Nigeria playing fast and loose with OPEC?

Nigeria has set out determinedly to quash rumours that it might pull out of OPEC but its production expansion plans would suggest the contrary. Is Nigeria running with the hare and hunting with the hounds?

Rumours that Nigeria was planning to withdraw from Opec have steadily grown during the course of this year. A series of major discoveries over the past two years has convinced many that the Nigerian government could actually achieve its long stated aim of doubling crude oil production capacity to 4m b/d by 2010.

Nigeria's Opec quota is less than half this figure, so production volumes approaching the 4m level would seem to be incompatible with the cartel's policy. And given that world demand for oil grew by only 14% between 1991 and 2001, it seems unlikely that quotas can be doubled over the next eight years.

In addition, the US has been keen to attract a greater proportion of its oil imports from outside the Middle East in order to improve its oil security. Several influential think-tanks have argued that the US should seek to boost imports from the Gulf of Guinea in particular. A key benefit of West African oil is that the supply routes to the US are much less geographically constrained and so are less vulnerable to manipulation.

PRODUCTION LEVELS FALL

The country's main producers would also benefit from increased production, either within or outside Opec. Shell, TotalFinaElf and the other majors have seen their Nigerian production levels fall by between 20% and 25% since the start of 2001, despite some quota breaking. The country produced around 2.lm b/d in the final quarter of 2001, 300,000 barrels above its quota, although the government says a further reduction of 180,000 barrels has since been made. However, the dissemination of the country's production figures has now been restricted by the Department of Petroleum Resources.

The rumours were finally brought to a head by an article in the British Independent on Sunday newspaper on 21 July headlined `Nigeria Set to Leave Opec,' The Abuja Administration denied the claims and then Nigeria's Presidential advisor on petroleum matters and current Opec chairman, Rilwanu Lukman, issued another denial 10 days after the article first appeared. He insisted that Nigeria wished to remain a member of the organisation and said: "Of course we want our quota increased, just like every other member of Opec" but added that his government would bid for an increase "at the appropriate time" In line with other members, Nigeria's quota has fallen by a fifth since the start of 2001.

Apart from the international standing that membership of the cartel brings the West African oil giant, withdrawal would also have an impact upon internal politics. The governments of the northern Nigerian states would be loath to see the country withdraw from a Muslim dominated organisation partly in order to support the US. Moreover, with Nigeria currently holding the chairmanship of the organisation, this would not be a sensitive time to pull out.

The Nigerian government is keen to boost production in order to increase government oil revenues and President Olusegun Obasanjo is expected to meet with the leaders of the other member states in the near future. Nigeria's Junior Finance Minister Jubril Martins Kuye said: `It is our (Cabinet's) view that the President has to go on a diplomatic shuttle to talk to OPEC...on the urgent need to increase Nigeria's oil export quota because the revenue shortfall as a result of the quota reduction is affecting our income drastically."

Kuye added: "The argument we are going to advance to justify this demand...is that it is depriving us of enough money to finance our nascent democracy. We must have enough money to ensure its survival.' However, with oil prices currently lying in the middle of the $22-28 target range, increases in quotas would go against Opec policy. Moreover, on several occasions, President Obasanjo has contrasted current oil prices with those of the 1970s and argued that prices are now far too low.

While Opec has achieved a measure of success in boosting oil prices to their current levels, its efforts have been undermined by increased production outside Opec. Members will be concerned that prices have not yet begun to threaten the $28 barrel level that could lead to production increases.

RUSSIAN OUTPUT GROWS

Russian production in particular is growing rapidly and the country overtook Saudi Arabia as the world's biggest producer in March. Production actually fell from 10.4m bld in 1991 to 6.Im b/d in 1998 but has since rebounded to around 7m bld. The high prices of 2000 boosted the income of the big Russian companies and they are investing heavily in new technology and improved reservoir management techniques, which could further increase output over the coming years.

Lukman summed up the dilemma facing both Nigeria and Opec: "There's no point in just going for market share to sell at $10 per barrel. It is not helpful to increase production only to earn less. On the other hand, Opec cannot keep on reducing market share just to keep the price up for someone else to enjoy."

Copyright International Communications Sep 2002
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