When OPEC agreed to exempt Nigeria from its oil production-restraint deal last year, it knew the country faced a huge challenge in recouping output lost due to militant unrest.
As tensions subside and the country pumps closer to normal levels, another dilemma looms for the producer group as it continues efforts to eradicate a price-sapping oil glut - how to count Nigeria’s crude output without mixing in condensates.
The answer could determine when – and indeed if ever – Nigeria has to cut or curtail oil production, its key source of foreign currency.
While Nigeria promised to cap at 1.8 million barrels per day (bpd) once production “stabilizes”, that limit exempts all of the West African nation’s condensates. And no one seems to agree on how much of that ultra-light oil it pumps.
“Previously, due to the whole issue of militancy, quotas were not an issue,” said Gail Anderson, research director at consultancy Wood Mackenzie. But now, “if you start thinking about OPEC cuts, then the definition of crude and condensate becomes quite important”.
Nigeria, along with OPEC peer Libya, was exempt from cuts due to militancy in its Delta region that slashed output from 2.2 million bpd to as low as 1.2 million bpd last year. The attacks have abated, with no major incidents since January.
Nigeria’s output has also rebounded, and secondary sources such as consultancies and price-reporting agencies quoted by OPEC said it edged above 1.8 million bpd in August and September - reinstating the country as Africa’s largest oil exporter.
But Nigeria has said some of that total included condensates, an ultra-light oil that is not counted as part of its promise to cap.
Oil minister Emmanuel Ibe Kachikwu said last July that condensates contributed 450,000 bpd to Nigeria’s production that month.
The figure exceeds external estimates for condensate production ranging from 200,000 to 250,000 bpd and suggests Nigeria’s own condensate definition could keep it out of any cap.
“Definition matters and all producers are playing with definitions,” said Ehsan Ul-Haq, director of crude oil and refined products at Resource Economist Ltd, a consultancy.
Neither Nigeria’s state oil company, NNPC, nor its Ministry of Petroleum, responded to Reuters requests for comment on its production or definition of condensate.
Oil exists in many types of quality – from heavy, sulfur-rich Canadian oil sands to ultra-light shale oil.
Condensates are liquefied once extracted from high-pressure reservoirs, where they exist as a gas. Nearly all oilfields produce some condensates, usually in small amounts. Once it becomes a liquid, there is no widely agreed way to differentiate condensate from crude.
The Organization of the Petroleum Exporting Countries does not publish a figure, reporting only the crude output of its 14 members, and NNPC also publishes no condensate numbers.
Asked how OPEC would define condensate if it needed to determine Nigerian production volumes, a spokesman for the producer group said the definition was based on “international standards” such as those of the American Petroleum Institute.
But those standards focus on whether the oil was a gas when extracted. Once liquefied, there is no widely agreed rule.
Often – including in Nigeria – condensates are blended into crude exports, and not tracked carefully. The issue briefly flared when the US shale revolution led to a spike in oil production, and more would-be exporters sought to send oil abroad as condensate, circumventing a ban on exports of crude.