Nigeria's peaceful election removed one key risk from the country's ambition to boost its oil production, but it still faces major challenges.
The state-run Nigerian National Petroleum Corp. (NNPC) aims to double production in the next five years – a goal that many analysts see as unachievable, particularly since global oil prices have slumped so badly over the past nine months. Since last June, when it commanded $115 (U.S.), a barrel of crude has fallen by more than 50 per cent to $55.
Compounding the price crash is the fact that Nigeria is also struggling with the loss of its biggest export customer, the United States. Squeezed out of the market by growing U.S. domestic production, it has seen its exports to America plummet to a mere 51,000 barrels a day (in January). That is almost one-tenth of the nearly 500,000 barrels shipped just two years ago, which in turn was but half the one million barrels a day recorded in January, 2011.
Meanwhile, the country's overall production has fallen to 1.9 million barrels a day from a peak of 2.4 million just last October, and the NNPC is often forced to accept steep discounts from benchmark prices.
The depressed global price now threatens to derail investment in the country's offshore crude production. The national oil company has slashed its capital budget by 40 per cent; it typically does joint ventures with international oil companies in projects. So the spending cuts will either force the foreign partners to increase their share – unlikely, with the entire industry in retreat – or delay projects.
Companies such as ExxonMobil Corp. and Royal Dutch Shell were planning eight projects in Nigerian waters that would produce 540,000 barrels a day. But Rhidoy Rashid, an analyst with the London-based consulting firm Energy Aspect, says most will be delayed, if not cancelled outright.
So, while the goal may be to double the current output in five years, he says, "we don't see Nigerian production exceeding even two million [barrels a day by then] – that's just very unlikely."