Nigeria will pump as much crude as it can and continue to sell it at a deep discount, but may eventually have to shut down some unprofitable fields if the price war rumbles on.
Africa’s biggest producer has thrown itself into the battle for market share that was started by Saudi Arabia, offering its main export crudes at the lowest price relative to the international benchmark in more than a decade. Nigeria, which relies on oil shipments for about two-thirds of government revenue, is also ramping up output, Oil Minister Timipre Sylva said in an interview.
“For the time being, discounts will continue as that’s the only way we could react immediately,” Sylva said by phone on Thursday from Nigeria’s capital, Abuja. “We also want to pump everything that we can pump,” he said, “that’s how we are coping with the situation right now.”
The fact that one of Africa’s oldest oil producers is considering the possibility of shutting down wells underscores the unprecedented situation the market currently faces. Global demand is slumping by as much as 20 million barrels a day, about 20%, as billions of people go into lock-down to slow the spread of the coronavirus. At the same time, record Saudi production threatens to fill global storage tanks within months.
Around the world, the industry is bracing for something that hasn’t happened on a large scale in about 35 years: producers shutting down their wells as pumping crude makes no economic sense.
Nigeria is increasing output after an alliance between Russia and the Organization of Petroleum Exporting Countries collapsed earlier this month. Saudi Arabia responded by unleashing a flood of oil onto the global market just as the coronavirus pandemic hammers demand, driving U.S. crude prices down to the lowest in 18 years.
The West African country is hoping to raise daily production of crude and a light oil called condensate to 2.5 million barrels a day from about 2.2 million currently, Sylva said. Most of Nigeria’s crude is pumped by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA in partnerships with the state.
If the price war can’t be resolved and crude prices remain low, Nigeria’s strategy of pumping flat out may have to reversed because it ceases to make commercial sense, said Sylva.
“We are taking a very close look at all the production streams,” he said. “Any one which is not producing profitably will be shut down.”
Sylva is urging a rapprochement between Saudi Arabia and Russia, the dominant members in a global alliance of producers known as OPEC+ that was created in 2016. “It’s in our interests, collective interests, to ensure that we are able to stabilize the market,” he said.
The minister welcomed the appeal from the U.S. government for Saudi Arabia to scale back its flood of oil in order to provide some respite for the American shale drillers. “For Donald Trump to be talking this way, about stabilizing the market as well, for us, it’s music,” he said.
In response to the slump Nigeria is slashing its annual spending plan, which was based on a crude-price projection of $57 a barrel. International benchmark Brent crude is currently trading closer to $25, after plunging about 60% this year.