As the Organization of the Petroleum Exporting Countries (OPEC), and other non-members meet today, to decide on key policies, oil and gas analysts in Nigeria are optimistic that the country will get an extension of the waiver it is enjoying from current supply cuts in the market.
But any negative outcome from the meeting and resumption of hostilities in the Niger Delta as being threatened, could spell doom for Nigeria, and hamper implementation of the 2018 budget, analysts told The Guardian yesterday.
Nigeria has been enjoying waiver from OPEC’s supply cut, to curb free fall of oil prices but may come off that restriction soon, depending on OPEC’s decision today. The meeting, which is expected to put Nigeria in the eye of the storm is predicted will be tough, as OPEC and non-OPEC members, especially Russia, may opt out of the intervention to stabilize oil prices through supply cuts.
“Russia seems to have achieved what they wanted and there seems not be need for the supply cuts. Saudi Arabia wants market to be stable but if the supply cut is discontinued then market stability becomes a problem and everybody has to push for market share,” Head, Energy Research, Ecobank Limited, Dolapo Oni, said.
Noting that OPEC no longer enjoyed the unity it once had, especially from non-members, Oni was optimistic that Nigeria would be granted extension of the waiver if OPEC adopts the option of extending current supply cut till end of 2018.
“Nigeria and Libya do not want to be mentioned at the meeting. They don’t want the issue of exemption mentioned. But if Russia is blanketed, Nigeria and Libya may have to join the cut.
“If production stays at 2.1 million per barrel daily and we have to cut about 100 bbl, it is still okay for us as much as oil remains at above $60/barrel (bbl). But if OPEC takes the Russian option, and suspends the cut and every country including U.S. Shale starts production, then oil prices may return to around $40/bbl. This will make the budget implementation difficult for Nigeria,” Oni told The Guardian.
Analysts have also raised concern that the country, which recently exited recession following gradual stability of oil prices, may have more to worry about over looming hostility by militants in the oil producing Niger Delta.
Although experts forecast that OPEC members would support the extension of the declaration on production cut till the end of 2018, on Tuesday, United Arab Emirates Energy Minister, Suhail bin Mohammed al-Mazroui, before leaving for OPEC meeting in Vienna, Austria, said: “It will not be an easy meeting, and we always look at various scenarios.”
The Chairman/Chief Executive Officer, International Energy Services Limited, Dr. Diran Fawibe, also hopeful that Nigeria would get exemption extension by OPEC, as the country’s economy is yet fully back on track. To him, Nigeria can win argument to cut back production; otherwise it could be forced to leave OPEC, because any attempt to force cut down on production will be against its national interest.
Fawibe, noting that although geo-political forces have helped to stabilise oil prices, is however not optimistic that price could rise to $70 next year. It is too early to speculate that oil prices will get to $70/bbl. We should not be overly optimistic about high prices.
But we are moving into winter when there will be demand for oil,” he said.
OPEC members and 10 other oil producing countries including Russia, earlier this year agreed to cut oil output by 1.8 million barrels per day until March 2018, the situation helped in stabilising the oil market, pushing price to as high as above $60.
Although OPEC Secretary-General, Sanusi Barkindo, at the second Technical Meeting of OPEC and non-OPEC Producing Countries, on Monday, in Vienna, also hoped for future declaration to curb oil output, as average conformity to the supply adjustments achieved 100 per cent success.
Any decision to the contrary would put Nigeria in a precarious situation, especially if militants in the oil-rich Niger Delta make good their threats to opt out of a ceasefire agreement reached with the Federal Government.
The Chairman, Tricontinental Group, who is also National President, Nigerian-American Chamber of Commerce (NACC), Olabintan Famutimi, insisted that Nigeria has a lot to worry about.
“The fact that we were given exception was based on our dire situation. The issue is further complicated because of the bitter contest for influence between Saudi Arabia and Iran. Each of them will try to sway Nigeria’s support. If we don’t manage it well, it will spell doom for the country that has a very delicate economy and a mono-product source of foreign exchange,” Famutimi told The Guardian.
Like Fawibe, he also dismissed the possibility of oil price moving up to $70/bbl in 2018. According to him, if prices rise so high, the U.S. shale producer will raise their production since the only factor limiting them now is their cost of production per barrel.
The Chief Executive Officer, Bilview Energy, who doubles as President, Coalition of South South Chambers of Commerce, Industry, Mines and Agriculture, Billy Harry, worried that the 2018 budget may be jeopardised on backdrop of negative agreement by OPEC as well as imminent hostility by militants.
Spokesperson, Niger Delta Avengers, Murdoch Agbinibo, had announced a suspension of ceasefire via a statement earlier this month, saying, “We can assure you that every oil installation in our region will feel the warmth of the wrath of the Niger Delta Avengers.”
Harry shared the view of Famutimi, who cautioned the Federal Government against using the military to intimidate people in the oil producing, saying there was a need for socio-economic solution through partnership with private sector entities to boost entrepreneurship in the region.
Oil analysts and Partner at PWC, Cyril Azobu, argued that an extension of the waiver would further strengthen the Nigerian economy, while urging the government to address the concerns of the Niger Deltans to keep production up.