ANALYSIS-Nigeria may pump 2.5 mln bpd after elections

Forbes.com-Reuters, 04.14.03, 8:20 AM ET By Jonathan Leff

LONDON, April 14 (Reuters) - Nigeria, battling for a bigger share of OPEC's output, has pushed capacity to over 2.5 million barrels per day -- and may use it all next month despite an expected cartel move to cut production.

Oil companies fearing more pre-election strife ahead of a presidential poll in Nigeria next week may be slow to resume full production after ethnic violence shut in over a third of the African country's output for half of March, analysts said.

But new developments have added more than 200,000 bpd of capacity this year, a figure that should double by late summer -- all from offshore fields removed from the west Niger Delta violence that closed some 800,000 bpd of production.

"Nigeria is going to be at absolutely full throttle," said one Western industry source familiar with production levels. "We're looking at 2.5 million bpd."

The International Energy Agency, the Paris-based advisory group to 26 industrialised nations, estimated Nigeria's sustainable production capacity in March at 2.44 million bpd. Nigeria has targeted year-end capacity of three million bpd.

Since mid-March, Nigerian produced well below its previous 2.3 million bpd level due to violence around ChevronTexaco's Escravos output and Royal Dutch/Shell's Forcados, costing a total of over 10 million barrels of output.

Production is slowly recovering to nearly three-quarters of normal levels, but the companies indicate a return to full production appears unlikely before May.

That may be as much for political reasons as practical ones as Nigeria braced for its second democratic vote since military rule ended in 1999.

"It's less a question of what's possible and more what is happening politically," said Gary Still, executive director of African energy consultancy CITAC. "Elections are coming, I think it's probably unlikely the (production) situation will get much better before there's some clarity on the political situation."

TotalfinaElf, which has only the small 7,500 bpd Upomami field on-shore Nigeria, has more or less written off trying to restart production before the election cycle ends.

And oil companies who buy the crude -- many of them U.S. refiners who put a premium on Nigerian crude's low-sulphur, gasoline-rich qualities ahead of the summer driving season -- say they have made other arrangements for the rest of April. Some are even shying away from May barrels, traders say.

Parliamentary elections at the weekend were more peaceful than many had feared, with only 10 deaths reported so far.

President Olusegun Obasanjo faces his vote on April 19. Since independence, Nigeria has never had a successful transition from one civilian administration to another.

OPEC BIND

Nigeria's production woes last month could not have come at a worse time. The Organisation of the Petroleum Exporting Countries was then turning a blind eye to massive quota cheating in order to avoid a price spike after Iraq's output shut down.

The situation now is quite different.

Prices have fallen by a third and a move to crack down on overproduction during the weak second quarter is afoot.

"The question is, if there's a shortfall this month, does Nigeria get an exemption from OPEC to allow them to make up this shortfall?" said one industry consultant, who asked not to be named. "I'm sure they will be producing well in excess of their allowance over the next few months."

But OPEC President Abdullah al-Attiyah has said the cartel traditionally does not compensate members for unexpected losses, citing recent cases in Venezuela, Nigeria, Iraq and Iran.

If output tops 2.5 million bpd, that will put the country some 25 percent over its official OPEC quota.

Nigeria could make up its estimated 20 million barrels of lost production by pumping an extra 330,000 bpd for two months or an additional 220,000 bpd over three months.

Expectations that Nigeria would maximise production from unaffected fields to compensate the outages appear to be unfounded, according to oil traders who track exports.

OFFSHORE UPS OUTPUT

The rapid expansion of production from Africa's most populous country comes courtesy of foreign investment in expensive deepwater developments -- money oil majors will want to recoup as quickly as possible with maximum output.

Exxon Mobil's offshore Yoho platform has scheduled nearly four cargoes in May, implying production of nearly 120,000 bpd after it started up in January, market sources say. Shell's EA, which came onstream in February, will produce nearly 80,000 bpd.

Agip started up its offshore Abo field in April, targetting 30,000 bpd in a few months time.

The tipping point is likely to be TotalfinaElf's Amenam development, which is scheduled to start up in the middle of the year, eventually pumping some 125,000 bpd, analysts say.

Shell's massive Bonga deepwater development will add over 200,000 bpd early next year, the company says.