Report Reveals Nigeria’s 2mbpd Oil Plan May Cause Showdown With OPEC

A recent report by Bloomberg suggests that Nigeria’s ambitious plan to boost crude oil production to 2.062 million barrels per day may put it at odds with the Organization of the Petroleum Exporting Countries (OPEC). The potential increase in production could disrupt OPEC’s carefully managed output levels, leading to a possible confrontation between Nigeria and the cartel.

The report also pointed out that Nigeria recently emerged from a prolonged output slump, thanks to improved security conditions.

However, this recovery has now placed the government in a difficult position, as it faces the challenge of balancing increased production with OPEC’s output restrictions.

Although the government needs the extra revenue from higher oil exports to improve badly stretched public finances, the country is also under pressure to adhere to OPEC+ production limits, which have helped keep global crude prices above $70 a barrel.

Economic Confidential reports that crude output reached 1.48 million barrels per day last month, according to data from the Nigerian Upstream Petroleum Regulatory Commission.

This represents a fraction below the country’s 1.5 million barrel-a-day OPEC+ output quota, and a major turnaround from a low of 1.1 million barrels a day reached in 2022, when oil majors were selling assets and pipelines ran dry due to theft and vandalism.

Before then, Nigeria had failed to meet the crude oil production quota approved by OPEC throughout 2022 and 2023.

However, the improved security situation, supported by government efforts to attract investment, has reversed the previous trend. The Nigerian state expects production to reach two million barrels per day—the highest in a decade—though most analysts predict a more modest increase.

Nigeria owes a large part of its recovery to security initiatives put in place several years ago to deal with theft and vandalism, mainly targeting the network of pipelines that thread their way through the Niger River Delta.

In 2022, security had deteriorated to the extent that the Trans-Niger Pipeline, capable of transporting 180,000 barrels a day, had been illegally tapped in about 150 places. This meant producers only received a small fraction of the volumes they pumped through the system.

Analysts predict further growth in Nigeria’s output this year and a possible showdown with OPEC+ over the country’s quota.

However, the Chief Executive Officer of the Nigeria Upstream Petroleum Regulatory Commission, Gbenga Komolafe, said the country is only concerned with raising its production targets before requesting an increased quota.

He said, “Nigeria is occupied with increasing production first to meet its budget aspiration, and then will engage with OPEC to raise the nation’s quota.”

Similarly, a senior analyst for Welligence, Ifeanyi Onyegiri, noted that the country can negotiate an increased quota if it sustains production.

He said, “Nigeria should be able to negotiate an increased quota with OPEC if they can demonstrate they can sustain production. These measures are starting to bear fruit.”

Also, an analyst at Rystad Energy A/S, Pranav Joshi, noted, “Nigeria has grappled with the problem of oil theft and vandalism for decades, so there’s reason to be cautious about whether the recent improvements will last. Until the security measures are proven throughout the Niger Delta’s vast pipeline network, average production for any given month is forecast to be around 1.4 million barrels a day.

“The main bottleneck is: Can they fix the vandalism issue in a sustained way?” he said.

While the recent output gain “is largely attributable to the improved security situation” there has also been a notable impact from “significant investment by operators,” said Dipo Ogunbiyi, an energy analyst at Renaissance Capital Africa.

It remains to be seen whether these ambitions could cause a rupture with OPEC+. Fellow African producer Angola was forced to quit the cartel in December 2023 after rejecting tighter limits on its output. Yet six months later, the United Arab Emirates was granted a more generous quota reflecting an expansion in its productive capacity.

Nigeria, like several other quota-busting members of the group, such as Iraq and Kazakhstan, may find the short-term financial benefits of higher production more appealing than achieving perfect OPEC+ compliance.

“Given the country’s current fiscal situation, there’s a lot of incentive to produce more than the OPEC quota, as any incremental revenue has a direct impact on the budget deficit,” Ogunbiyi said. He predicted that Nigeria would attempt to renegotiate its output limit if the capability is there.