Beyond discussing the broader terms of the production cut deal, OPEC will crunch the numbers of exempt producers Libya and Nigeria this week to see if their oil production has recovered enough to justify asking or persuading them to join the pact with some sort of cap.
However, the outlook for both countries’ future oil production is still clouded, as militant and civil strife hasn’t completely vanished, but has abated enough in recent months to allow the two African producers to boost their oil production to the highest in years.
So while OPEC will likely discuss Libya and Nigeria’s production, it’s uncertain whether it will impose quotas or caps due to the still-tentative recovery and possible return of sudden outages due to militancy, sources and analysts tell Platts.
At June’s end, Libya topped one million bpd of crude oil production for the first time in four years. According to OPEC’s secondary sources, Libya’s crude oil production exceeded one million bpd on average in July. But then in August and September, production at Libya’s giant oil field Sharara was shut for various periods of time ranging from two weeks to several days. Still, the latest OPEC figures available show that Libya’s October production rose by 42,300 bpd over September to reach an average of 962,000 bpd.
Nigeria’s oil production has hovered near the 1.8-million-bpd mark—the point at which the country has said it would cap, provided that production stays at that level for several consecutive months.
This week in Vienna, both countries’ production will be discussed, one OPEC source told Platts. The source declined to say if fellow OPEC producers will insist on quotas for the two.
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There are several options on the table, according to analysts and OPEC sources who spoke to Platts. One of those is to hand both countries a kind of “loose” quota above their current production, which will be triggered if production grows to a certain ceiling. Another possible decision could be to impose a quota right at or just above the two countries’ respective production targets, in a sign to at least symbolize that Libya and Nigeria are willing to accept to cap production. The third option is to grant a further extension for both countries.
OPEC—like everyone—has little chance of correctly predicting if and when sudden outages could reduce Libya and Nigeria’s production, so in reaching its decision regarding the two African members, the cartel will likely look at what it knows in terms of current production, production capacity, production targets, and production constraints.
In Libya’s case, production is around one million bpd, but technical, investment, and security issues currently prevent it from going much higher. Libya’s National Oil Corporation (NOC) set a target of 1.25 million bpd by the end of this year, but the goal looks unattainable. According to most sources, Libya probably won’t agree to a cap, but if other OPEC members were to pressure it, that cap would be higher than the 1.25-million-bpd target, possibly at 1.4 million bpd. Still, political, financial and technical constraints suggest that Libya’s base case production is around one million bpd.
Nigeria, for its part, may see a return of attacks after the Niger Delta Avengers (NDA)—the militant group responsible for most of last year’s attacks on Nigeria’s oil infrastructure—returned to the scene at the beginning of this month with a gruesome message warning oil companies of a “brutish, brutal and bloody” end of the ceasefire in the oil-rich Delta.
Earlier this month, when commenting on a possible cap, Nigeria’s Oil Minister Emmanuel Ibe Kachikwu told Reuters, “We’ll be looking for a number that enables us to contribute ... it’s in the range of 1.8 to 1.9 [million bpd], preferably closer to 1.9.” Related: Is This The End Of Nuclear Power In The UK?
In Nigeria’s case, there is also divergence among the sources tracking OPEC’s production about whether some condensate blends should be counted as crude oil. As of 2017, Nigeria is counting its Agbami grade as part of the condensate production, but some secondary sources that OPEC uses to track members’ production still count it as crude oil, including Platts, which is one of those secondary sources. Production of the Agbami grade is around 250,000 bpd—not a small figure relative to Nigeria’s production. Market watchers argue that Nigeria counting Agbami as condensate makes it easier it to maintain the crude oil production below the 1.8-million-bpd threshold.
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While OPEC might not slap outright caps on Nigeria and Libya at their current levels of production, the two exempt producers may face growing pressure to start contributing to the production cut deal—not only in Vienna this week, but in the coming months.
By Tsvetana Paraskova for Oilprice.com
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