The Organisation of Petroleum Exporting
Countries (OPEC) is planning to cap Nigeria’s crude oil production at 1.8
million barrels per day (mbpd) as a way to boost prices in the market.
The Joint OPEC-Non-OPEC Ministerial
Monitoring Committee (JMMC), which met in St. Petersburg for its fourth meeting
yesterday, also called on several members to boost compliance with production
cuts to help clear excessive global stocks and support prices.
By the OPEC’s decision, Nigeria, which
pegged its crude oil production at 2.2 million barrels per day to finance the
2017 budget, would have to struggle with a shortfall of 400,000bpd.
At the current market price of $47 per
barrel, the country would be losing about $188 million (N57.528 billion) daily,
which would have been part of the revenue needed to finance the 2017 budget.
OPEC and 11 other producers, including
Russia, had agreed in December to reduce their combined output by almost 1.8
million barrels per day (bpd) in the first half of this year, to support prices
and curb oversupply.
But Nigeria and Libya were exempted
from output freeze due to domestic challenges already limiting the countries
from producing to a maximum level.
The committee, in a report obtained by
The Guardian from OPEC website on Monday, said that it would continue to
monitor Nigeria’s production patterns in the next weeks to determine when to
implement the output.
The ministerial committee of OPEC and
non-OPEC, said at the meeting that it had agreed Nigeria would join the deal by
capping or even cutting its output once it stabilises at that level from 1.8
million bpd.
Nigeria’s current production output as
at June 2017 stood at 1.733 million bpd, according to the statistics from the
OPEC monthly report.
The committee met yesterday to review
the June 2017 report as well as the first six months of the Declaration of
Cooperation, as submitted by the Joint OPEC-Non-OPEC Technical Committee (JTC).
OPEC explained that the JMMC further
welcomed the flexibility of Nigeria in this regard, which, despite its
commitment to recover its pre-crisis production level, voluntarily agreed to
implement similar OPEC production adjustments as soon as its recovery reaches a
sustainable production volume of 1.8 mbpd.
At the event, OPEC Secretary-General,
Mohammad Barkindo, said Nigeria had no intention of going beyond its oil
production target of 1.8 million barrels per day (bpd) until the end of March
2018.
The Director-General, Lagos Chamber of
Commerce and Industry (LCCI), Muda Yusuf, said the market had faced pressure in
recent weeks due to weaker OPEC compliance with cuts and rising production from
Libya and Nigeria, which have been exempted from the reductions.
On the implication for Nigeria’s
economy, Yusuf, said it would put more pressure on domestic financial system.
According to him, it would increase the country’s debt service burden and
capacity to fund budget. “There is a limit to what we can actually borrow as a
country, especially when our borrowing is almost reaching a saturation point.
It is going to impose a lot of strain on the economy,” he said.
Yusuf urged the Federal Government to
build an economy that is not too reliant on oil. “We can only do that by
putting policy in place to attract investment. We should concentrate on
creating the right environment to boost investment in non-oil sector. Apart
from the output cut, we are also suffering from low oil prices.”
Though Nigeria has been struggling to
increase crude oil production, Head, Energy Research Ecobank Group, Dolapo Oni,
said technically, Nigeria could achieve the 1.8 mbpd level. “We can, what we’ll
need to do is spend money on joint ventures to achieve that,” he said.
Oni believes the country’s production
recovery is “sustainable” and that there is more “flexibility in the system
now.”
As crude exports become increasingly
unpredictable, other options may start to open up.
Professor of Energy Economics,
University of Ibadan, Adeola Adenikinju, stressed the need for the country to
focus on domestic use of its crude oil resources.
“Nigeria is left with a sector that
emphasizes revenue generation rather than economic development. Hence, we have
a sector that exports crude oil rather than processing the crude for the
use/need of the economy.
“We export Liquefied Natural Gas (LPG)
while we have no gas to fuel our electricity sector to power our homes,
industries and businesses and yet still import LPG for domestic cooking.”
He said that Nigeria’s public policy
choices must prioritise investment over consumption, “fuelling our economy
first before producing oil and gas to grow other economies.”
Meanwhile, Acting President Yemi
Osinbajo has raised the alarm that the oil proceeds not accounted for are being
used to fund terrorism activities across the world.
At the opening of the extra-ordinary
meeting of the Council of Ministers session of the African Petroleum Producers
Organization (APPO) in Abuja yesterday, Osinbajo said concerted efforts must be
made to account for all crude oil that is produced so as to prevent the misuse
of the funds.
“Around the world today, we are
increasingly seeing crude oil, often of untraceable origins, funding the
activities of terrorist groups and other purveyors of violence and conflicts.
Many of these groups constitute a threat or a potential threat to the safety
and security in our member states. APPO, therefore, needs to build the capacity
to maintain a reliable statistical database and to deploy technology to track
every molecule of crude oil extracted from our territories. This is an
important step, not only for global security, but also for fiscal transparency,
accountability and of course, the required levels of international
collaboration and cooperation that an organisation like APPO is well-placed to
muster,” he said.
Osinbajo hinted that the fall in the
prices of oil has forced many governments around the world into rethinking the
mode of inventing development models that do not rely heavily on crude oil.
“The volatility has triggered much
soul-searching and governments are compelled to ask themselves difficult but
necessary questions about the present and the future. Besides, the reality of
the future, where demands for and revenues from oil drop sharply is already
upon us; and almost every major oil importing country today has embarked on an
aggressive non-fossil fuel alternative programme. China, Japan and some
Scandinavian states have already set dates within the next 10 to 15 years, to
produce and use only electric vehicles,” he said.
Source: - The Guardian | July 25, 2017.
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