Analysis

Nigeria exempted from OPEC oil production cut

OPECBy: Connor Kilgore, CIB Africa Desk
Analytical Question: Will Nigeria remain Africa’s largest oil producer for the foreseeable future?

On Wednesday November 30, the Organization of Petroleum Exporting Countries (OPEC) and Russia agreed to a cut in oil production. A stipulation of the deal was that Nigeria, a member of OPEC, is to be exempted from the oil cut. With Nigeria’s reprieve and Angolan participation, it can be said with moderate confidence that, depending on the severity of the Angolan production cut, Nigeria may once again become Africa’s top oil producer by January of 2017.

OPEC, an international energy association, is comprised of 13 member states. OPEC members Angola and Nigeria have been competing for the position of top oil producer in Africa since November of 2015, when Angola surpassed Nigeria for the first time (Asu 2016). Since then, Nigeria and Angola have continually swapped spots as the first and second leading producers of oil in Africa. The actions of the Niger Delta Avengers (NDA), an armed militant group that targets oil installations in Nigeria, have been the primary cause of decline in Nigerian oil production. The NDA have been carrying out attacks throughout the Niger Delta since early this year. Those attacks resulted in the decrease of nearly a third of Nigerian oil production (Anon. 2016b). As for Angola, the fluctuation of production can be attributed to their current attempt to restructure Sonangol, their national oil firm. In June of 2016, Angolan President Jose Eduardo dos Santos appointed his daughter, Isabel dos Santos, as director of Sonangol. Since then, Sonangol has been either late or absent with payments to major foreign oil companies. The debt owed, which in some cases is in the hundreds of millions, has caused Sonangol to request a “moratorium” on repaying the debts until the end of 2016 (George 2016).

On Wednesday, November 30, OPEC, in cooperation with Russia, agreed to cut its oil production for the first time since 2008. This signifies the first time OPEC and Russia have agreed to mutually participate in an oil production cut since 2001 (Gamal 2016). The deal was agreed upon in Vienna, Austria, and included a reprieve for Nigeria, Libya and Iran. Even still, OPEC’s cut will amount to 1.2 million barrels a day, effective January 1, 2016. The deal is contingent upon non-OPEC members cutting production by a combined total of 600,000 barrels a day. Russia, being the primary non-OPEC participant has already verbally agreed to cover half of the deduction, which equals to 300,000 barrels a day (Chappell 2016).

Nigeria obtained an exemption from the production cut due to the damage to its oil infrastructure as a result of “attacks on its oil facilities by armed militant groups in the Niger Delta region” (Udo 2016). The amount of the reduction in oil production required by each OPEC member-state come January 1 is unclear at this point. However, even a small reduction in Angola’s production may have serious effects on its production capability vis-à-vis Nigeria. Furthermore, the November 2016 edition of OPEC’s Monthly Oil Market Report placed Nigeria in front of Angola by a mere 42,000 barrels per day, according to secondary sources, like the International Energy Agency (IEA). At the same time, Angola was reportedly leading Nigeria by 31,000 barrels according to direct communication from energy representatives of each nation (Anon. 2016:57-58a).

Due to the discrepancy in source data, it can be stated with moderate confidence that the successful execution of the OPEC oil production cut may dethrone Angola, if they are in fact the top oil producer. If Nigeria is currently the leader, it can be stated with moderate confidence that they will retain their position, pending complete participation from all actors involved in the oil production cut.

Bibliography

Asu, F. (2016) “Angola overtakes Nigeria as Africa’s top oil producerPunch, 14 April, accessed on 6 December 2016.
Anonymous (2016) “Monthly Oil Market Report”, OPEC, 11 November.
Anonymous (2016) “Nigerian army presence prompts Niger Delta attacksAljazeera, 13 November, accessed on 6 December 2016.
Chappell, B. (2016) “OPEC Agrees To First Cut In Oil Production Since 2008NPR, 30 November, accessed on 6 December 2016.
Gamal, R.E., Lawler, A., and Ghaddar, A. (2016) “OPEC in first joint oil cut with Russia since 2001, Saudis take ‘big hit‘” Reuters, 1 December, accessed on 6 December 2016.
George, L. (2016) “Exclusive: Sonangol delays payments as it battles to reform” Reuters, 23 November <http://www.reuters.com/article/us-angola-oil-exclusive-idUSKBN13I1EP&gt;, accessed on 6 December 2016.
Udo, B. (2016) “Nigeria, two others get special concessions as OPEC agrees to cut oil outputPremium Times, 6 December, accessed on 6 December 2016.

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