By Sopuruchi Onwuka
But for the success of the country’s delegation to a meeting with the joint monitoring committee of members and non-members of the Organization of Petroleum Exporting Countries (OPEC) on implementation of glut reduction in the oil export market, Nigeria’s economy would have headed straight back into recession.
It is beyond argument that Nigeria owes immense gratitude to the committee for the highly celebrated but very fragile oil driven economic recovery that saw the country a thin line above recession.
Those closely monitoring the nation’s economic palpitation were heads up weekend when Nigeria’s delegation went to discuss the country’s oil production outlook with the committee to determine if the country would be stripped of exemption from the group’s obligatory production cut agreement.
The agreement, which went into force January 1, calls on 14 OPEC and 10 non-OPEC producers, led by Russia, to cut a combined 1.8 million b/d in output through March 2018 in order to rebalance the market and induce draws of oil in storage.
Most OPEC members are in full compliance with the agreement, though exemptions for OPEC members Libya and Nigeria have complicated the effort. Both countries are embroiled in internal crisis and were exempted from production cuts to enable them earn more oil revenue for national security efforts.
When the decision was taken last year, major export pipelines and terminals in the country were shut down on security concerns, while oil firms served notices to trading partners over cargo lifting breaches resulting from uncontrollable circumstances. Nigeria posted average daily production of about 1.5 million barrels per day (1.5 mbd), down from nominal 2.2 mbd.
Half year 2017: security situation in the Niger Delta has since improved while production volumes continue to record upsides as oil firms re-enter production sites, fix facilities and resumed operations.
Following production recovery to over 2.3 million barrels of hydrocarbon liquids per day expectations were that Nigeria would join rest members in cutting production in a group effort to tame supplies and rescue prices.
But the obligation to cut production and export volumes as agreed among members and non-members of OPEC in 2016 would have severe economic implications on the country which has been struggling with economic recession since the assumption of Gen. Muhammadu Buhari as president.
Just this month, the country notionally exited recession on papers with thin margins eventhough suffering and unemployment figures seriously contend with the recovery statistics interpreted widely as political credibility gift to the present administration by the National Bureau of Statistics (NBS).
According to NBS, Nigeria’s economy returned to clumsy growth in at the end of the first half of the year with total index of 0.55 percent following positive figures from the petroleum industry where both prices and production volumes have shown significant upside.
The latest figures which measured indicators from several sections of the economy also showed that the oil sector also went up 1.64 percent year-on-year to record the first expansion since the third quarter of 2015, following an upwardly revised 15.60 percent drop in the previous period.
The country produced 1.84 million barrels of crude oil per day, up from 1.81 mbpd a year earlier, and consequently accounted for 8.89 percent of GDP compared to 8.79 percent in the same period last year.
The non-oil sector contribution to the gross domestic product fell from 0.73 percent increase in the previous period to 0.45 percent.
On the positive streak, electricity, gas, steam and air conditioning jumped from -5.04 percent in first quarter to 35.50 percent; public administration improved from -2.07 percent to 1.63 percent; while finance and insurance rose sharply from 0.67 percent to 10.45 percent.
The rest sectors of the economy recorded negative growth.
According to the report growth in the manufacturing sector dipped from 1.36 percent in Q1 to 0.64 percent in Q2, indicating a sharp drop in activity. Growth in construction also showed a drop from 0.15 percent in to 0.13 percent.
Related services including water supply, sewerage, waste management and remediation also fell from 12.63 percent to 3.45 percent; while agriculture also fell from 3.39 percent to 3.01 percent.
Other sectors that suffered decline in production include transport which went down from 10.55 percent to –18 percent. Trade appreciated from previous negative of -3.08 percent to new negative of -1.62 percent.
Further on the negative note, accommodation and food services improved from previous negative of -3.96 percent to -4.05); information and communication fell from 2.73 percent to current negative of -1.15 percent; while arts, entertainment and culture plunged from 11.67 in the previous quarter to a negative of -0.62 percent.
