Ahead of proposed plan by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members led by Russia to make permanent their cooperative agreement on putting a cap on oil production, Nigeria has urged oil companies operating in the country to start ensure drastic reduction in production cost per barrel.
Ibe Kachikwu, minister of state for petroleum resources, said in Abuja on Thursday that the federal government wants oil companies to drive down production cost to $15 per barrel, from the high of $23 to $24 a barrel now.
OPEC is drafting an agreement that will institutionalise its oil market management policy with Russia and nine other non OPEC producers, beyond their 1.8 million b/d supply cut agreement that was reached in November last year and expires at the end of 2018.
According to Kachikwu, who was addressing a press conference at the end of the maiden Nigerian International Petroleum Summit in Abuja, the proposed deal has implications for Nigeria’s ambition to attract over $40 billion new investment targeted at increasing its oil production to 2.5 million barrels per day in 2019 and 3 million b/d in the next five years.
“We are currently not compelled (OPEC) production ceiling, but an advised ceiling of about 1.8 million barrels per day, advised in the sense that they’ve given us a latitude, we are still under pre-exemption. But the expectation looking at our numbers is that we shouldn’t exceed 1.8 million b/d, and we’ve said that it covers pure crude, it does not cover condensates,” he said.
“We are producing today in excess of 1.75 million b/d of crude only and the condensates which is in the region of 400,000 b/d, which means we are slightly below 2.2 million b/d and we’ll like to be able to move there.
“The challenge [for Nigerian production] will come when we then hit 2.5 million barrels – with Egina which has 200,000 b/d coming up in last quarter of this year, and Zabazaba potentially late end of next year another 250,000 barrels.”
Oil accounts for around 80 per cent of the Federal government revenue. The government’s economic recovery and growth plan is hinged on a higher oil output backed by increase in global oil prices.
“I hope and I sincerely hope the market would have attained stability by then and there will be no need to go further on the agreement on production cut, and you can then produce freely,” said Kachikwu.
“But assuming that the market doesn’t, and Shale production continues to surge, and maintain a sort of equilibrium dis-balance, then obviously Nigeria will need to begin to look at how do we process a huge amount of our oil locally.”
According to Kachikwu, government will hope oil companies change their business model to focus on local oil production, local processing and refining.