Wednesday, June 16, 2010

Nigeria: May Oil Exports Average 2.1 Million Barrels Daily

Sopuruchi Onwuka

Lagos — Nigeria's crude oil output to the market dipped in the month of May after two major producers, Shell and ExxonMobil, temporarily differed production and export at some sites.

Nigeria pumped at an average of 2.05 million barrels per day in May in which Shell declared a force majeure signaling major production shortfall and inability to meet export schedules.

ExxonMobil which is the country's second biggest producer had also declared force majeur to also signal significant production cutback and inability to keep export running as scheduled.

According to a table of estimated oil export figures by members of the Organization of Petroleum Exporting Countries (OPEC), Nigeria's average daily exports declined by 70, 000 barrels per day. The figure however remained above the country's export limit in the group.

The figures compiled by Platts and not contested by OPEC showed that Nigeria pumped 2.050 million barrels per day in May, down from 2.12 million barrels per day recorded for the country in April.

The May production figure which is seen as a fluctuation in the nation's oil production recovery trend is also 50, 000 barrels per day below the country's performance in March when production figure was 2.1 million barrels per day.

Nigeria's oil production has maintained a steady recovery since the last half of 2009 after hitting a record low of 1.5 million barrels a day at a time oil firms vacated sites due to intense militant attacks and widespread criminality in the Niger Delta.

Before the opening of 2010, production had crossed the 2.0 million barrels per day mark, and the rising trend posted the hope that the country could recover to her last peak of 2.5 million barrels per day.

Nigeria which is smarting from acute production downturm induced by security tension in the Niger Delta has kept production above the group's agreed output figure for the country.

The country posted an export of 2.08 million barrels per day in January, 1.98 million barrels per day in February, 2.1 million barrels per day in March, 2.12 million barrels per day in April before plunging to 2.05 million barrels per day in May.

All the figures are however well above the country's 1.704 million barrels per day output quota at OPEC. Government insists that the total production figures are boosted by condensate volumes which are outside OPEC's output quota calculations.

Production quota allocation in OPEC follows the respective reserves and production capacity of the member countries. But while Nigeria has significant reserves of over 36 billion barrels of crude oil and condensate, producibility has been limited by security concerns associated with social unrest in the Niger Delta that hosts the petroleum industry.

Department of Petroleum Resources (DPR) which regulates industry operations had stated that Nigeria has potential to pump about 3.2 million barrels of oil per day, but it posted a cumulative national output volume of 200.12 million barrels of oil in the first quarter of the year, representing an average of 2.224 million barrels per day.

However, a parallel and independent estimate of OPEC output to the market by the Platts Energy group put Nigeria's output below the figures declared by the DPR, indicating that part of the nation's production is refined in-country.

According to first quarter industry performance summary by DPR, three out of the nation's four refineries jointly processed a total of 866,119.12 cubic meters or 5,447,290 barrels of crude oil in January, February and March 2010.

The functional refineries include the 125, 000 barrels per day Warri Refinery and Petrochemical Company (WRPC), the newly turned around Kaduna Refinery and Petrochemical Company (KRPC) and the 150,000 barrels per day second Port Harcourt Refinery.

DPR stated that the 60, 000 barrels per day old Port Harcourt Refinery was on shut down awaiting turn around maintenance (TAM).

DPR however stated that the existing refineries operated at only 18 percent of the combined installed capacity of 4,174,545 cubic meters (26,255,000 barrels) for the quarter.

According to DPR, the refineries processed only a total of 866,119.12 cubic meters or 5,447,290 barrels of crude oil out of the 1,161,090.38 cubic meters (7,302,455 barrels) supplied them in the period.

Despite Nigeria's production decline in May, the 12 member countries of OPEC produced at an average rate of 29.28 million barrels per day (bpd) during the month, up 70,000 bpd from the previous month.

According to Platts, the group's 11 members with a quota produced at a rate of 26.83 million bpd from 26.89 million bpd in April. "While OPEC-11 production fell in May, it resulted in only a marginal increase in compliance with the 4.2 million bpd in output cuts agreed in late 2008," said Kevin Saville, managing editor of Platts' Americas energy news desk.

"This suggests that OPEC remains mostly unconcerned with overproducing its notional output target by almost 2 million b/d, particularly when prices are holding well into the $70s/barrel."

While the 11-members with a quota do not seem concerned about producing above their numbers Iraq on the other hand is concerned. The country's oil minister, Hussain Shahristani, wants members to stick to their quota in an effort to promote "fairer crude prices." Shahristani said he is not very happy with the current level of quota compliance.

"We have not been very happy with the compliance over the past few months. It's about 50percent now," he told a news conference at the Asia Oil and Gas Conference (AOGC) in Malaysia. "With better compliance we should be able to reach a fairer price."

Meanwhile the group has said there is no room for additional oil on world markets, warning that supply growth has "more than overwhelmed" growth in demand.

It revised its forecast of demand for crude produced by its 12 members this year downward by 70,000 b/d to 28.77 million bpd, which means that the 29.28 million bpd Platts estimates it pumped in May a lot more oil than the market needs.

OPEC has become increasingly relaxed about quota compliance, or rather the lack of it, as oil prices have settled into the $70-$80/barrel range recently described as "this ideal realm."

When Iraqi production of 2.45 million bpd is subtracted from the overall May figure, the latest Platts survey of OPEC and oil industry officials and analysts pegs supply from the 11 members bound by quotas at 26.83 million b/d, a figure that leaves the gap between estimated actual supply and OPEC-11 target at 1.99 million b/d.

That's slightly smaller than the estimated 2.05 million b/d between April output from the OPEC-11 and their 24.845 million b/d official target, but it's smaller largely because Nigerian volumes--still vulnerable to outages linked to militant attacks on oil installations--took a 70,000 b/d tumble.

OPEC has given no indication that it may adjust the current OPEC-11 target, in place since January last year, to bring it closer to actual production when it next meets on October 14 in Vienna. By then, perhaps, it will be hoping that its projected demand level of 29.6 million b/d for its crude in the third quarter will have been realised and that it can expect this figure to edge up further to the 29.8 million b/d forecast for the fourth quarter.

OPEC sees demand for its crude in the current quarter averaging just 27.73 million b/d, which is 1.55 million b/d less than Platts' estimate of May production.

It's no surprise, therefore, that OPEC is more than a little concerned.

"Required OPEC crude is forecast to decline by 175,000 b/d from a year earlier, following two consecutive annual declines. The first quarter of the year is still showing a drop of 1.3 million b/d followed by a decline of 500,000 b/d in the second quarter, while both the third and the fourth quarters are estimated to see positive growth of around 400,000 b/d and 600,000 b/d respectively," it says in its latest monthly oil market report.

OPEC says a recent drop in oil prices to the low $70s/b "appears to reflect a shift in sentiment about the world economic recovery following the emergence of the sovereign debt crisis in the Euro zone and initial signs of moderation in the pace of economic growth in China, as the government seeks to prevent overheating."

This shift, along with a growing imbalance in supply/demand fundamentals, "highlights the need for an increasingly cautious approach when evaluating the market developments," it says.

The International Energy Agency reckons OPEC is set to increase output over the next two months, noting that Saudi Arabia, the UAE and Qatar have all offered more June and July crude to buyers in Asia, and that the group's Gulf producers typically ramp up wellhead production during the summer to meet increased need for electricity.

It may be, therefore, that the additional crude OPEC says the market does not have room for will come from its own members.

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