Egina FPSO: Nigeria exceeds OPEC cut in February

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Egina Floating production Storage and Offloading increases oil production in Nigeria with the addition of 200,000 barrels per day

By Anayo Ezugwu

This is an interesting time for the Nigeria oil and gas industry. The country is witnessing improved crude oil production with the addition of 200,000 barrels per day from Egina Floating Production Storage and Offloading, FPSO. At the same time, the nation is expected to observe the cut in crude oil production from the Organisation of Petroleum Exporting Countries, OPEC.

The country pumped more crude oil in February than the quota given by OPEC. Nigeria produced 1.88 million bpd in February, 190,000 bpd above its cap, according to S&P Global Platts’ survey of industry officials, analysts and shipping data.

OPEC and 10 non-OPEC countries agreed in December 2018, to cut oil production by 1.2 million barrels per day effective from January for an initial period of six months to help balance the market and support prices. Nigeria, which was exempted from the previous production cuts deal, agreed to a quota under the current accord. With a reference level of 1.738 million bpd, the country was given a new quota of 1.685 million bpd.

With the OPEC deal coming at a time when the Egina FPSO adds 200,000 bpd to the nation’s crude oil production, it is left to be seen how the managers of the industry would handle this development. Ibe Kachikwu, minister of state for petroleum resources, had suggested that he might seek to have the excess barrels classified by OPEC as condensates, which is not subject to the quotas.

Nigeria also considers Agbami grade as a condensate, while S&P Global Platts and some other secondary sources used by OPEC to monitor production classify it as crude. Austin Nweze, lecturer, Pan-Atlantic University, Lagos, and economic analyst, said the situation in the oil sector is an interesting one.

According to him, the government must balance rise in production with the OPEC cut and at the same time look for funds to finance capital projects. He said the country is facing a bit of a dicey situation, either to store the excess crude oil for future sales or look for alternative means of selling them.

“Our problem is not just the oil price but also the quota cut from OPEC. Unless we decide to sell the excess at the black market or exceed the OPEC quota and face the sanction. We can also talk to OPEC to consider the situation in the country and review our quota or find other alternative buyers for our product. These are the options the government can take because this is not the best of times for any government because the revenue has shrinking.”

Even Ibe Kachikwu, minister of state for petroleum resources, on December 7, said it was very difficult for Nigeria to reduce its crude oil production. Kachikwu, who spoke on ‘Bloomberg Daybreak: Europe’ stated that there was a need for an extension of production cuts to stabilise the global oil market.

“It is very difficult to do that but where we are now, everybody must be seen to contribute. Obviously, the smaller it is, the more amenable we are to participate; the larger it is, the more we will struggle to participate. We have got exemption three times understandably. This time round, I think there is a decision that everybody should be seen to chip in.”

Likewise, President Muhammadu Buhari last month said the country could consider a reduction in crude oil production in support of efforts to shore up the price of the commodity. “As a responsible member of the Organisation of Petroleum Exporting Countries, Nigeria was willing to go along with the Saudi initiative in limiting output so that prices would go up.”

The 2019 budget proposal, presented to the National Assembly on December 19, by President Buhari, was based on oil production of 2.3 million bpd (including condensates), with an oil benchmark price of $60 per barrel.

But Wumi Iledare, director, Energy Information Division of the Centre for Energy Studies, said the quota cut by OPEC has nothing to do with production. He advocated that the country should use this opportunity to build production capacity.  “For now we don’t have 2.5 million bpd capacity, so if OPEC still gives us opportunity to produce 2 million bpd we will not meet our full capacity.

“So that is part of the oil business because nobody sells everything the moment they produce them. Therefore I don’t see that affecting the country. But we need to build capacity. And if you look at OPEC quota you will realise that some of our production lines like the condensates are not included.

“But that is why we are a member of OPEC and reducing quota is not bad for the country because it defers production to the future which is what we need especially when you are a nation where oil money is not used to develop infrastructure. You don’t want to keep producing and generating money without using it to build capacity, so OPEC is good for Nigeria because they are helping us for conservation.”

OPEC’s crude oil production in February modestly declined to 30.80 million bpd. The figure is a 60,000 bpd drop from January and is the group’s lowest output level since March 2015, when Gabon, Equatorial Guinea and Congo had yet to join the organisation but Qatar was still a member.

Despite the fall, OPEC still has more cutting to do to fully comply with its supply accord that went into force in January. The 11 members with quotas under the deal achieved 79 percent of their committed cuts in February, and remain 170,000 bpd above their collective ceiling. This is a slight improvement on January’s 76 percent, with Nigeria and Iraq producing far in excess of their cap, according to Platts calculations.

– Mar. 15, 2019 @ 16:25 GMT |

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