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Extension of oil production cuts threatens Nigeria’s budget

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Thursday’s OPEC decision in Vienna means that Nigeria would no longer be able to increase oil revenue in 2018 by increasing output, even if sustainable peace returns in the oil-rich Niger Delta region.


• OPEC caps Nigeria, Libya outputs
• U.S. output hike stirs fears of price crash
• NNPC promises enough fuel supply during yelutide

Global oil production analysts expect a strong United States output in early 2018 and this triggered more concessions by the Organisation of Petroleum Exporting Countries (OPEC) to protect oil markets from a new dip.

The world’s biggest oil producers yesterday agreed on a nine-month extension of an existing deal curbing production throughout next year to shrink stockpiles and keep prices above $60 per barrel.

Nigeria and Libya, which were earlier exempted from the cuts — due to hostilities in their oil-producing regions, — would now have to join the cuts and this will force government to re-consider its budget estimates for 2018.

Thursday’s OPEC decision in Vienna means that Nigeria would no longer be able to increase oil revenue in 2018 by increasing output, even if sustainable peace returns in the oil-rich Niger Delta region. “This has a telling impact on our plans to implement a robust budget in 2018,” Dr Franklin Ngwu, an Economist at the Lagos Business School, told The Guardian.

Though the level of cuts were not disclosed at press time, Saudi Arabia’s Energy Minister, Khalid Al-Falih, after major sessions of OPEC’s ministerial meeting, told a press conference in Vienna, Austria that the two countries have accepted to cut outputs exceeding their current production levels.
  
According to him, the two countries had given assurances that there were no risks on their sides of production.Though Nigeria’s oil output has risen significantly to about 1.86 million bpd in August, it went down again due to operational and loading delays. Analysts have voiced concerns that looming hostility in Niger Delta could further affect outputs.
 
Al-Falih, who chaired the press conference alongside key members, said OPEC considered spare capacity, which has been maintained due to commitment from Saudi Arabia and other countries producing far less than their capacity.

Yesterday’s agreement followed initial effort by 24 countries inside and outside of the OPEC cartel — led by Saudi Arabia and Russia (whose combined production equals a fifth of global supplies) — to curb production by 1.8 million barrels next year. The deal was to expire in March 2018.

The danger signals appeared to be clear to Nigeria and had forced the President Muhammadu Buhari-led government to present a modest oil price benchmark for the 2018 budget proposal. The document was largely criticised by the lawmakers who described it as “imaginary,” among others. One of the issues they raised was that Mr. President’s $45 benchmark was way too pessimistic for the already rallying global prices currently stabilizing at $60. They insisted that Buhari must benchmark at $50 per barrel.

Yesterday at the Red Chambers, the Senate also deferred approval of the revised version of the 2018 to 2020 Medium-term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP), in anticipation of the OPEC’s major decision that could moderate Nigeria’s appetite for oil money next year.

The Fiscal Responsibility Act presupposes that approval of MTEF should precede preparation and presentation of budget estimates to the joint session of the National Assembly. However, both chambers of the Assembly had commenced debate on the general principles of the budget since Tuesday.

Senate Leader, Ahmad Lawan, who asked that the approval be postponed, said it was better for the Senate to wait until OPEC resolved the out production quota issue before approving the MTEF.

This is the third time the final consideration of MTEF/FSP had been postponed in the Senate. Rystad Energy’s comprehensive well data for the United States shows that domestic oil production could pass 9.9 million barrels per day in December 2017. Rystad Energy, in a statement it made available to The Guardian, said it foresaw outstanding net oil additions in the United States in the near future which would likely bring total production capacity to 9.9 million barrels per day by the end of 2017, significantly more than the EIA’s current projections. The EIA had, in its September Short-Term Energy Outlook (STEO) — also made available to The Guardian — estimated that oil production would reach just 9.72 million barrels per day.

Increasing US production and stockpiles have far-reaching implications but of less than significant impact on Nigeria’s oil production numbers,” according to Dr Ngwu of the LBS.

Ngwu, in a telephone conversation last night, said his position on the matter derived from Nigeria’s seeming success in lobbying for exemption from OPEC production quota cuts and the fact that the US had long seized to be a major export target for the country. He also reasoned that Hungary’s decision, two days ago, to become a major buyer of Nigeria’s oil could cushion unwanted consequences.

He agreed that production cut would affect the country’s budget and force a retreat on Nigeria economic agents. Meanwhile, the Nigerian National Petroleum Corporation (NNPC) said there were enough petroleum products in the country to ensure hitch-free movements during the festive season. The corporation also said that 25 vessels laden with petroleum products were being expected to berth between now and January 2018 to further boost supplies.

The assurance followed reports of threats by the Lagos Chapter of the Independent Petroleum Marketers Association of Nigeria (IPMAN) to withdraw its services in Lagos and environs due to alleged discrepancies in ex-depot prices, among others.
 
Group General Manager, Group Public Affairs Division, Ndu Ughamadu, said in statement that the Corporation clarified that the Ejigbo Satellite Depot was fully stocked and carrying out regular loading services.


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