Last week’s Friday Focus discussed OPEC’s plan to hold the course on its 400,000 bpd per month supply increase trajectory despite soaring global natural gas/BTU markets and Brent north of $85.00/barrel. Also addressed was growing evidence that OPEC does not have the capacity to increase beyond this rate even if they wanted to. We now take a deeper dive into the struggles among OPEC’s west African members, who are failing to even produce at their quota/allocation under the latest supply pact.
Nigeria and Angola are Front and Center
Nigeria and Angola have underproduced by an average of 276,000 bpd so far this year, missing their combined average OPEC quota of 2.83 million bpd according to Refinitiv data. According to September Bloomberg data, the inability of some members to meet their production quota last month created a 750,000-bpd gap between what OPEC+ members were authorized to produce under quota versus what was delivered into the market.
Nigerian output declined to five-year lows at 1.43 million bpd in August before rebounding to 1.55 million bpd in September. Note that August production was the second-lowest month for Nigeria in at least twenty years. Nigerian production capacity is estimated at 2 million bpd with production at the onset of the pandemic above 1.9 million bpd. Lack of capital and deferred maintenance are at the heart of these problems. Likewise, COVID lockdowns and broader supply chain issues had hampered access to spare parts. Nigeria is not expected back near pre-pandemic levels until mid-2022 at the earliest.
In June, Angola lowered its 2021 oil production target to 1.19 million bpd. Bloomberg estimates show production in July, August, and September at 1.11, 1.11 and 1.17 million bpd, respectively, compared with average production for 2020 at 1.3 million bpd. Angola has similar capital and maintenance issues as Nigeria but has also been in a longer-term decline from it 2015 peak at 1.87 million bpd. A production turnaround here is likely to take even longer than Nigeria’s.
Planned Libyan Election Creates Additional Supply Risks
A more immediate additional risk to OPEC+ African crude supply is the evolving geopolitical situation in Libya. This week marked the tenth anniversary of the death of Moammar Gadhafi. For the first time in since 2014 Libya will also attempt to hold an election. Since last year’s cease-fire, both the LNA and GNA have been working to form a unity government. The plan is to hold a presidential election on December 24th and a parliamentary election soon after.
Both sides have been squabbling for months around the details on how the December elections will be held. To date, exact rules governing this election have not been agreed to and talks continue. Another concern is the candidacy of LNA leader General Khalifa Haftar. The general still controls eastern Libya, remains is a controversial figure throughout the rest of the country, and has long questioned if Libya is ready for democratic rule.
Haftar will be running against a representative of the Western-backed GNA, the exact candidate still to be determined. Another wild card is the possible entry of Saif al-Islam Gaddafi, the son of Moammar Gaddafi, into the race for president. The inclusion of Saif al-Islam Gaddafi as a candidate creates additional uncertainty and geopolitical risk.
In recent months Libya has steadied its production between 1.1 and 1.2 million bpd, or its highest level since its civil wars began in 2011. However, at present, the greater risk is that supply will retreat from here. Worker strikes and port blockages for political purposes are commonplace in the conflict over control of Libya’s oil export infrastructure and petroleum revenues. As a result, the December election in Libya, or lack thereof, could lead to another big dent in supply heading into 2022.