Nigeria Loses N160bn to Opec Production Cut

2 June 2020

Abuja — Nigeria is projected to have lost over N160 billion in deferred revenue to a cut in the daily crude oil production by members of the Organisation of Petroleum Exporting Countries (OPEC) in May, THISDAY has learnt.

However, the impact on gross receipts may be reduced as the country is expected to close the revenue gap with a substantial increase in the international price of the product, which averaged $37 as of yesterday, following the relaxation of lockdowns by countries.

This is coming as the Petroleum Products Pricing Regulatory Agency (PPPRA) has announced a new pump price band of N121.50 to N123.50 per litre for petrol to reflect the market dynamics in line with the government's deregulation policy.

OPEC+ had agreed to reduce their overall crude oil production by 9.7 million barrels per day, starting May 1, for an initial period of two months that will end on June 30.

With Nigeria's share of 417,000 per day of the OPEC production cut, at an average price of $31.11 and over a 31-day period, the country is projected to have lost over N160 billion or about $402 million last month.

Minister of State, Petroleum Resources, Mr. Timipre Sylva, who confirmed Nigeria's compliance with the output cut had said the country started its own cuts at the end of April as promised.

He pledged that the country will abide by the pledge to keep its part of the bargain until a decision overriding the current one is announced by the international oil cartel.

"The agreed cut for Nigeria was about 417,000 barrels per day, which is about 23 per cent of our production. And of course, in the beginning, or as at the end of April, we have complied," he had said in an interview.

Before the decision to cut production, Nigeria was exporting over 1.8 million barrels per day.

With the exclusion of condensates, Nigeria's ultra-light oil, the country now produces over 1.4 million daily of crude oil per day.

Group General Manager, Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kyari, had explained that in effecting the OPEC decision, the NNPC through its appropriate subsidiary would ensure equity and fairness across the board in dealing with its partners.

According to him, while technical issues are paramount in allocating new quotas to the oil companies, the need to ensure that the decision will not do long-term damage to the oil facilities was also considered.

"The cut is against the national production of crude oil and doesn't include the condensates. That means we have brought down our production per day to 1.412 million barrels. In determining that, there are many considerations that come to play. There will be equity across partners.

"There are also technical possibilities. Some oil wells, if you shut down, will never come back again. So, we are careful how we apply those cuts so that ultimately what is important is for you to achieve the cut that you have promised to oblige and on the basis of that, we have allocated different levels of cuts to our partners" the GMD said.

Kyari noted that the corporation was engaging the JV partners at the level of National Petroleum Investment Management Services (NAPIMS) to make sure that "those cuts are proportionate and they do not create more damage than we planned", adding that "ultimately, we will achieve the 1.412 million barrels crude production per day".

In a historic deal last month, OPEC+ had agreed to reduce overall crude oil production by 9.7 million barrels per day, starting May 1, for an initial period of two months that will end on June 30.

Thereafter, for another six months, between July and December, they will maintain a crude oil production cut of 7.7 million bpd, while starting from January 2021, the agreement stipulated reductions of 5.8 million daily for the next 16 months, ending 30 April 2022.

However, before then, the agreement will be up for review in December 2021, depending on market conditions, according to the organisation.

For Nigeria, the current 1.412 million production will continue till June 30, after which it will then increase to 1.495 barrels per day between July 1 and December, while production is expected to surge to 1.579 million barrels per day, starting January 2021 and ending April 2022.

Meanwhile, oil price fell yesterday on worries about renewed tensions between the United States and China, although reports that OPEC and Russia were closer to a deal on extending oil output cuts lent some support to prices.

Benchmark Brent crude was down 46 cents, or 1.2 per cent, at $37.38 a barrel. US crude fell $1.04, or 2.9 per cent, to $34.45 a barrel.

Reuters reported that Beijing has asked its state-owned firms to halt purchases of soybeans and pork from the United States.

According to the report, China could expand the order to include additional US farm goods if Washington took further action.

US President Donald Trump's directive to begin the process of eliminating special treatment for Hong Kong is likely to create a new driver of volatility in global markets as tensions between Washington and Beijing climb again.

Algeria, which holds the rotating OPEC presidency, has proposed that OPEC+ hold a meeting on June 4 rather than the previously planned June 9-10.

Russia has said it has no objection to meeting sooner.

Also yesterday, the PPPRA announced a new pump price band of N121.50 to N123.50 per litre for petrol to reflect the market dynamics in line with the government's deregulation policy.

The PPPRA conveyed the new petrol price regime to marketers in a circular dated May 31.

The pump price of petrol was reduced to N125 per litre from N145 per litre on March 18, 2020, effective March 19.

The continued drop in petrol price followed the drop in the price of crude oil at the international market as a result of the COVID-19 pandemic.

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