Abuja — The Organisation of the petroleum exporting Countries (OPEC) will today debate on whether to cap oil output from Nigeria and Libya, which have so far been excluded from supply curbs due to falling production amid unrest.
Two sources with knowledge of the matter told LEADERSHIP that the 14-member OPEC will meet today to decide whether to extend production cuts until the end of 2018.
The sources said the idea is to cap Nigerian output at 1.8 million barrels per day and Libyan output at one million bpd.
But the NNPC said it is looking to set up a $3.5 to $5 billion cash-for-crude prepayment with some of the world's top commodity traders to fund oil and gas upstream projects as well as related infrastructure.
Nigeria, Africa's biggest oil producer and OPEC member was hit hard by the sharp drop in global oil prices in 2014 that pushed it into its first recession in 25 years. The country returned to growth-mode in the second quarter.
Already cash-strapped and weighed down by billions of dollars in old debts, NNPC has also been looking to bring in outside cash.
The sources said Standard Chartered was hired to advise on the oil prepayment and a request-for-proposal was issued a few weeks ago for a $3.5 to $5 billion loan to be repaid with crude over five to seven years.
When contacted, spokesmen for Standard Chartered and the NNPC declined to comment.
The sources added that a decision was expected before the end of this year.
It also gathered that around seven trading firms were still in the running with top trading houses Glencore, Vitol and Trafigura as being among the active contenders. The trading firms declined to comment.
One of the sources said the West African OPEC member is seeking three offtakers against 70,000 barrels per day of crude.
Vitol already has a major presence in Nigeria after buying petrol stations via a joint venture with local producer, Oando and private equity fund Helios.
Vitol is also among a list of majors traders, including Trafigura, that participate in a swap scheme to deliver refined products in exchange for crude.
Profit margins for trading firms have been slowly eroding over the last few years as transparency in oil markets has increased, reducing arbitrage opportunities once based on privileged information.
Increasing traded volumes is one way to raise profits and competition is fierce for prepayment deals with state oil firms.
The NNPC has had cash-flow problems for years and has been chronically behind payments for its stakes in upstream joint-ventures with Shell, Chevron, Total, Eni and ExxonMobil.
Hungary Eyes Nigerian Crude Oil, LNG
Meanwhile, at a time that international crude oil market is getting more competitive, the Hungarian government has indicated interest to purchase crude oil and Liquefied Natural Gas (LNG) from Nigeria.
The Hungarian Ambassador to Nigeria, Professor Gabor Ternak, who disclosed this during a courtesy call on the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, yesterday in Abuja said the decision to import crude oil and LNG from Nigeria was informed by the need to bridge the current supply gap being experienced in Hungary.
"Hungary depends on oil importation to serve its energy needs as the country is non-oil producing. We want to diversify our sources of crude oil and LNG import and we are considering purchasing these products from Nigeria", Ambassador Ternak stated.
He said the Nigerian crude oil would be of great help to Hungarian Refineries involved in large scale commercial refining.
The Hungarian envoy stated that Nigeria could also leverage on the bi-lateral relationship with his country by engaging the services of Hungarian firms that specialize in repairs, maintenance and building of refineries as well as medical services.
He said that Hungarian universities, with many years of oil and gas engineering expertise, could assist Nigeria in the areas of capacity building of oil workers.
In his remarks, the NNPC GMD, Dr. Maikanti Baru, stated that the Corporation had commenced tendering process for the selection of the 2018 crude oil off-takers, adding that Hungarian companies could utilize the opportunity by participating in the exercise to maximize value from direct purchase, rather than going through a third party.
"If you don't participate in the tendering process, you would have to buy the products from one of the traders. However, if you participate with companies and refineries that meet our requirements, they could be shortlisted as off-takers", the GMD averred.
He explained that Hungary could purchase LNG through spot cargo, an arrangement in which excess production is given to registered off-takers with the Nigerian Liquified Natuaral Gas Limited (LNNG).