30 SEPTEMBER 2010   

Repairs to sabotaged oil facilities in the Niger Delta and new production from deepwater projects should help Nigeria increase its crude oil production from 2 million barrels per day (bpd) to 2.6 million bpd, analysts have said. This will also cement Nigeria’s place as Africa’s top crude oil producer, a position it reclaimed this year.

Crude output from Nigeria’s oil and gas industry has recovered steadily this year and investors are optimistic that production could increase further but success hangs on sustained peace in the Niger Delta, which will be tested by elections early next year. “We believe we will see a steady increase in production from 2 million barrels per day (bpd) to as high as 2.6 million bpd in the coming years,” said Funmi Akinluyi, director of sub-Saharan Africa investments at funds manager, Silk Invest.

“The long-term stability of the Niger Delta will remain a major factor to consider as we approach the election year,” added Akinkluyi. Nigeria’s production has been plagued by years of attacks on vulnerable pipelines and platforms in the Delta, which increased in intensity from mid-2006, allowing Angola briefly to become the continent’s top crude oil producer. But an amnesty last year brought a halt to sabotage attacks helping push Nigeria’s crude output above 2 million bpd. Production has risen gradually since the amnesty and has averaged more than 2.1 million bpd so far in the second half of the year, according to Reuters’ data, far eclipsing Angola’s planned production of 1.68 million bpd over the same period.

Angola’s crude exports peaked near 1.9 million bpd earlier this year but summer maintenance and production glitches pulled this back to below 1.7 million bpd in the third quarter, according to data collected from trade sources. “Nigeria’s crown [as Africa’s top producer] is fairly secure on its head,” said Holly Pattenden, head of oil and gas at Business Monitor International.

“There has been a huge gain from the fact that they have had this window in which to repair long-damaged infrastructure. We see export potential continuing to rise,” she added. The most recent bounce in production has been from Nigeria’s benchmark Bonny Light crude oil stream, operated by Royal Dutch Shell. Output in November is due to average 285,000 bpd, up from 130,000 bpd earlier this year. Oilfields operated by units of Exxon Mobil and production streams run by Eni are also benefiting from the lower level of hostilities in the Delta.

A series of new deep offshore projects due to start between 2011 and 2014 should boost output further, although the success of these developments is at risk from lack of funding and quotas set by the Organization of Petroleum Exporting Countries (OPEC). Nigerian oilfield projects have suffered delays due to a lack of funding from state run Nigeria National Petroleum Corporation (NNPC), which holds a majority stake in most of the country’s major oil and gas developments. Wide-ranging reforms, which include restructuring NNPC to release more capital to fund new oilfield developments, have faced multiple delays due to disputes over terms between the government and international oil companies.

Nigeria’s oil minister, Diezani Alison-Madueke, said on Monday that the reforms set out in the Petroleum Industry Bill (PIB) would be passed within weeks but targets for implementing this legislation have been repeatedly missed. “If the legislation doesn’t come through, and funding from NNPC doesn’t improve, then don’t rely on any new oilfields coming on-stream on time,” one trader at an international oil company operating in Nigeria, said. Producer group OPEC, which sets output targets for its members to regulate global supplies and oil prices, set Nigeria an implied production quota of 1.67 million bpd, which it is comfortably exceeding. With oil prices between $70 and $80 per barrel, OPEC may not be too concerned with some over-production from its members. But if prices dip and Nigeria’s output climbs, pressure could mount on the West African nation to rein in oil exports.

“There is a possibility that OPEC attempts to enforce greater discipline after its next meeting, which it will certainly do in rhetoric. But whether it is actually able to achieve greater compliance will depend on oil price,” Pattenden concluded.

Source:BusinessDay