Trends in Nigerian Petroleum Production and Consumption

Nigerian is number five on the list of largest petroleum providers to the USA according to Annual Energy Review for 2009 (see e.g., Fig. 5.4 and Table 5.4).  According to the EIA’s country analysis brief for Nigeria, oil accounts for over 95 percent of export earnings and about 65 percent of government revenues.

Overview of Nigerian petroleum production, consumption and exports

The majority of the oil is located in the Niger Delta where since 2005 there have been substantial domestic conflict involving local militant groups wants a share of the oil revenues.  This has lead to attacks takeovers and damage to oil infrastructure and staff, damage to pipelines (e.g., due to “bunkering,” or siphoning oil from the pipeline, similar to that done in Mexico).  For instance, in 2009 it has been estimated that, 0.8 mbd of production was lost due to militant attacks—a significant amount compared to a total crude oil production of about 2 mbd (from: Nigeria may struggle to stem future production declines).  

In addition to these security issues, government delays in approving new projects (e.g., due to government factions pushing for higher royalty payments from international oil companies), the rate of future developments as may slow hesitate to invest in expensive future exploration and developments:

Managing Director, Mobil Producing Nigeria Unlimited, Mr. Mark Ward, said on Monday in Abuja, that Nigeria could see a decline in its upstream deepwater production by 2018, if urgent steps were not taken by the government to promote exploration, drilling and sanctioning of new projects.

...

“The current portfolio of producing deepwater assets were developed within seven to 10 years, whereas fields currently under development or expected to receive Financial Investment Decisions in the near term are projected to take much longer to be brought on stream. Nigerian deepwater lead times are now on average 14 years.”

...

“Average cycle time of 14 years pushes first oil to 2025. With a decline in Nigeria’s deepwater production around the 2018 timeframe, a significant gap could occur.”

from NIGERIA’S DEEPWATER OIL PRODUCTION MAY DECLINE BY 2018’

These issues raise uncertainties as to the viability of making long-term investments in Nigeria oil production:

For all the grandstanding announcements, the devil is in the detail and not much as been said on how the government would apportion a 10% stake of its joint ventures to the people of the Delta. Three decades of corruption and mismanagement of revenue accruing from oil and lack of transparency in detailing how oil money is allocated and spent have engraved a litany of mistrust between the stakeholders.

...

While efforts to inject greater accountability and transparency in the energy sector have been welcomed, the multinationals fear the tough fiscal terms in the legislation will making Nigeria one of the least investor-friendly countries in the world.

They say the aggregate impact of multiple taxes, high royalties and loss of incentives under the bill will have a significant negative impact on investments.

from, Nigeria may struggle to stem future production declines

Therefore, its seems that Nigeria’s recent downturn in production and possibly future production, unlike Mexico or Saudi Arabia, is not due to terminal decline in its oil reserve but rather the inability to pump the oil that it has.

According to the EIA the USA is the single country largest destination for Nigeria’s oil:

It is interesting to note that while China is not even on the chart of significant importers of Nigeria’s oil for 2009—India and Brazil take about 10 percent of Nigeria’s exports.  

Although the EIA states that 40% of Nigeria oil goes to the USA, the EIA own energy profile data for Nigeria indicates that a larger percent than this has gone to the USA for the past several years:

It is interesting to see that the USA’s share of Nigeria’s exports has increased, despite the above-mentioned problems of militants and government approval delays, for the past several years.   Nigeria’s exports to the USA as a percentage of net exports for the last five years of data availability (2004-2008) equals 53 ± 2.  For the analysis to follow, I have assumed that Nigeria’s exports to the USA will continue in this proportion (53%) going forward.   

Non-linear least squares (NLLS) analysis of total petroleum production

Figure 1 shows total petroleum production for 1965-2009 as reported in the BP statistical review:

Similar to Saudi Arabia, after a local peak in production in late 70s, a subsequent decline in production in the earlier 80s, production has increased through the late 80s and 90s.  There are indications of a plateau  or rolling over in production since the late 90s. 

Figure 1 shows the best fit of the Hubbert equation to the 1983-2009 data (solid line best fit parameters: “a” = 0.080; Qo = 6.8; Q∞ = 41.9) as well as the best fit of the Hubbert equation to the 2002-2009 data (dashed line best fit parameters: “a” = 0.244; Qo = 4.2; Q∞ = 14.6).  My attempts to fit my modified equation 9 to the data (e.g., similar to that done for Canadian or Mexican production shown in Figure 2 here) did not result in a significantly better fit to the data.  

The best fit to the 2002-2009 data looks a lot like the best fit to Mexico’s production data from 1999-2009 (shown in Figure 1 here) and, if the trend held, would suggest a rapid decline production

(e.g., half of peak production in 2005 by about 2012).  

However, in my opinion this not the most likely scenario for Nigerian oil production in the coming years because a substantial amount of the recent downturn is due to the above described domestic militant activity.    Additionally I found no signs or concerns that Nigeria has a giant oil field, like Mexico’s Cantarell, that is terminal decline.

