August 5, 2022/CSL Research

According to news reports, the Organisation of Petroleum Exporting Countries (OPEC) on Wednesday raised Nigeria’s crude oil production quota for September 2022 to 1.83mbpd from 1.826mbpd in August. For several months, Nigeria has failed to meet its OPEC quota, blaming massive oil theft, the inability to restart oil wells shut down in the wake of the Covid-19 pandemic, lack of investments as well as community issues. There has been a continuous fall in production volumes throughout the year. In an interview with Reuters, Zainab Ahmed noted that low crude oil production means Nigeria can barely cover the cost of imported petrol from its oil and gas revenue.

Based on a Vanguard report, Shell Petroleum Development Company, in its briefing notes, stated that the fall in output was largely a result of curtailed oil production because of heightened security issues, crude oil theft and illegal oil refining. The note stated that in the last quarter of 2021, crude oil theft from pipelines across the region increased significantly due to the rising oil prices, which made the activity more profitable. The country’s worsening security situation also means production in some areas has been put on hold. It was also noted that production numbers were down because of divestment actions. For over a decade, international oil companies (IOCs) have divested their assets to local oil companies due to operational difficulties, crude oil theft, climate targets, non-passage of the PIB, etc. It is no news that the lack of investment in deep water petroleum exploration is threatening Nigeria’s reserves.

The oil sector contracted deeply by 26.04% y/y (despite a better average price of brent crude in Q1 2022 compared to Q4 2021 and Q1 2021), due to low production. Brent crude averaged US$97.86/bbl. in Q1 2022, compared with US$79.66/bl in Q4 2021 and an average price of US$61.32/bl in Q1 2021. Meanwhile, average daily oil production for Q1 2022 at 1.56mbpd (including condensates), was lower than 1.74mbpd in Q1 2021. Crude oil production reached a
low of 1.28mbd. (Including condensates) in May 2022 and we do not anticipate any significant recovery in the near term. The perennial issues of pipeline vandalism, theft, and terminal shutdowns have continued to constitute clogs and with no lasting solution in sight to curb this menace in the year, oil production will most likely remain at sub-optimal levels for the rest of the year.

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