People & Money

Nigeria’s Agbami: A $874 Million Per Quarter Temptation

Nigeria has an acute need for dollar inflows. With oil prices rising and predicted to go over $75 while OPEC+ production cuts remain in place, Agbami’s 140,000 bpd may translate into a very tempting $874,314,000 per quarter temptation for Nigeria.

In April 2020, the Organisation of Petroleum Exporting Countries (OPEC) together with other oil producers led by Russia agreed to cut oil production by 10 million barrels per day in a bid to limit supplies and hence lift prices that had been battered by the new coronavirus pandemic. Nigeria’s output was over its assigned OPEC+ quota of 1.45 million barrels per day in many months after the April decision. 

In July, OPEC+ demanded that Nigeria restricted oil production by 283,000 b/d from August to December 2020 in order to compensate for overproduction. In September 2020, Nigeria’s production was still 30,000 bpd above its OPEC+ quota. But by January 2021, Nigeria had been able to limit production to its assigned quota and also fully compensated for earlier overproduction. 

“The Meeting Extended special thanks to Nigeria for achieving full conformity in January 2021 and compensating its entire overproduced volumes,” OPEC said in a statement on March 4 after an earlier virtual meeting between members and its  Russia-led allies, a group known as OPEC+.

Also Read: OPEC+ to Keep Supply Mostly Steady

The Question of Agbami 140,000 bpd Laid to Rest

OPEC+ Ministers expressed gratitude to Nigeria’s Minister of State for Petroleum Resources, Timipre Sylvia for his “shuttle diplomacy” which has seen him engage African oil-producing states – Congo, Equatorial Guinea, Gabon, and South Sudan – on the need to comply with assigned production cuts and also compensate for past overproduction. 

This puts Nigeria squarely in the camp of OPEC+ strict complying countries and signifies that Nigeria finally has accepted that its 140,000 bpd Agbami production is crude oil rather than condensate. OPEC+ production excludes condensate which is ultra-light oil extracted from gas and liquified. There is however no widely agreed way to differentiate condensate from crude once it becomes liquid, which makes it tricky to determine how much of it any country produces. 

In November 2020, the OPEC+ Joint Ministerial Monitoring Committee (JMMC) had declined an informal request from Nigeria to review the country’s assigned production cut based on the classification of the 140,000 bpd from Agbami as condensate. But three of the six secondary sources that monitor compliance, including Platts and Argus, classify Agbami as crude oil. The National Petroleum Corporation (NNPC) is also said to market Agbami as crude rather than condensate.  Furthermore, Chevron and Equinor, NNPC’s partners and operators of the Agbami field classify its output as crude.

Nigeria’s request for its OPEC+ production cut to be reviewed was not discussed at the November JMMC meeting; the request was rejected through a letter from the OPEC President, Abdelmajid Attar who is also Algeria’s Energy Minister. The rejection implied a refusal to consider production from Agbami as condensate rather than crude. Nigeria had given the disagreement over the classification of Agbami as a major reason for its poor track record on compliance, saying it inflated some of the estimates of its crude output. The country’s total oil output has always included condensates, which are blended into exports. According to DPR, condensates contributed 348,078 b/d to Nigeria’s production last December while crude output stood at 1.17 million b/d.

The cartel counts members’ output solely using crude production, and the state-owned Nigerian National Petroleum Corporation classifies the Agbami grade as condensates. But three of the six secondary sources whose estimates feed into OPEC+ compliance levels count it as crude. According to the Department of Petroleum Resources, Nigeria’s condensate production was 348,078 bpd in December 2020. 

Nigeria has cited the disagreement as a contributor to its poor track record on compliance, saying it inflated some of the estimates of its crude output. The country’s total oil output has always included condensates, which are blended into exports. According to DPR, condensates contributed 348,078 b/d to Nigeria’s production last December while crude output stood at 1.17 million b/d.

Also Read: Analysts See Brent Crude Reaching $80 this year as Oil Surges

May Agbami Remain Crude Oil

Crude sales account for up to 90 percent of foreign exchange earnings and more than half of the Nigerian government’s revenues. The Nigerian economy is assailed by insecurity, lack of economic policy leadership, and very poor policy choices by the Buhari administration and endless flip-flopping over overdue reforms such as the removal of petroleum subsidies and comprehensive foreign exchange management liberalisation. 

Nigeria has an acute need for dollar inflows. With oil prices rising and predicted to go over $75 while OPEC+ production cuts remain in place, Agbami’s 140,000 bpd may translate into a very tempting $874,314,000 (based on the price of Brent Crude on March 7, 2020) per quarter temptation for Nigeria. Nigeria may formally request its October 2018 production baseline (on the basis of which OPEC+ cut for the country was assigned) which included production from Agbami to be re-evaluated.

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