The Nigerian National Petroleum Corporation (NNPC) has said it is now focusing on condensates, which are excluded from April 2020 production cuts announced by the Organisation of Petroleum Exporting Countries (OPEC), to curtail the crude oil supply glut and boost the revenue of government.
The Group Managing Director of NNPC, Mallam Mele Kyari, who spoke Wednesday during a virtual “Gulf Intelligence Global UAE Energy Forum, 2021,” also explained that the decision by the oil cartel to compel members and allies to cut production has negatively impacted the revenues of government.
He acknowledged though that the cut in production is in the best interest of the oil market and reiterated the commitment of Nigeria to abide by the output cut agreement, aimed at stabilising the global oil market.
Kyari, who spoke on the theme: “Outlook for Africa/Nigeria’s Oil & Gas Sector in Post-Covid-19 Era” added that Nigeria is no longer a “laggard” in the country’s compliance with the Declaration of Cooperation (DoC), the framework on which the output curbs is based.
He said as of November 2020, Nigeria had actually “over-complied.”
Kyari expressed hope that by the end of the year, demand for crude oil will pick up and there will be a marginal increase in output.
He added that in order to mitigate the shortage, the corporation is now focusing more on gas which proved to be a steady and reliable revenue stream in the height of the Covid-19 pandemic in 2020.
According to him, the biggest factor that will determine whether or not the prices of crude oil will bounce back soon is mobility, as people have learnt to work virtually, which has negatively impacted land and air transportation.
He said: “The road ahead is tough and difficult. As you can see clearly, every permutation around demand and supply has not been straight. But what is obvious today is that demand will pick up, not to the levels that we expect because I do not see demand coming back to pre-Covid levels earlier than 2022, that’s very unlikely.
“Several things are going on today; new habits are coming up, transportation needs have changed, people have learnt how to work virtually. People have stopped going to work, not by choice. So, I see a clear decline, especially on transportation fuel consumption.”
On the country’s renewed focus on gas and condensates for revenue generation, he said the country’s plants now produce between 250,000 and 350,000 barrels of condensates daily, while projects to rev up gas production are in the offing.
He said: “The OPEC cut is a very convenient balance for us. By the middle of April, Nigeria was able to attain crude oil and condensate production of about 2.49 million barrels per day. That’s huge, looking at our capacity.
“That is now down to 1.6 million barrels, including condensate production. That has also translated to reduced government revenue. But we also don’t want to sell crude oil like water. That’s not what we want.
“Obviously, the OPEC understanding to cut production is the right thing to do because it’s required, even by the consumers. It’s still a challenge to our revenue sources, but we see a better picture of getting the best out of the situation. As a country, it’s a balanced situation.”
Kyari said Nigeria was at some over-compliance level in November, adding that it has no difficulty remaining compliant with the cuts.
He explained that what the country is doing differently is to increase its sources of condensate supply which is not curtailed by the OPEC+ cut.
“We are looking at low assets that can produce more condensates for the market. Today, we are doing 270,000 to 350,000 barrels per day. We are already in conformity with the compensation cuts,” he said.
OPEC had on several occasions given deadlines to Nigeria and other countries which failed to comply with the cuts to do so or present a detailed plan on how they intend to achieve their assigned cuts.
Kyari said President-elect Joe Biden’s position on oil use isn’t much different from Nigeria’s, which is to give more attention to the environment and cut down its carbon footprint.
On whether rising crude oil prices will not lead to compliance fatigue by OPEC+ members, he stated: “It’s very unlikely to have compliance fatigue as prices keep rising because compliance is the obvious choice. We are not worried over non-compliance.”
In his presentation, the Minister of Energy and Agriculture, United Arab Emirates (UAE), Suhail Al Mazrouei, appealed to all oil-producing nations not to flood the market with products, stressing that the UAE is now more concerned about balance, rather than growing market share.