As OPEC allies push to restrict oil output in an international attempt to bolster crude prices, Nigerian producers are heading in the opposite direction, aspiring to increase output by 250,000 more barrels a day to reach their overall goal of 2.5 million per day by 2020. Look no further than Shoreline Group, Nigeria’s third-largest independent oil producer, which intends to double their output by the end of this year alone.
Ironically, this is all happening at the same time that the Nigerian government has pledged to participate in a global pact lead by Saudi Arabia and Russia to restrict oil supply. This month the government made an official pledge to keep output under 1.8 million barrels a day in 2018. Meanwhile, as Nigerian oil minister Emmanuel Kachikwu makes his lofty promises to OPEC, the nation’s crude output is at its highest level in more than two years.
In January, Nigeria produced an average of 1.93 million barrels per day, well above the promised 1.8 million. On top of this figure, the nation is set to start up production in a new large-scale oil field by the end of the year, their first in half a decade. The new offshore Egina oil field will has a production capacity of 200,000 bpd. Clearly, Nigerian producers show no sign of heeding their own oil minister’s calls.
While Nigerian government officials say one thing and independent producers are doing the opposite, the rest of the oil-producing world is looking nervously on, hoping that other countries won’t begin to follow Nigeria’s lead and ramp up their own production, causing the tenuous OPEC deal to fall apart.
Unfortunately for investors, there’s a chance that the dissolution of the pact is exactly what will come to pass. Iraq is investing in infrastructure to boost their production capacity, Iran’s oil minister has hinted at increased output, and Angola will be able to add 250,000 barrels to their daily production by the end of the year, when a large new oil field is due to begin production. Additionally, while Russia pledged to stand with OPEC, late last year the country’s producers dramatically ramped up output just before they were due to renew their production-curbing deal with the cartel.
The Nigerian oil producers’ plan to dramatically increase output not only flies in the face of OPEC’s internationally supported output-curbing pact, but it could also massively backfire for the developing nation as some of their biggest importers back off their consumption of Nigerian oil. In their 2018 World Energy Outlook, the United States Energy Information Administration (EIA) projected that the U.S. will become a net energy exporter by 2022, and part of this plan is halting all crude imports from Nigeria in the next four years. This is an additional blow to America’s already-reduced imports from Nigeria starting in 2012, when U.S. shale production took off. At the same time India, the largest importer of Nigerian crude, reduced its own imports in the last year, shifting a large part of their demand to U.S. oil.
As long as the Nigerian government continues to say one thing publicly and allow the nation’s oil companies to do exactly the opposite, they could be setting themselves up for major economic and diplomatic issues down the road. Should they continue their path of contributing to the global glut, allowing oil prices to remain low, breaking pacts, fostering mistrust with economic superpowers, and ramping up production just as the nation’s biggest importers fall back, no one will be surprised if the next few years are tough for Nigerian oil. By Haley Zaremba for Oilprice.com