Nigeria faces oil production downturn

SOPURUCHI ONWUKA

Nigeria in October pumped crude oil into the export market at 1.95 million barrels per day, indicating the industry’s stable production operation in the past three months.

The production plateau started in August when the nation’s output topped 50, 000 barrels per day to improve on the production level of 1.9 million barrels per day achieved preceding July.

Despite the production plateau of three months, Nigeria has been unable to meet its output quota of 2.163 million barrels per day in the Organization of Petroleum Countries (OPEC) due to a barrage of hostilities by militant resource nationalists and criminal elements in their midst.

The nation’s production woes were worsened by the decision of OPEC to chop of members’ collective offering to the export market by some 1.5 million barrels per day from this month as the group battles to protect the value of the commodity from global economic recession.

But it appeared the OPEC countries were already doing that as consultations went on among members ahead of the meeting where the resolution was passed, explaining the general fall in production average at the end of October.

Eight countries out of the 13 member group cut output by varying proportions as the oil price decline turned very steep, crashing from record range above the $150 per barrel mark to the current level around $60 per barrel.

Algeria dropped 20, 000 barrels per day in the month, from 1.4 mbd in September to 1.38 mbd in October; Iran shed 80, 000 barrels per from September levels of 3.98 mbd to 3.9 mbd in October; Kuwait cut 20,000 barrels per day in October to decline from 2.62 mbd to 2.6 mbd; and Qatar shed 10, 000 barrels per day to come down from 0.85 mbd to 0.84 mbd.

Other members of the group that cut production in October include Saudi Arabia which cut 100,000 barrels per day from 9.5 mbd in September to 9.4 mbd; United Arab Emirates chopped off 80,000 barrels per day from its 2.63 mbd September levels to post 2.55 mbd; Venezuela lost 10,000 barrels per day from 2.39 mbd to 2.38 mbd; while Indonesia which is on exit door from the group lost 10,000 barrels per day, from 0.86 mbd to 0.85 mbd.

Ecuador, like Nigeria, maintained its September output levels. But Angola, Libya and Iraq topped their previous volumes. While Angola added 70, 000 to grow production from 1.8 mbd in September to 1.87 mbd in October, Libya produced additional 40, 000 barrels per day and Iraq which is recovering production capacity topped 10, 000 barrels per day from 2.29 mbd to 2.3 mbd.

However the production addition from the three countries could not wipe off the deficits by eight, resulting in the group’s cumulative production decline from 32.470 mbd in September to 32.260 mbd in October.

There would be more production declines this month and the ones after as OPEC engages in marathon sessions to arrest the glut associated free fall of prices that threaten the economies of member countries.

Already, Nigeria’s fiscal calculations for 2009 have seen alterations as oil prices keep falling irrespective of tightening supplies to the market.

Penultimate week, a special cabinet meeting was held in the Presidency to determine major budget cuts should be made after the steady decline in the price of oil in the past months months.

However, Nigeria has already faced complications in its oil production as a combination of technical hitches, security collapse in the Niger Delta and OPEC restrictions result in inactive capacity.

Federal government volunteered production cut at the last Opec meeting and will likely volunteer more as the group meets again for more output cuts, indicating strongly that the 2009 budget might record deficits right from the drafts.

Shell, currently the nation’s second biggest producer, has declared force majeur to its global offtakers citing notification by the government on oil firms to cut output in line with OPEC directives.

Operators in the country have always called on government to pull the country out of OPEC to unconstrain production but government is committed to the group’s goal of getting fair prices for the different grades of the commodity in the organization’s basket of 13 benchmark crudes.

Although being one of the world’s biggest oil exporters, sabotage by Niger Delta militants has already cut its production by more than 20 percent.

The budget plans for next year had been drawn up anticipating a minimum oil price of $62 a barrel with production levels pegged at more than 2.3 million bpd.

But with the world economy on a downturn and Nigerian production much the same, some sources claim it was an unrealistic plan, especially considering the country’s production has been nowhere near 2.3 million bpd for some time now.

The cabinet meeting came after the Committee of Banks’ CEOs gathering where participants decided to formally ask the government to intervene in the nation’s financial sector to prevent worsening economic structures amid the global financial crisis.

No details were provided as to the exact areas the cuts would take place, but Finance Minister Shamsuddeen Usman said, "There have been a number of very serious measures taken to reduce expenditure."

Meanwhile, faced with downturn in oil income, members of the Organization of Petroleum Exporting Countries (OPEC) most of whom rely wholly on oil for government’s fiscal calculations, have once again scheduled a meeting next week to possibly cut output to rescue its markets value.

OPEC members meet in a bid to halt the tumble in crude prices, amid signs that a global economic slowdown is punishing near-term demand for oil.

The news of the meeting, which analysts expect will result in another production cut, came as oil prices hit a 22-month low amid fresh evidence that the world’s industrialized economies are in recession and consumers and industries are cutting back on fuel spending.

The Paris-based International Energy Agency on Thursday slashed its forecasts for global oil demand, saying it will grow by just 0.1 percent this year. That is down from last month’s projection of 0.5 percent growth and far below the 1.1 percent growth rate of 2007. Many analysts think global oil demand will actually contract this year, for the first time since 1983.

On Thursday on the New York Mercantile Exchange, U.S. benchmark crude closed up $2.08, or 3.7 percent, at $58.24 a barrel on market expectations that OPEC will cut output again.

With gloom hanging over demand, Organization of Petroleum Exporting Countries members will meet Nov. 29 in Cairo, just a month after a hastily arranged gathering in October, according to people familiar with the matter.

The cartel’s secretariat in Vienna didn’t confirm the meeting, but OPEC delegates said the group’s 12 members will meet at an already scheduled gathering of Arab oil-producing nations.

Analysts expect the meeting to result in another substantial reduction in the group’s production. OPEC agreed to cut output by a total of two million barrels a day at its last two meetings in September and October, but those moves have so far failed to stop the slide in crude prices. Global demand for oil is about 86 million barrels a day; OPEC supplies roughly 40 percent of that total.