August 12, 2022/CSL Research

Based on data from its latest Monthly Oil Market Report for August 2022, OPEC stated that crude oil production figures based on direct communication indicated that Nigeria’s output dropped by an average of 74,000 barrels per day in July. The data showed that Nigeria’s oil production declined to 1.084 million barrels per day (excluding condensates) in July from 1.158 million barrels per day in June 2022. Based on data from Nigerian Upstream Petroleum Regulatory Commission (NUPRC), production volume including condensates declined to 1.3mbpd in July from 1.4mbpd in June. Production volumes have remained low through the year with the Minister of Finance, Zainab Ahmed noting in an interview that low crude oil production means Nigeria can barely cover the cost of imported petrol from its oil and gas revenue. Meanwhile, the Organisation of Petroleum Exporting Countries (OPEC) recently raised Nigeria’s crude oil production quota for September 2022 to 1.83mbpd (including condensates).

Crude oil theft and illegal oil refining have been on the rise since the increase in the price of crude, occasioned by the Russian Ukraine crisis, which has made the activity more profitable.

According to Mele Kyari, group chief executive officer NNPC Limited, Nigeria loses US$1.9bn monthly to crude oil theft. 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. However, average daily oil production for Q1 2022 at 1.56mbpd (including condensates), was lower than 1.74mbpd in Q1 2021. 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 and will keep oil GDP negative.

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