OPEC+’ Supply Cut: Implication for Nigeria?

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OPEC: Production Of Crude In Nigeria Has Dropped To 1.417mbpd In February
OPEC: Production Of Crude In Nigeria Has Dropped To 1.417mbpd In February

Recently, the Organisation of Petroleum Exporting Countries (OPEC) – in its last meeting in 2019, reached a consensus with Russia and other allies, to deepen oil production cuts in Jan-20 till the end of Mar-20, by 500,000bpd to 1.7mbpd (previously 1.2mbpd). This is in a bid to stem prices, which have been under pressure from abundant reserves and weak global economic growth. Notably, Saudi Arabia (OPEC’s de-facto leader) agreed to exceed its quota by 400,000bpd to take the aggregate OPEC+ production cut to 2.1mbpd.

Accordingly, the de-facto leader sounded stricter about other member countries compliance with the new quota. Herein, we highlight the impact of this move on Nigeria’s economy.

Based on the latest estimate, Nigeria’s production quota was revised downward from 1.77mbpd to 1.753mbpd. However, according to the recently passed 2020 budget, crude oil production (inclusive of condensate) was pegged at 2.18mbpd while the crude oil price was revised upward to $57.0/b. Accordingly, for Nigeria to achieve a 100.0% compliance to the OPEC+ quota as well as achieve its 2020 production target, the nation will need to ramp up
condensate production by 437,000bpd – a big premium to its current 200,000bpd production level.

In all, with no outlook for a new addition to condensates, we see two major possibilities in
2020; comply and suffer oil revenue shortfall or fail to comply and suffer the wrath of Saudi Arabia and other compliant OPEC+ members. However, given the current government’s revenue drive, we believe the government might choose the latter

United Capital Plc Research