Page 5 - AfrOil Week 28

AfrOil CommEntARy AfrOil
OPEC’s number fog
African producers are over target
oPEC
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Nigeria and south sudan are producing substantially more than their OPEC targets.
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Given the broader challenges facing the group, it is easy to overlook such an overshoot.
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The numbers are fairly minor but they do add up to more dif culties for the producer group.
oPEC’S control of production – and its strate- gic alliance with Russia, and others – gives the organisation political he , but discipline among the smaller members is o en lacking. Nigeria and the African members typify these tensions.
e total group agreed to 1.195mn barrels per day of cuts, from 45.069mn bpd to 43.874mn bpd. Around half of the commitments came from Saudi Arabia and Russia, taking on 322,000 bpd and 230,000 bpd of the cuts respectively, the ref- erence number being october 2018 production.
That Russia and Saudi are taking on such a large share of the burden demonstrates the unique oddities of the arrangement – and also the scope for smaller producers to overrun. of the African producers, some are producing more and some less than set, netting out at around 141,000 bpd.
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Under the oPEC plus agreement, Nigeria agreed to reduce output to 1.685mn bpd. is was a cut of 53,000 bpd, from 1.738mn bpd. According to the country’s direct communi- cations with oPEC, the country has produced 1.772mn bpd on average over the last three months.
In June, the last month for which oPEC data is available, Nigeria produced 1.956mn bpd – a handy 271,000 bpd over the agreed target.
Nigeria had been exempted from the initial round of oPEC-plus cuts, begun in December 2016, because of instability in the Niger Delta. As of the beginning of 2019, though, it has been required to conform.
Abuja has o en pleaded that its liquid pro- duction is complicated by condensate output, which is not covered by oPEC’s restrictions. Total’s 200,000 bpd Egina eld, which started producing at the end of 2018, is still open to interpretation. Condensate output is generally thought to be about 400,000 bpd, although Egina may change this.
Despite exceeding the agreed targets, Nige- ria has backed the extension of cuts. Attending the oPEC shindig in Vienna at the beginning of July, the head of the Nigerian delegation backed a nine-month extension, as opposed to six months. e longer period would provide “greater certainty to the market, thereby reduc- ing market volatility”, Folasade Yemi Esan said. oPEC agreed to a nine-month period, taking the cuts to March 2020.
other over-producers in the oPEC group include Congo Brazzaville, which produced 333,000 bpd on average over the three-month period, versus a target of 315,000 bpd. Gabon
has similarly over-produced, running at around 25,000 bpd more than its target.
South Sudan has claimed to be producing around 180,000 bpd, following the restart of operations in a number of elds that had been shuttered as a result of ghting. e country had been given a target of 129,000 bpd. is would suggest that the country’s level of over-produc- tion is around the same as Nigeria’s.
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Angola, on the other hand, has over-con- formed to the reductions, averaging 1.424mn bpd over the April to June period, according to direct reporting, while secondary sources put this at 1.43mn bpd. e country has a target of 1.481mn bpd, meaning it is 57,000 bpd or 51,000 bpd under.
While the West African state has seen a major eld start up – with the Kaombo Sul sec- ond phase beginning in April – this seems to have done little to compensate for other major declines in the country’s deepwater.
Similar problems are dragging down Equato- rial Guinea, which is running around 11,000 bpd under its target. Given the di erences in scale, though, Angola faces a much harder task in reach- ing its oPEC-set level, while a relatively small addi- tion would bring Equatorial Guinea back into line.
Demand
Casting a pall over oPEC’s plans are new con- cerns over world oil demand. e International Energy Agency (IEA), in its most recent report, predicted non-oPEC supply would expand by 2.1mn bpd in 2020, up from 2mn bpd in 2019. is increase is led by the US, the Paris-based agency said. oPEC’s July report went further, saying non-oPEC supply would rise by 2.4mn bpd.
Demand, meanwhile, will only grow by 1.14mn bpd in 2020, oPEC has forecast, while the IEA puts this number at 1.4mn bpd.
Growing supply will dampen the call on oPEC to target 28mn bpd in the rst quarter of 2020, the IEA predicted, noting the group had not produced so little since the third quarter of 2003. For reference, oPEC produced 29.83mn bpd in June.
e African over-producers, led by Nigeria and South Sudan, are producing 209,000 bpd more than the target set. offsetting this are Angola and Equatorial Guinea, which are 68,000 bpd below target. While the net of these two g- ures is fairly insigni cant, it highlights oPEC’s continuing challenge, even while the organisa- tion faces a much bigger demand issue.™
Week 28 16•July•2019 w w w . N E W S B A S E . c o m P5