Nigeria’s crude production increase seen stabilising oil markets

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Crude production volatility caused by changing global oil markets due to the United States of America’s sanctions against Iran, Venezuela’s rapidly declining industry and bottlenecks in the Permian Basin are making experts see Nigeria’s crude production as critical for stability, a recent report by Global Risk Insights, stated.

Nigeria’s crude exports rose in July, for the first time in four months as Shell lifted export restrictions on key Bonny Light grade, vessel tracking data obtained from the Bloomberg Terminal show.

Total July exports, excluding Akpo, rose to 1.64m barrels per day (b/d) versus revised 1.61m b/d in June. Akpo condensate shipments, rose to 123, 000 b/d versus 95, 000 b/d in June. Combined crude and condensate exports rose to 1.762m b/d from revised 1.688m b/d.

“This is a natural consequence of three factors, I will say. There is relative peace in the Niger-Delta, that is, militancy has abated. A corollary of this is that there has been no major pipeline damage or declaration of force majeure. The third factor is pure market dynamics. Oil prices hover around $70 per barrel and this is driving supply” Ayodele Oni, Energy Partner at Lagos-based Bloomfield Law Practice said in a phone interview, earlier.

However, with the risk of instability in the Niger Delta still present, and the damaging effect this entails on the region’s oil production, Nigeria adds more supply concerns to an oil market already saturated with instability. If Nigerian production decreases to 2016 levels, this development could compound with the above outlined risks, in addition to political risks in other producers to cause a substantial price increase.

Furthermore, Saudi Arabia and Russia’s spare capacity are diminishing following the 22nd June Organisation of Petroleum Exporting Countries (OPEC) production increase and this price hike becomes more likely as the supply-demand balance becomes tighter.

It is unlikely; however, that Nigeria will suffer the economic devastation it endured in 2016. That said, any decrease in production could have major effects on global oil markets and cause Nigeria to lose the hard-earned steps toward a full recovery.

In July Nigeria’s biggest crude export rises were for Brass, Bonny and Forcados, Bonny Light increased to 127, 000 b/d in July from 87, 000 b/d in June Forcados flows were 204, 000 b/d versus 162, 000. Brass exports rose to 98, 000 b/d versus 32, 000 in June.

Other major flows (in b/d) in July versus June, Agbami: 189, 000 versus 230, 000, Bonga: 123, 000 versus 158, 000, Erha: 123, 000 versus 95, 000, Escravos: 139, 000 versus 190, 000, Usan: 97, 000 versus 67, 000 and Qua Iboe: 215, 000 versus 253, 000.

Amid the rising crude exports, Nigeria’s oil and gas industry is fraught with uncertainties because of the political, legal and regulatory environment in which it operates.

Nigeria has passed a governance aspect of the Petroleum Industry Bill (PIB) which was broken into  four components, but the fiscal aspect which is the most important for guiding decisions on financial investments remain stuck in the national assembly over disagreements with terms.

This in turn has led to low investment appetite among investors and low oil reserves replacement ration in Nigeria, people with knowledge of the industry say.

Source: BUSINESSDAY

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