Market News

Author Eklavya Gupte 

HIGHLIGHTS

Key fields: Qua Iboe, Forcados, Bonny, Bonga, Escravos faced outages

Oil production averaging as low as 1.64 million b/d in 2021

Security concerns, regulatory risks further hamper supply outlook

Nigeria's oil production growth will remain impeded in 2021 as it faces teething technical and operational issues, which are being exacerbated by the recent rise in pipeline leaks and sabotage, industry sources and analysts said June 14.

The West African country's crude production has been languishing at only two-thirds of its full capacity this year due to these factors along with its obligations under the OPEC+ production cuts.

And, with further fiscal and security uncertainties ahead, the outlook for the country's oil sector is likely to come under pressure despite the implementation of some reforms, they added.

Nigeria has the capacity to produce around 2.2 million-2.3 million b/d of crude and condensate, but production has averaged around 1.64 million b/d so far in 2021, according to S&P Global Platts estimates.

In the last six months, many of its large oil fields especially those in the Niger Delta like Forcados, Bonny, Escravos, Brass River and Qua Iboe and some offshore fields like Bonga, Usan, EA, have been pumping much below their normal levels due to either technical or maintenance issues.

There has also been a rise in leakages at some of the country's key pipeline networks. Some of these were because of an increase in pipeline sabotage while others are because of the country's fragile and aging infrastructure, some of which need urgent rehabilitation work.

In April and May, there were shut-ins by some of the producers using the Nembe Creek Trunk Line to transport their production to Bonny Terminal, due to a couple of leakages on the line, according to an official from the Nigerian petroleum ministry.

"Maintenance repairs on the Trans Ramos Pipeline, leading to production shut-ins by producers using this pipeline, also affected Forcados terminal's production," the official said. "There was also maintenance at Bonga, as well as pipeline maintenance and repairs at Escravos, resulting in underperformance."

Qua Iboe output took a hit in December due to an issue at its terminal, which led to a one-month halt in its crude loadings. While the EA oil field is currently undergoing maintenance work at its offshore terminal, sources added.

Security, fiscal risks

The country's production growth is also threatened by fiscal stress and the lack of regulatory reforms.

The rise of kidnappings and other security threats in the oil-producing south are also expected to deter investment.

S&P Global Analytics revised down its crude supply forecast for the second half of 2021 by around 130,000 b/d to 1.8 million b/d.

Nigerian crude loadings have been "showing consistently lower volumes on recent pipeline issues," and with "violence rising in the southeast" of the country, downside risks are growing, it said in a recent note.

Africa's largest oil producer is just starting to take steps to sweeten its relations with international oil companies in a bid to stem its recent output decline.

State-owned Nigerian National Petroleum Corporation recently signed a deal with its partners in the deepwater oil block OML 118, clearing the path to a major expansion of the country's Bonga oil and gas field.

But international oil companies are urging the government to urgently pass the landmark energy legislation -- the Petroleum Industry Bill -- into law, which would send a strong signal to investors of more predictability.

The PIB is expected to be passed by parliament sometime in H2 2021, government sources said.

This key legislation, which is meant to completely overhaul the Nigerian oil industry and provide new fiscal incentives to producers, has been in the works for more than a decade.

Under the latest OPEC+ deal, Nigeria has been allowed to increase crude production to 1.535 million b/d and 1.554 million b/d in May and June, respectively. For July, its quota will rise to 1.579 million b/d.