Therefore in the export analysis to follow I have focused on Nigeria’s predicted future production based on the NLLS analysis of the Hubbert equation best fit to the 1983-2009 data.  

Non-linear least squares (NLLS) analysis of total petroleum consumption

Figure 2 shows the best fit of the Hubbert equation to Nigeria’s petroleum consumption data (as reported in the EIA’s Energy Profile; the BP statistical review did not report Nigeria’s consumption as a separate line item).  As illustrated in Figure 2, Nigeria’s internal consumption is very small (about 1/8) compared to its production.

The red line in Figure 2 shows the best-fit of the Hubbert equation to the full data set from 1980-2009 (“a” = 0.013; Qo = 5.83; Q∞ = 3032.).   Similar to the analysis of Saudi Arabia consumption, the unrealistically high value of Q∞ suggests the NLLS best fit using the Hubbert equation blows up because the consumption data follows an exponential increase with no signs of rolling over.  Again I could have just as well as fit this to simple exponential equation, but the Hubbert equation fit does a pretty job of doing the same and so I have used this curve for the export analysis to follow. 

Predicting future trends in Nigerian petroleum exports

Figure 3 shows the best fits obtained using the Hubbert equation analysis of the 1980-2009 time span of consumption data and the 1983-2009 time span of production data as well the 2002-2009 time span of production data.

The predicted export curve (solid green line) is calculated based on the difference between the production curve (1983-2009 Hubbert equation best fit) and the consumption curve, shown in the figure.  Additionally, I show the “measured” export data from 1985-2009 time period (i.e., the BP statistical review reported production minus the EIA reported consumption).  Also shown is an alterative predicted export curve (dashed green line) based on the difference between the production curve using the predicted production from the 2002-2009 data (solid green line 2002-2009 Hubbert equation best fit).  

The predicted production (1983-2009 data) and consumption trends suggests that Nigeria’s net exports would end in 2039.  Positive net exports drags on for quite a long period (compared to Saudi Arabia for example) because Nigeria’s domestic consumption is so small relative to its production.   Nevertheless, by 2029 a decade before totally ending, net exports are predicted to be below 30 percent of the net exports in 2009.  Net exports would end much sooner in 2018, however, if production follows the trend predicted by the NLLS analysis of the 2002-2009 production data.

Impact on USA

Figure 4 reproduces the USA production and consumption trends, plus Canadian, Mexican, Venezuelan and Saudi Arabian petroleum measured and predicted future exports presented from the previous article, Trends in Saudi Arabia Petroleum Production and Consumption.

 

The gold line shows the addition of Nigeria’s exportable petroleum to the USA, which equals the predicted total exports (i.e., the solid green line shown in Figure 3) multiplied by 0.53 (i.e., my estimate that 53% of Nigeria’s total exported petroleum will continue to be sent to USA).  The gold circles show my estimate of Nigeria’s measured exports to the USA (total measured production minus total consumption, green circles in Figure 3, times 0.53).

Based on the predicted export trend, Nigeria’s exports to the USA by 2015 will equal about 0.30 bbs/yr and only 0.22 bbs/yr by 2020.  That is 86% and 63%, respectively, of my estimate of Nigeria’s exports to the USA in 2009 (0.35 bbs/yr).  

Although these exports are in decline, the rate of decline is not as severe as a number of the USA’s other current top import sources.  For instance, if this trend continues, I predict that by 2015 Nigeria would over take Mexico, Venezuela and equal Saudi Arabia as the third most important exporter to USA.  By 2020 Nigeria would only be second Canada as the biggest exporter to the USA.   

For 2010, I predict that Canada, Mexico, Venezuela, Saudi Arabia and Nigeria’s exports, together with USA’s domestic production, will provide about 65% of the USA’s predicted consumption. 

By 2015, USA domestic production and imports from these current top five foreign providers will only amount about 54 percent of the USA’s predicted consumption. 

A note of concern about Figure 4

I am becoming increasingly uneasy at the disparity between the actual USA total consumption reported in the BP statistical review through the decade of 1999-2009 versus sum of total production from the USA and the USA’s top export sources as I have progressively added them to this graph.  Either my estimates of actual petroleum exported to the USA are way off, or, there have been several additional sources of petroleum exported to the USA that are not among these top five exporters.  I can see how my estimate of measured exports to the USA for the earlier measured years depicted (i.e., the early 90s) could be over-estimated for some countries.  For instance, I having been estimating measure USA exported based on the recent trend for the percent of total exports to the USA (e.g., 75% for Venezuela/Caribbean; 18% for Saudi Arbia; 53% for Nigeria).  But the percentage of net export from some of these countries (e.g., Nigeria) has been less than this in the past.

But this potential over-estimate of USA exports would not explain under-estimate of nearly 2 bbs/yr of total production by the USA, plus my estimate of exports from its top five exporters, versus the reported total USA consumption from 2004-2009.   Where in the world did that additional ~2 bbs/yr petroleum come from for these years? 

