plans to secure a fresh $1.5 billion loan facility from the World Bank as part of the efforts to address the fiscal gap in the 2023 budget.

In addition, the government recently approached the African Export-Import Bank for a debt-for-oil deal worth $3 billion to stabilise the crisis-ridden foreign exchange market. It’s unclear the status of that negotiation.

However, the review showed that Nigeria may not have needed external help if it simply produced its Organisation of Petroleum Exporting Countries (OPEC) crude oil quota of 1.74 million barrels per day.

Information on Nigeria’s oil production, pieced together from data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) indicated that whereas the country was expected to produce roughly 156 million barrels in the quarter under consideration, it only managed to drill 110.6 million barrels during the period.

This left the country with a huge deficit of 45.4 million barrels, amounting to about $3.89 billion at an average price of $85.7 per barrel in the third quarter of 2023. Oil price was $80.11, $84 and $92 in July, August and September respectively.

The deficit oil production has continued despite the huge official and back channel spending on oil assets protection in the Niger Delta, with THISDAY recently reporting that Nigeria’s crude oil production declined year-on-year, in the first eight months of 2023, compared to the same periods in 2020, 2021 and 2022 when the contracts did not exist.

However, the Nigerian National Petroleum Company Limited (NNPC), it was gathered, has now renewed the controversial contracts with Tompolo‘s Tantita and another company, Pipeline Infrastructure Nigeria Limited (PINL).

Also, to deescalate the massive groundswell of disgruntlement, the contracts have now been extended to other ex-militants, especially in Rivers state.

The Group Chief Executive Officer of the NNPC, Mele Kyari, had defended the contracts when they were first signed, saying the decision was necessitated by the need for Nigeria to hire private contractors to man its oil pipeline network nationwide due to massive oil theft.

 Nigeria was only able to raise crude oil production in  September by 165,429 bpd to hit 1.34 million bpd. That would be its highest OPEC quota production figure since January 2022.

In the latest instance, an analysis of the NUPRC data showed that the country was still far from meeting its OPEC quota, with under-production by the country still as much as 400,000 bpd in September, despite the rise in output. Nigeria recorded 560,000 bpd loss or 17.3m barrels deficit a month earlier in August.

According to the data, much of Nigeria’s increase came from Forcados terminal which resumed production  recently after loadings of the medium sweet grade were suspended because of a potential leak at the export terminal.

The terminal which has the capacity to produce between 250,000 bpd and 400,000 bpd is operated by Shell Petroleum Development Company Limited  (SPDC). Production on the terminal rose from 3.7 million bpd in August to 7.4 million bpd in September, according to the NUPRC data.

The volume of crude oil drilled from Yoho also rose marginally from 901,163 bpd to 926,264 bpd during the month. However, production on other terminals remained basically stagnant or reduced marginally.

Still on the industry data, whereas Nigeria was supposed to produce roughly 52 million barrels per month, it only managed an output of 33.7 million barrels in July, 36.6 million barrels in August and 40.3 million barrels in September to round off the output for Q3.

Despite several promises, the country has been unable to fulfil its pledge to Nigerians and to OPEC, which recently slashed Nigeria’s quota for next year to 1.38 million barrels as a result of its lack of capacity to produce the quota already given it.

Authorities in the country blame oil theft, pipeline vandalism as well as waning investment in the oil and gas sector for the inability to ramp up production and meet the OPEC quota.

The inability of the Nigerian National Petroleum Company Limited (NNPC) and its partners to produce enough crude oil, has further worsened the crisis in the foreign exchange market where a dollar currently exchanges for over $1,000 at the unofficial window. Nigeria gets about 90 per cent of its dollar earnings from the export of crude oil.

Speaking on the perennial inability of the country to meet its OPEC quota,  the Minister of Petroleum Resources (Oil), Senator Heineken Lokpobiri, said at the weekend that his priority at the moment is to ramp up production gradually to 2 million at the end of the year.

“My sole agenda is to increase production, once we increase production we will get more revenue for the country. You know Nigeria is still more dependent on oil.

“Though the non-oil sector is also supporting the economy, a substantial part of our forex comes from oil. So, my ambition is to see how I can lead the sector to increase production so that we can get more revenue to deal with the fund and strategic projects in the country,” he said.

The minister highlighted that oil production was increasing steadily, adding that it has now moved close to about 1.4 million bpd.

“I get the reports from relevant authorities. Today, we are doing about 1.4 million barrels of crude. So, we are steadily increasing but our target is to see how we can get to two million barrels,” he said.