Nigeria is relying on raising condensate output to increase total oil production, the country’s oil minister has told Platts, part of S&P Global Commodity Insights, in a move which could add to the debate over how OPEC classifies the output of its members.

In an interview on the sidelines of the Vienna OPEC conference earlier in July, Heineken Lokpobiri said Nigerian oil output currently stands at 1.8 million b/d, with 300,000 b/d of this condensates.

But the country is targeting liquids production of 3 million b/d in 2030 — leveraging recent reforms by President Bola Tinubu — to meet rising domestic demand driven by rapid population growth, Lokpobiri said.

Ordinarily, a production rise would bring Nigeria into non-compliance with its OPEC crude quota, but Lokpobiri said additional volumes would be not crude but condensate, a natural gas liquid extracted from gas streams with a typical API gravity of 45 to 70 degrees.

“We are a very responsible, good member of OPEC. We are committed to price stability, sustainable supply chains,” he said. “We also have an obligation to use our condensates production to meet our local demand.”

In 2020, Nigeria was at the center of a controversy within OPEC over the classification of its Agbami stream, which was marketed as a crude but which Nigerian officials insisted was a condensate. Secondary sources used by OPEC to estimate output — including Platts — were also split on the matter.

The Platts OPEC Survey, which includes Agbami as a crude, put Nigerian crude production at 1.55 million b/d in June, up 150,000 b/d since Tinubu’s inauguration.

Asked whether Nigeria would be campaigning for a higher production quota — after seeing it lowered at the start of 2024 — Lokpobiri said there was “always discussion.”

“Every six months, one year we sit down and discuss about what should be the quota,” he said. “We believe that when the time comes … we will be able to put our case before them.”

But he restated his claim that any production rises would not violate the target, because they would be condensate. “We don’t want to flout the OPEC quota,” the minister said. “We believe that the additional volume would be of condensate.”

Ikemesit Effiong, a partner at consultancy SBM Intelligence, said the minister’s comments could ring true, although he cautioned that crude output could also rise.

Increasing condensate is a “slightly lower bar to scale than boosting crude” because Nigeria’s “most consistent fields, which account for the bulk of our condensate production, are offshore,” away from the crude theft and sabotage that have long blighted onshore provinces, Effiong told Platts.

“What we’d likely see is a bump in both crude and condensate, but I still think the upside is on condensate,” he said. “Akpo, Usan and Egina look like solid candidates to me, because TotalEnergies appears locked into the government’s production strategy.” The French energy group operates all three offshore fields.

The OPEC secretariat in Vienna did not respond to a request for comment.

Lokpobiri’s remarks reflect the challenges African OPEC members face in balancing production targets and vital upstream investment.
Step forward

Although potentially contentious, navigating a production rise marks a step forward for Nigeria, which is battling to reverse years of declines driven by underinvestment, theft and field maturation.

Lokpobiri said Tinubu’s reforms had given investors the “confidence to come back.”

“Capital is blind. We know that unless we make Nigeria competitive, capex will go elsewhere,” he said. “We knew we were competing against Namibia, Angola, Guyana.”

The first step, he said, was removing a costly fuel subsidy, which had long sustained regional smuggling networks while denting government budgets. “When the subsidy was removed, it triggered protests from Benin, Chad, Niger, Central African Republic,” Lokpobiri said. “That tells you we were basically subsidizing the entire region.”

Tinubu’s government also established a “stable legal framework,” regulatory certainty, and “globally competitive” fiscal terms and tax incentives, the minister said, while also easing bottlenecks, cutting the procurement process by three-quarters, and correcting “local content misapplication.”

As a result, Nigeria’s rig count had risen from eight a few years ago to 44 today, Lokpobiri said.

Crucially, Abuja approved onshore deals between international oil companies, including Shell and ExxonMobil, and local players such as Renaissance, Seplat and Oando, allowing the IOCs to focus on more technically challenging and expensive deepwater fields.

“The indigenous players that have gone to take over from the IOCs … have actually increased the production, and they know how to deal with the local issues,” he said, referring to previously strained ties between host communities and foreign operators.

“During the protracted period of divestment, most wells were shut in. We have close to a thousand wells between Shell and Exxon.” Re-entering them will drive the country’s output up in the short term, while deepwater investments will provide long-term increases, he said.

The fields in question are understood by Commodity Insights to pump crude, not condensate.

Lokpobiri also talked up civilian and military efforts to tackle crude theft and sabotage in the Delta, which previously cost Nigeria some 400,000 b/d of output.

Downstream growth
On the downstream side, Lokpobiri said OPEC need not fear a rise in Nigerian oil production as it would be used locally in a slate of new refineries.

While the 650,000-b/d Dangote refinery and some small modular refineries are online, the arrival of long-delayed Nigerian National Petroleum Company-owned refineries at Port Harcourt (200,000 b/d) and Warri (220,000 b/d), along with Bua Group’s 200,000-b/d plant, will see throughput exceed 1 million b/d, he said.

NNPC boss Bayo Ojulari told journalists in Vienna, however, that work on the state-owned company’s refineries was on hold pending a review.

Lokpobiri added the Nigerian government was “very happy” with the Dangote refinery — Africa’s largest — despite widely reported teething issues, particularly on domestic crude supply, leading Dangote to source oil from abroad.

“Right now, most of the producers, when we speak to them, they have pre-existing commitments,” Lokpobiri said, with project financing tied to future crude output. “So when Dangote demands, they will not give him the quantity that he wants.”

He noted that it makes “economic sense” for Dangote to blend light sweet Nigerian crudes with other grades.

However, the ultimate fix, the minister said, is to boost Nigerian output.

“Dangote’s demand for Nigerian crude will always be met — when we increase our production,” the minister said.
Source: Platts