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Following oil production disruptions still periodically affecting the country’s output, Nigerian oil and condensate production showed recovery last year and is estimated to remain at the level of 2 million bbl/d in 2018. While Nigeria is not expected to ramp up production further in the future, sanctioned and unsanctioned projects waiting to be put on stream would be able to offset declining volumes from brownfields, keeping oil supply stable. This article assesses the outlook for Nigeria, illustrated by three key drivers: production, breakeven prices for new projects, and total spending.
Figure 1 depicts oil production in Nigeria from 2010 to 2025 split by life cycle. In 2016, as a result of militancy siege on oil installations, oil supply was disrupted and production fell to 1.85 million bbl/d, representing a decrease of 16% relative to 2015. Exports of multiple Nigerian crude oil grades, including Bonny Light, Forcados, Brass River, and Qua Iboe were under periods of force majeure, meaning that companies were released from export obligations as a result of circumstances beyond their control. Since then, oilfields were brought back to production as militant activity has subsided. The country targets a production rate of 2.3 million bbl/d to be reached this year, but current output trends below the planned level. In the medium term, Rystad Energy expects rather flat oil production development in the country, provided that the political situation does not exacerbate, leading to renewed supply disruptions. Amid rather high projected decline on currently producing fields, contribution from a number of sanctioned and unsanctioned projects would be enough to offset the fall in oil production. Meanwhile, long-term performance is highly dependent on timely development of discoveries made over the last two decades. Among the largest fields expected to begin production this year is an ultra-deep water Egina oilfield, operated by Total. Based on the recent update, the FPSO vessel has already sailed away from a fabrication and integration yard in Lagos for installation on the field. The commercial start-up could thus be expected by the end of the year. In terms of current discoveries, Zabazaba, Bonga Southwest and Ikike offer notable potential for production increase in the future. The fields are anticipated to come on stream in 2021-2023.
Figure 2 depicts the breakeven oil prices for the largest unsanctioned projects in Nigeria. Owowo West and Ogo have breakevens around 45 USD/bbl. Discovered in 2012, the ExxonMobil-operated Owowo West field contains around 500 million bbl of oil and is expected to be sanctioned for development in late 2020. The Ogo field has an expected FID date in Q3 2021. The Uge field has one of the highest estimated breakevens among the largest unsanctioned projects, around 64 USD/bbl. Within the Eni-operated Zabazaba-Etan integrated development project, the Zabazaba field is expected to be sanctioned already next year and requires an oil price of at least 52 USD/bbl to break even. Other fields with expected approval in 2019 include Bonga Southwest and Aparo, as well as the Cawthorne Channel redevelopment, with breakevens averaging around 60 USD/bbl.
Figure 3 shows the total spending in Nigeria from 2010 to 2025. Investments in the region have reached the peak in 2014 and following the oil price collapse have decreased by 13% annually in 2015-2017. The largest decrease in spending happened in 2016, driven by severe disruptions on major oilfields. In the short term, the level of investments is projected to remain rather flat, standing at about $20 billion in 2018-2019. In the medium term, however, total expenditure in Nigeria is forecasted to increase by 8% annually to 2025, given the development of sanctioned and unsanctioned projects continues as scheduled. By then, about 60% of all investments will be directed to new projects being developed. As a result, by 2025 total spending in the country could reach the levels witnessed before the oil price collapse.
Nigeria’s oil production is expected to remain stable in the short to medium term, with new projects offsetting the decline from mature fields. The timely development of these resources is seen as key for maintaining the country’s oil supply. Given the favourable economics of upcoming projects, the development is expected to take place as planned, provided that the political situation does not create disruptions. The development of the projects expected to be sanctioned in the next five years is further expected to contribute to the growth in the medium and long-term investments in the country.