January 19, 2021 / 4:15 PM / By Tosin Ige, Proshare Research / Header Image Credit: zhengzaishuru;iStock
The latest Organization of the Petroleum Exporting Countries (OPEC's) Monthly Oil Market Report (MOMR) released on Tuesday, shows that Nigeria's oil production failed to meet the OPEC+ required quota for December and the 2021 budget assumption. Specifically, Nigeria's crude oil output came in at 1.196 mb/d in December 2021 compared with the 1.666 mb/d of crude output quota for Nigeria under the OPEC+ Dec 2021 required production, translating to 470,000 b/d of crude oil underproduction valued at $32.9m per day in December (using an average of $70 per barrel). In the same vein, despite the projected 1.86 mb/d of oil production in the 2021 budget, actual oil production (including condensate) averaged 1.621 mb/d in 2021, translating to a deficit of 240,000 b/d on the back of operational issues.
Oil: No Santa Present for Nigeria
The OPEC's December MOMR shows that Nigeria's oil production declined by -43% M-0-M from 1.381 mb/d in November to 1.338 mb/d in December 2021 based on secondary sources which is a more reliable estimate for OPEC.
"According to the secondary sources, total OPEC 13 crude oil production averaged 27.88 mb/d in December 2021, higher by 0.17 mb/d M-o-M. Crude oil output increased mainly in Angola, Saudi Arabia, Iraq, and the UAE, while production in Libya and Nigeria declined."
Based on direct communication, Nigeria's oil production declined considerably by +78% M-0-M from 1.275 mb/d in November to 1.197 mb/d in December 2021. According to recent data from Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the daily average of crude oil production (which included blended and unblended condensates) declined from 1.541 mb/d in November to 1.471 mb/d in December (See Chart 1 below). The decline was driven mainly by production drops in Bonny terminal, Forcados terminal, Escravos oil terminal, and lack of production from Aje terminal, among others.
Going by the lack of deliberate effort to resolve the lingering production challenges in the country's oil facilities, Nigeria may struggle in vain to meet the 1.88 mb/d of 2022 budget assumptions and the 1.701 mb/d of February 2022 OPEC required production.
Chart 1: Nigeria's Oil Production in 2021 (Million barrel per day)
To add to the issues, OPEC's MOMR shows that Nigeria's rig count declined further in December 2021 to 6 from 7 recorded in November 2021. On a quarterly basis, the rig count averaged 10 units in Q3 2021 but fell to 7 in Q4 2021 to average 7 units in 2021 which is considerably farther away from the 16 units recorded in 2019 and 11 units recorded at the height of the pandemic in 2020 (See Chart 2 below). Essentially, Nigeria's rig count fell considerably in 2021, and it is projected to decline further given the IOCs' asset divestment, underinvestment in the sector, and the existential issues in Nigeria's onshore and shallow water fields. The key implication is a sustained decline in foreign exchange earnings and federal allocation.
Chart 2: Nigeria's Rig Count between 2019 and 2021 (units)
As oil prices rally towards $90 per barrel in January 2022, analysts are concerned about Nigeria's lack of capacity to take advantage of the elevated oil prices given the multiplicity of issues affecting domestic oil production in the country.
Meanwhile, the latest MOMR reveals that OPEC combined output in December increased by 170,000 b/d M-o-M from 27.7 mb/d in November to 27.9 mb/d in December 2021. The production increase was driven mainly by Angola, Saudi Arabia, Iraq, and the UAE, while production in Libya and Nigeria declined. The two African countries consistently pulled back OPEC's capacity to ramp up supply for most parts of 2021 feeding the narrative that OPEC+ lacks the capacity to pump more oil to the market. Nonetheless, the year ended with about 1.52 mb/d of spare output.
OPEC's preliminary data revealed that the total liquid production averaged 95.11 mb/d in 2021. On the flip side, world oil demand growth was unchanged at 5.7 mb/d to average 96.6 mb/d in 2021, up from 90.98 mb/d in 2020 with the increase driven largely by stronger-than-expected demand in the US and the Asia Pacific and firmer oil demand from China despite the emergence of the new COVID -19 variant (Omicron).
Analysts Crystal Gaze
In 2022, OPEC foresees a likelihood of the new Omicron variant impacting the market in H1 2022 but kept its global oil demand growth unchanged at 4.2 mb/d to average 100.8 mb/d. Other factors that could weigh in on global oil demand according to OPEC are supply chain bottlenecks, ongoing trade issues, and their impact on industrial and transportation fuel requirements.
Overall, the MOMR kept the non-OPEC liquids output growth forecast for 2022 unchanged at 3.02mn b/d and demand for OPEC crude in 2022 at 28.9 mb/d, 1.0 mb/d higher than the volume in 2021.