Opinion

OPEC vs Nigeria: Lose-lose situation?

Posted by Bayo Okoya - Delta Analytics Lagos

22-Sep-2017


Last week, Nigerian oil minister Emmanuel Ibe Kachikwu indicated that Nigeria would not join OPEC oil cuts until March 2018 at the very earliest, citing a lack of stability in the nation's oil output. OPEC agreed in May this year to extend output cuts into 2018, though Libya and Nigeria were exempt from any cuts as they battled militancy impacting their petroleum sectors.

Analyst reaction to the deal was pessimistic as a result of the exclusion of Nigerian, with some believing that a recovering sector in the country could negate cuts by other countries and keep oil prices suppressed. Their concerns were legitimised within days: In the second week of June it was announced that the beleaguered Shell-owned Forcados terminal has reopened for crude exporting. It was a boost to the Federal Government's efforts to meet an export target of 2.2 million barrels per day (bpd) target, but a blow to the prospects of the OPEC deal having any impact on languishing oil prices.

The announcement from Minister Kachikwu this week came as the Nigerian National Petroleum Corporation revealed that in 2016, 700,000 bpd were lost to pipeline vandalism. Production averaged at 1.3 million bpd; 900,000 behind the 2.2 million target. The cost to the country was in the region of $13.3 billion in lost revenue. With oil providing 70 per cent of government revenues, Nigeria cannot prosper until militancy is overcome. The lost 700,000 barrels either remains in the ground or in storage facilities.

But the moment Nigeria shows signs of recovery, OPEC members (in particular Iraq) begin to make noises about getting exempt members of the cartel to take their share of cuts.

As a consequence, Nigeria is damned if it does and damned if it doesn't when it comes to defeating militancy; oscillating between the pressures of vandalism and the prospect of reducing. Coupled with a sclerotic legislative environment in which reforms take literally years to move through the Nigerian National Assembly, Nigeria needs to stop thinking radically about how to reform its oil sector and start acting radically. Nigeria needs a framework in which investors find a transparent business climate with clear and consistent regulation. It also needs to encourage domestic companies to integrate vertically with the oil and gas sector and build home grown expertise, boosting probability and long term human capital.

OPECNigeriaProductionMilitancysecurity

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