Crude Or Condensate? The Dilemma Over Nigeria's Oil-Cut Exemption

Crude Or Condensate? The Dilemma Over Nigeria's Oil-Cut Exemption

When OPEC agreed to exempt Nigeria from its oil production-restraint deal last year, it knew the country faced a huge challenge in recouping output lost due to militant unrest.

 

A floating fuel filling station belonging to Nigeria’s state oil firm Nigerian National Petroleum Corporation (NNPC) sits idle on a river in the oil rich southeastern Delta state, Nigeria June 18, 2017. REUTERS/Tife Owolabi

As tensions subside and the country pumps closer to normal levels, another dilemma looms for the producer group as it continues efforts to eradicate a price-sapping oil glut - how to count Nigeria’s crude output without mixing in condensates.

The answer could determine when – and indeed if ever – Nigeria has to cut or curtail oil production, its key source of foreign currency.

While Nigeria promised to cap at 1.8 million barrels per day (bpd) once production “stabilizes”, that limit exempts all of the West African nation’s condensates. And no one seems to agree on how much of that ultra-light oil it pumps.

“Previously, due to the whole issue of militancy, quotas were not an issue,” said Gail Anderson, research director at consultancy Wood Mackenzie. But now, “if you start thinking about OPEC cuts, then the definition of crude and condensate becomes quite important”.

Nigeria, along with OPEC peer Libya, was exempt from cuts due to militancy in its Delta region that slashed output from 2.2 million bpd to as low as 1.2 million bpd last year. The attacks have abated, with no major incidents since January.

Nigeria’s output has also rebounded, and secondary sources such as consultancies and price-reporting agencies quoted by OPEC said it edged above 1.8 million bpd in August and September - reinstating the country as Africa’s largest oil exporter.

But Nigeria has said some of that total included condensates, an ultra-light oil that is not counted as part of its promise to cap.

Oil minister Emmanuel Ibe Kachikwu told Reuters in July that condensates contributed 450,000 bpd to Nigeria’s production that month.

The figure exceeds external estimates for condensate production ranging from 200,000 to 250,000 bpd and suggests Nigeria’s own condensate definition could keep it out of any cap.

“Definition matters and all producers are playing with definitions,” said Ehsan Ul-Haq, director of crude oil and refined products at Resource Economist Ltd, a consultancy.

Neither Nigeria’s state oil company, NNPC, nor its Ministry of Petroleum, responded to Reuters requests for comment on its production or definition of condensate.

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