The Federal Government of Nigeria is currently working on a plan to boost its crude oil production to 2.062 million barrels per day. However, this goal may lead to a conflict with the Organisation of Petroleum Exporting Countries (OPEC), according to a report from Bloomberg.
Recently, Nigeria has been recovering from a period of low oil production, which was largely due to security issues in the country. The improved security has allowed the government to increase production, but it now faces a tricky situation. On one hand, Nigeria needs to produce more oil to generate extra revenue and improve its struggling finances. On the other hand, it must also follow OPEC’s rules, which limit how much oil member countries can produce to keep global oil prices stable—currently above $70 a barrel.
According to data from the Nigerian Upstream Petroleum Regulatory Commission, Nigeria’s crude oil output reached 1.48 million barrels per day last month. This is just below the country’s OPEC quota of 1.5 million barrels per day and a significant improvement from the low of 1.1 million barrels per day in 2022. That slump was caused by oil companies selling off their assets and rampant theft and vandalism affecting oil pipelines.
In previous years, Nigeria struggled to meet its OPEC production quotas, but the recent improvements in security and efforts to attract investment have changed that trend. The government hopes to ramp up production to two million barrels per day, which would be the highest level in a decade. However, many experts believe that a more realistic increase will be smaller.
The recovery in production is largely attributed to security measures implemented to combat theft and vandalism, especially along the pipelines in the Niger River Delta. In 2022, security issues were so severe that the Trans-Niger Pipeline, which can transport 180,000 barrels per day, was illegally tapped in around 150 different locations. This meant that oil producers were only able to get a small amount of the oil they were trying to transport.
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Analysts expect that Nigeria’s oil production will continue to grow this year, but they also warn of potential tensions with OPEC over the country’s production limits.
Gbenga Komolafe, the Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission, stated that Nigeria’s main focus is to increase its production first before asking OPEC for a higher production quota. He explained, “Nigeria is focused on increasing production to meet its budget needs, and then we will talk to OPEC about raising our quota.”
Ifeanyi Onyegiri, a senior analyst at Welligence, agreed, saying that Nigeria could negotiate a higher quota with OPEC if it can maintain its production levels. He noted, “If Nigeria can show it can sustain production, it should be able to negotiate an increased quota.”
Pranav Joshi, an analyst at Rystad Energy, cautioned that while the recent improvements in production are promising, Nigeria has faced challenges with oil theft and vandalism for many years. He emphasized the importance of proving that the security measures will last. Until that happens, he predicts that Nigeria’s average production will be around 1.4 million barrels per day.
Dipo Ogunbiyi, an energy analyst at Renaissance Capital Africa, pointed out that the recent increase in production is not only due to better security but also because of significant investments made by oil operators in Nigeria.
It remains uncertain whether Nigeria’s ambitions to increase production could lead to a clash with OPEC+. For instance, Angola left the group in December 2023 after it refused to accept stricter production limits. In contrast, the United Arab Emirates was granted a larger quota later on due to its increased production capacity.
Nigeria, like other countries that have exceeded their OPEC quotas, such as Iraq and Kazakhstan, may find the immediate financial benefits of producing more oil too tempting to ignore, especially given the country’s current financial challenges. Ogunbiyi noted, “Given the country’s current financial situation, there’s a strong incentive to produce more than the OPEC quota, as any additional revenue directly impacts the budget deficit.” He predicts that if Nigeria can maintain its production levels, it will likely seek to renegotiate its production limits with OPEC.
