Page 6 - DMEA Week 48

DMEA Commentary DMEA
An uneasy year for OPEC and its member states
DMEA examines issues confronting some of the cartel’s member states in Africa and South America
oPeC
What:
OPEC is likely to discuss Nigeria’s non-compliance with quotas and Ecuador’s move to exit the group at its upcoming meeting.
Why:
Nigeria may ask for more leeway on condensate, and Ecuador may slow its march toward the exit.
What next:
Brazil is not likely to make a formal bid for membership in the short term.
OPEC has not had an easy year. e organisa- tion’s e orts to stabilise the oil market – that is, its attempts to generate a little upward momen- tum in crude prices, which have been stub- bornly sluggish, by reining in production under a multi-lateral agreement that is due to expire on March 31, 2020 – have had limited success.
Many industry analysts are now describing the market as oversupplied. ey have asserted that conditions are unlikely to change for the bet- ter unless the cartel and its allies, known as the OPEC-plus group, endorse further output cuts at their next meeting in Vienna on December 5-6.
ere is a certain amount of support for such cuts among the parties to the OPEC-plus agree- ment, since all of these states are keen to see their oil revenues rise. It remains to be seen, though, whether this view prevails, especially in light of weak demand. e Norwegian consultancy Rys- tad Energy, among others, has pointed out that the OPEC-plus group is not yet committed to extending the term of the output agreement, let alone revising it to mandate further reductions.
But the fate of the production quota regime isn’t the only topic slated for discussion later this week. e group is also sure to discuss a num- ber of issues on a country-by-country basis. is article will examine a few of those issues, focus- ing on two OPEC member states in Africa and south America.
nigeria’s compliance
In sub-saharan Africa, production levels are still one of the group’s main concerns – particularly in Nigeria.
e West African state has a long track record of non-compliance with production quotas. For much of this year it has remained on the same path, regularly exceeding its allotments even a er being granted more leeway. OPEC xed its quota at 1.685mn barrels per day in July and then quickly raised it to 1.774mn bpd. It did so with little fanfare, in response to pleas from Nigerian o cials who argued that the July gure had been drawn up earlier in 2019, prior to the launch of development work at the o shore Egina eld. Egina, which lies in Nigeria’s deepwater zone, is currently yielding around 200,000 bpd.
Initially, this move had little e ect. Indeed,
Nigeria appears to have extracted no less than 1.886mn bpd of oil in August. This is 11.9% above the original quota of 1.685mn bpd and 6.3% above the revised gure of 1.774mn bpd.
More recently, though, Abuja has touted its willingness to work harder to remain in compli- ance. In October, for example, Nigeria’s Minister of state for Petroleum Resources Timipre sylva acknowledged his country’s past violations but also stressed that efforts to curb output were underway.
sylva spoke similarly on December 1, saying that Nigeria had been working to adhere more closely to OPEC’s output regime. Compliance has improved since August of this year, he said, and officials in Abuja have informed saudi Energy Minister Abdulaziz Bin salman, a mem- ber of the royal family, of this positive trend.
he further declared that Nigeria had been fully compliant with OPEC’s production quotas in November but did not give an exact gure on oil output in that month. According to o cial data, Nigerian oil yields hit 2.04mn bpd in the third quarter of 2019.
sylva’s claim seems a bit far-fetched, given Nigeria’s lengthy history of exceeding its allot- ments. But the West African state may be suc- ceeding via an accounting trick – that is, by counting some of its new liquid hydrocarbon production as gas condensate rather than crude oil. At the OPEC meeting, it may seek to expand the scope of this reclassi cation practice.
ecuador’s membership
Meanwhile, one of OPEC’s south American members may be preparing to discuss a more fundamental matter – namely, that of member- ship – at the upcoming meeting in Vienna.
Ecuador’s government revealed in October that it had decided to withdraw from OPEC at the end of 2019. It explained its decision by say- ing that the cartel’s policy was not compatible with its e orts to increase oil revenues.
is move reportedly surprised OPEC o - cials, but it is not entirely out of the blue. For one thing, it is not unprecedented: Ecuador dropped out of OPEC in 1992 before rejoining in 2007. For another, Ecuador has had a long-standing practice of producing more than its allotment
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w w w . N E W S B A S E . c o m Week 48 05•December•2019