Nigeria Holds a Bad Hand in any OPEC Deal

The Organization of the Petroleum Exporting Countries (OPEC) and its partners are meeting this week to mull further increases to global oil production. Ahead of any announcement from the cartel’s confab, one thing is already certain—the deal will not be a boon for Africa’s largest oil producer, Nigeria. Cheered on by president Joe Biden and other G7 leaders, OPEC has raised its production quotas in recent months. But prolific oil theft is progressively crippling Nigeria’s ability to bring barrels to market.

Lawlessness in Nigeria’s oil-rich, ‘South-South’ region has elevated pipeline tapping to an industrial scale. Since the Biafran War of the 1960s, the region has long been plagued by conflict over oil resources and environmental degradation, pitting Nigeria’s federal government against local communities. However, the region’s current troubles appear to be distinctly criminal, replete with a parallel industry of illicit crude transporters, refiners, and marketeers. Without a militant leader to blame for the crime wave, accusations and innuendo of complicity have been leveled against politicians and military figures.

The scale of oil theft in Nigeria is as spectacular as it is devastating. In a country where roughly 40% of the population lives in poverty, around $4 billion worth of crude was siphoned from pipelines last year. In April, the managing director of the national oil company confirmed that 95% of oil from a key terminal was being pilfered. So debilitating was the theft that a subsidiary of Shell plc was compelled to declare force majeure on its deliveries.

As outrageous incidences of oil theft have come to light, the Nigerian federal government has ramped up efforts to extinguish the illicit trade. On the back of early gains and well-publicized arrests, the Minister of State for Petroleum Resources Chief Timipre Sylva last week said an improving security situation would allow Nigeria to meet its OPEC quota in August.

That ambition still looks like a pipe dream. Since Russia’s invasion of Ukraine in February, OPEC production quotas have increased by 5-6% to keep up with soaring prices. Despite this, Nigeria’s crude production has fallen each month over the same period. In May, pipeline raids and unexpected maintenance work pushed production down to a paltry 1.262 million barrels per day (MMbd). Local regulators say the figure was even lower, at 1.024 MMbd. That was a far cry from the country’s OPEC quota of 1.753 MMbd.

The disparity between realized production and Nigeria’s OPEC quota appears even worse in light of the state oil company’s goal of reaching 3 MMbd. On paper, the country has a maximum capacity 2.5 MMbd, meaning that even the daily production of North Dakota’s Bakken Formation wouldn’t fill the shortfall.

Whether OPEC decides to raise or hold its quotas this week, Africa’s most populous nation will not be able to take full advantage of its allotted share. Even worse, if other producers raise their output, Nigeria’s proportional market share will decline.

The extreme scale of recent petro-plundering will leave a stain on the legacy of president Muhammadu Buhari, who is set to leave office next year. The septuagenarian former dictator-turned-democrat inherited a country that was besieged by Boko Haram militants in both the north and armed agitators in the south. In their stead, a wave of kidnap-for-ransom rolls over the country while rampant oil theft drains Nigeria’s economic lifeblood. Buhari’s unelected tenure in the 1980s was marked by a crackdown on perceived “indiscipline,” yet his term in elected office has been defined by a rise in banditry and insecurity. Nigeria’s two major political parties have each drawn stalwart candidates from the country’s political class to replace Buhari. Neither hail from the oil-rich South-South, and both are yet to inspire confidence that change is on the horizon.

Cartels are notorious for their member’s propensity to cheat, and OPEC has a rich history of bluffs and double dealing. Blighted by rampant oil theft, Africa’s largest oil producer increasingly looks like the most honest player at the table. Without the domestic political tact to bring the ongoing heist to an end, Nigeria holds a bad hand in any OPEC deal.