Recovery from Output Slump
Key industry analysts foresee a significant turnaround in Nigeria’s oil sector, which may prompt the country to seek an increased production quota from OPEC. After years of decline, Nigeria’s output has begun to recover thanks to improved security, presenting a dilemma for the government. The country’s strained public finances urgently need additional revenue from higher oil exports, but it also faces pressure to comply with OPEC+ production limits that help maintain global crude prices above $70 per barrel.
Growth Projections and OPEC Relations
Analysts expect further growth in Nigeria’s oil output this year, increasing the chance of a confrontation with OPEC+ over its quota. Nigeria boasts around 37 billion barrels of oil and 208.62 trillion cubic feet of natural gas. It has also joined the BRICS partnership program (Brazil, Russia, India, China, South Africa), which should strengthen its position in the global energy sector. This membership will expand commercial ties beyond traditional Western markets and optimize access to funding for oil and gas infrastructure modernization.
With a production level of about 1.48 million barrels per day, Nigeria remains a significant player in OPEC and the Gas Exporting Countries Forum (GECF). Gbenga Komolafe, CEO of the Nigeria Upstream Petroleum Regulatory Commission, said the country focuses on increasing production to meet budgetary needs before negotiating a higher quota with OPEC.
Recent Production and Recovery Efforts
The Nigerian Upstream Petroleum Regulatory Commission reported that crude output reached 1.48 million barrels per day last month, slightly below the OPEC+ quota of 1.5 million barrels per day. This reflects a major recovery from a low of 1.1 million barrels per day in 2022, a time marked by asset sales and rampant pipeline theft and vandalism.
Government initiatives to enhance security and attract investment have contributed to this turnaround. The Nigerian state anticipates production could rise to 2 million barrels per day, the highest level in a decade, while analysts expect a more modest increase.
Security Initiatives and Challenges
Nigeria’s recovery relies heavily on security measures implemented to combat theft and vandalism. In 2022, the Trans-Niger Pipeline, capable of transporting 180,000 barrels daily, suffered illegal taps at around 150 locations. This situation led to producers receiving only a small fraction of the volumes they pumped.
The National Petroleum Company Ltd. established a command center to monitor production activity in real-time, aiding ground measures to reduce crime and enhance community engagement. Mansur Mohammed, head of West Africa upstream research for Wood Mackenzie Ltd., noted that these efforts are starting to yield positive results, albeit at a significant cost.
Ifeanyi Onyegiri, a senior analyst for Welligence, believes Nigeria can negotiate a higher quota with OPEC if it sustains production. However, the country has faced theft and vandalism issues for decades, leading to cautious optimism about recent improvements. Analysts predict average monthly production will remain around 1.4 million barrels per day unless security measures are effectively applied across the pipeline network.
Impact of Investments on Production
Recent output gains stem from improved security and significant investments by operators. Following the exit of international companies like Exxon Mobil Corp. and Equinor ASA, Nigerian-owned firms now control more production. The Nigeria Upstream Petroleum Regulatory Commission reported a tripling in drilling activity over the past four years.
Seplat Energy Plc, formed from a merger of two local companies in 2009, aims to more than double its output to 120,000 barrels per day within six months after acquiring Exxon’s onshore assets. CEO Roger Brown sees potential to exceed 200,000 barrels per day.
Seplat stated, “There are significant opportunities for smaller, more efficient, and focused companies to safely extract increased value and production.” Oando Plc, led by Nigerian businessman Wale Tinubu, plans to increase production from 40,000 barrels per day to 100,000 barrels per day over the next few years, according to Alex Irune, managing director of Oando Energy Resources. “Nigeria has both the spare capacity and resources to achieve and surpass the 2 million barrels-per-day mark,” he said.
Future Prospects and Challenges with OPEC+
As Nigeria pursues these goals, it faces potential tensions with OPEC+. Angola had to leave the cartel in December 2023 for rejecting stricter output limits. Conversely, the United Arab Emirates received a more generous quota six months later due to its expansion in production.
For Nigeria, like other quota-exceeding members such as Iraq and Kazakhstan, the immediate financial benefits of increased production might outweigh the desire for strict OPEC+ compliance. “Given the country’s current fiscal situation, there’s a strong incentive to exceed the OPEC quota, as any additional revenue directly impacts the budget deficit,” Ogunbiyi remarked. He predicts that Nigeria will likely pursue renegotiation of its output limits if feasible.