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Nigeria Oil & Gas Sector Update

Rising U.S. crude output to weigh on oil prices in FY'19                                                        

Amid contrasting developments in supply dynamic, oil prices recorded sharp movements and volatility through 2018. While OPEC output cuts and U.S. sanctions on Iran provided support for crude prices in H1’18, record U.S. output and subsequent waivers to Iranian oil customers by the U.S. boosted supply in H2’18, resulting in a slump in oil prices. In FY’19, we foresee a moderation in average Brent price y/y, as we expect the impact of increasing U.S. output and slowing global growth to outweigh the effect of the OPEC cut.                                            

Egina offshore field: a plus for Nigeria’s crude production                                                  

We foresee a relatively stable output, as we expect the re-elected administration to sustain the existing peace pact that was reached between the government and Niger Delta in 2016. Additionally, oil production commenced at the newly developed 200 kb/d Egina field in January 2019, indicating a strong boost for Nigeria’s crude output. In FY'19, we expect Nigeria's crude production to average 2.16 mb/d, up from 1.92 mb/d a year earlier.                                       

Dangote Refinery: a potential catalyst for deregulation                                                       

With intense ongoing construction at the Dangote Refinery, there is a growing hope that the nation’s demand for premium motor spirit (PMS) will be met by the private refiner in the coming years. Using the latest EIA data on refinery intake and output as a proxy for Dangote Refinery operations, we estimate that, at 90% capacity utilization, the refinery will produce 57 million litres of PMS a day, which is more than Nigeria’s Q3’18 PMS import of 48 million litres a day. With our projected output from Dangote Refinery surpassing the nation’s current average daily PMS import, we opine that the government will be strongly inclined to fully deregulate the sale of PMS when the refinery comes online.