In search of conditional oil production rise

Offshore oil production rig

Offshore oil production rig

23 August 2016, Abuja – Unless a very good breather is achieved through dialogue with militants in the Niger Delta, Nigeria’s crude oil production will remain below the 2.2 million barrels per day which is the 2016 budget target, reports Chineme Okafor

“It is a difficult time, production is about 1.5 million barrels a day, but we intend to get that up. We are putting a lot of energy around it, a lot of dialogue, a lot of engagement, a lot of security meetings to try and resolve it,” said the Petroleum Minister, Ibe Kachikwu, in a recent media chat with CNN’s Richard Quest.

With this statement, Kachikwu confirmed that the federal government was continuing its dialogue with militants and their representatives in the Niger Delta, hoping to see oil production in the country grow steadily to meet the 2016 budget mark.

While the reported dialogue has largely yielded very little in terms of halting breaks on oil assets in the Delta, he, however, expressed confidence that in the next one or two months, a resolution will be reached to end the attacks on oil assets.

These attacks had since February taken the wind off the sail of Nigeria’s oil production thus reportedly making it difficult for an even budget implementation for the 2016 fiscal year. The government relies heavily on oil proceeds to fund its programmes, shortfalls in oil revenue has meant that very little has so far been achieved in its programmes.

Kachikwu explained that Nigeria at its current production level would need an average 900,000 barrels per day (b/d) extra production to recover oil and the attendant revenue lost to the militancy in recent months.

“President Muhammadu Buhari is very concerned about these things; a lot of executive time is being given to this. We are expecting that over the next one month, two months, we would find some final solution that would bring production upward.

“Beyond that, the reality is that we have lost quite a lot of months, about five, six months of continuous problems. So, it is going to be difficult to catch up with the 2.2 million barrels on which the 2016 budget is based.

“But we are certainly going to try, once things are calmer. We need an average of 900,000 barrels per day, excess production to catch up. That is going to be very tough, but we are going to work on that,” the minister added.

A Tough Situation

Nigeria was ousted earlier in 2016 as Africa’s biggest oil producer by Angola, however it has not been able to halt the slide in its oil output as it continued to decline in June to about 1.69mbpd.

This was disclosed in the June monthly financial report of state oil firm, the Nigerian National Petroleum Corporation (NNPC). The International Energy Agency (IEA) also said it was the biggest decline among member countries of the Organisation of Petroleum Exporting Countries (OPEC) for the period.

After a brief pause, militant attacks picked up in June, further restricting production and supplies from Qua Iboe, the country’s biggest crude grade. Forcados is also likely to remain unsettled through August.

And on top of that, a new rebel group, the Niger Delta Greenland Justice Mandate which emerged recently, last Wednesday reportedly blew up a crude oil pipeline operated by the NNPC and Shoreline Natural Resources Ltd.

This group adds to others that exist – the Reformed Niger Delta Avengers, Joint Niger Delta Liberation Force, the Niger Delta Justice Defence Group, the Niger Delta Revolutionary Crusaders and the Ultimate Warriors of Niger Delta, who have all also threatened to attack or claimed attacks

Some others like the Niger Delta Avenger whose acts have been more impactful on production are reportedly in dialogue with the government, but with chances of a universally accepted settlement looking slim.

Also, in its recent market survey, Bloomberg news outlet said amongst the currencies of oil producers that had been hit by the drop in oil prices, Nigeria’s naira remained the worst hit so far, losing almost half its value against the dollar.

“Oil currencies have been hammered since crude prices crashed in mid-2014, and none more so than Nigeria’s naira.

“It’s lost almost half its value against the dollar, the most among the currencies of OPEC members and more than Russia’s ruble, which is down 47 per cent. For foreign investors, that may be a cue to re-enter the West African country as a weaker currency makes its bonds and stocks cheaper,” said the Bloomberg survey.

Successful Dialogue May Guarantee Production Rise

Following Kachikwu’s disclosure, any increase in the country’s oil production will however be predicated on the outcome of dialogues with the militants. But while the government has expressed its commitment to such dialogue and even go ahead to set up a committee on this, it has also asked that militants in the Niger Delta appoint credible representatives to come to the table with it, this has not happened yet.

The Secretary to the Government of the Federation (SGF), Babachir Lawal, had in July stated the government’s craving to come to the table with the militants. He had said that the presence of soldiers in the region did not mean the government had foreclosed the option of dialogue with the militants to restore stability in Nigeria’s oil production.

Lawal however said the government was finding it difficult to come to the table with the militants chiefly because no representatives had been appointed by the militants to speak on their behalf at the table. And until this happens, according to Kachikwu in the CNN interview, production will remain unstable.

“Government is not averse to discussing with them (militants) but we need to know who is in charge and who we can discuss with meaningfully; that’s the dilemma of the government at the moment,” Lawal had said.

He further explained: “There are so many groups making it difficult to know who to talk to and the level of control that group will bring to the process.”

“When they blow up oil pipelines, the spill destroys their water and lands, a development that will take years to recover. They are more victims than the rest of Nigerians,” Lawal added on the impact of the activities of the militants.

 

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