Real estate, according to the report also further dipped from previous negative of -3.10 percent to new negative of -3.53 percent.
Eexperts converge on the fact that growth in the economy is driven mainly by petroleum sector the contribution of which in the gross domestic product (GDP) is less than 10 percent in the period. These facts wipe smiles off the faces of keen observers.
“The petroleum industry which single handedly pulled out the economy from recession is mono-product that doesn’t offer much to the GDP, and companies that play in the upstream sector of the industry are not listed in the local stock market, except Seplat and probably Oando whose shares have also been affected by the developments in the domestic economy as reflected in the stock market.”
In a recent podcast Minister of State for Petroleum, Dr. Emmanuel Kachikwu, suggested that Nigeria’s production was close to full capacity, linking the rise in output to increased activities in response to relative calm in the Niger Delta.
In a separate event, Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, had declared that the country’s oil output had crossed the 2.0 mbd threshold, adding that more ambitious production figures were underway as more re-commissioning are delivered.
Nigeria lifted force majeure on loadings of key export grade Bonny Light in August. Production ramp ups are ongoing at several oilfields currently re-streamed after protracted export pipeline outages in the Niger Delta.
Besides, developments are underway in the deepwater offshore Niger Delta where key multinational operators drive integrated production projects to optimise commerciality at a time of low oil cycle.
Trading sources told The Oracle Today that more production volumes are visible from re-entry programmes activated by independent and marginal field producers.
Expectedly, Nigerian crude oil production in August was the highest it’s been in two years, pushing OPEC’s collective output for the month to about 630,000 b/d above the group’s declared ceiling of about 31.9 million b/d.
It is not clear whether Equatorial Guinea, which joined OPEC in May, has been captured in the group’s output cuts, or whether Indonesia which suspended its membership in December is also captured in the calculation.
According to OPEC’s crude oil export figures compiled by the Platts, Libya and Nigeria who are exempt from the group’s production cut agreement posted combined overproduction of 480,000 b/d in August above their benchmark on which OPEC based its production cuts and quota.
However, the rising production volumes which pulled the country out of recession exposed Nigeria to production cut commitment at OPEC where the country has been exempted from shut in obligations to enable it overcome production deferments imposed by militant attacks on the industry.
Speaking from Vienna, Russian Energy Minister, Alexander Novak, hinted that, “Nigeria is ready to reduce production at the level of 1.8 million barrels per day and join the agreement once it reaches the target.”
OPEC economists pointed out that Nigerian economy during the second quarter grew 0.6 percent from last year, after registering a contraction in the first quarter.
Thus, Nigeria’s rising production outlook had prompted OPEC members to consider capturing the country into the movement for production cuts. This led to Kachikwu’s invitation to the September 24 meeting of the OPEC/non-OPEC monitoring committee to explain Nigeria’s production outlook.
Government declared after the meeting that Nigeria is to sustain the prevailing gains in oil and gas production recovery despite the concert by producers around the world to control the supply-demand balance in order to glean out more revenue from the export market.
The committee of OPEC and Non OPEC Countries granted Nigeria’s request that the exemption granted it at the November 2016 Ministerial Conference and extended by the May Ministerial Conference should be sustained until it stabilizes its crude oil production.
Dr. Kachikwu who led Nigeria’s delegation to the meeting had argued that whereas Nigeria’s production has recovered since October last year, the country is not yet out of the woods. He said the production recovery so far recorded by the country does not support production cut obligations.
He however stated that Nigeria would be prepared to cap its crude production when it has stabilized at 1.8 million barrels per day.
The meeting noted that overall compliance by OPEC and Non OPEC participating Countries to the Agreement on crude oil production cut for the month of August was 116 per cent, the highest since the agreement came into effect on January 2017.
It further noted that the objectives of the accord were steadily being achieved with the gradual draw-down of inventories by nearly 50 per cent since the agreement came into effect.
With the committee’s eyes fixed on oil production pumps in the country, concerns are high that the highly trumpeted economic recovery of the country would heavily hinge on decision of the new cartel on Nigeria’s output.