Trends in Saudi Arabia Petroleum Production and Consumption

The Kingdom of Saudi Arabia is the number four largest petroleum provider to the USA, the world’s largest producer and exporter of total petroleum liquids, and the world’s second largest crude oil producer behind Russia, according to Annual Energy Review for 2009  (see e.g., Fig. 5.4 and Table 5.4).  According to the EIA’s country analysis brief for Saudi Arabia, oil accounts for 90% of total Saudi Arabia’s export revenues, about half of total government revenues, and around 40% of total gross domestic product (GDP).

Overview of Saudi Arabia petroleum production, consumption and exports

Like Venezuela, petroleum production and exports in Saudi Arabia are under the control of a state-own company, Saudi Aramco. Saudi Arabia purportedly has the largest proven oil reverses in the world of about 264 billion barrels, although there is much skepticism in the validity of the number (see e.g., Matt Simmons, Twilight in the Desert, Cp 12).  In my opinion, it is likely that Saudi Arabia’s reserve is inflated in order to expand its own export quota under OPEC and thereby give it some flexibility as a swing producer in oil production to keep other OPEC members in line (see e.g., Saudi Arabia, Crude Oil Production and Pricing Policy).  

Saudi Arabia’s production is dominated by several giant oil fields, in particular, the super giant Ghawar field, the world's largest oil field, with an estimated remaining reserve of 70 bbs. However as pointed out by Hook et al., production from giant fields is declining, because the majority of them are over 50 years old, and fewer new giants have been discovered since the 1960s (Giant oil field decline rates and their influence on world oil production) For example, Ghawar was discovered in 1948 and put on stream in 1951.  As indicated by Hook:

These findings have large implications for the future, since the most important world oil production base – giant oilfields – will decline more rapidly. In the extreme, a potential 10% annual decline in Ghawar would be very challenging to compensate and would create severe problems for Saudi-Arabia and the world. The future behaviour of the remaining giants, especially in OPEC, will be a key factor in future oil supply.

Staniford has also suggested that Saudi Arabia's production declines are not voluntary  and since about 2004 it can no longer serve as an effective swing producer for OPEC.

In 2008, Saudi Arabia exported 8.4 mbd of petroleum and about 50% of its crude oil, refined petroleum product and NLG exports went to Asia (Japan, South Korea, China, and India) with Japan being the single largest importer in Asia.   For instance in 2008, Saudi Arabia exported 1.5 mbd of petroleum liquids to the United States and 1.3 mbd to Japan.

According to the EIA’s Energy profile Saudi Arabia’s exports to the USA as a percentage of net exports for the last five years of data availability (2004-2008) is equal to a very tight 17.7 ± 0.8 percent.  For the analysis to follow, I have assumed that Saudi Arabia’s exports to the USA will continue in this proportion (18%) going forward.   

Of course, Saudi Arabia (unlike Canada)  is under no specific obligation or agreement to maintain this 18% proportion of exports to the USA. However, I think that they will, for reasons explained in this CFR publication, Thicker than Oil: America’s Uneasy Partnership with Saudi Arabia:    

Traditionally the United States’ relationship with Saudi Arabia has been characterized as a basic bargain of “oil for security.” For its part, since the mid-1970s, Saudi Arabia has ensured the free flow of oil at reasonable prices. The kingdom’s ability to put oil on the market quickly during times of crisis is the most obvious benefit the United States gains from good relations. Immediately after September 11, for example, Saudi Arabia increased oil shipments to the United States in order to keep prices stable. It also augmented oil production just before Operation Iraqi Freedom commenced, a time when political strife in Venezuela and Nigeria threatened to elevate oil prices dramatically. In return for this, the United States extends to Saudi Arabia’s leadership a security umbrella, including a commitment to its territorial integrity. Since 1950 the United States has explicitly vowed to help defend the kingdom against external threats—including, over the years, the Soviet Union, Yemen, Egypt, Iran, and Iraq. Since the fall of the shah of Iran in 1979, this commitment has evolved into implicit support for the Saudi regime against internal challenges, including today’s al-Qaeda.

That is, Saudi Arabia is likely to continue to trade oil with the USA (I'm assuming at least 18% of its net exports to the USA) in exchange for dollars, security and defense as provided by the USA.  I think that this trend will continue as long as the USA can provide effective protection and as long as the Kingdom of Saudi Arabia remains a kingdom. 

Saudi Arabia has also been on a steady consumption up-swing, and is the largest oil consuming nation in the Middle East. According to the EIA country analysis brief, in 2008, Saudi Arabia consumed approximately 2.4 million bbl/d of oil, up 50 percent since 2000.  As the consumption data and my analysis below make clear, this has increasingly important considerations when assessing Saudi Arabia’s net oil export potential going forward. 

Non-linear least squares (NLLS) analysis of total petroleum production

Figure 1 shows total petroleum production for 1965-2009 as reported in the BP statistical review. 

After a local peak in production in 1979, a subsequent decline in production in the earlier 80s, production has increased through the late 80s, had a plateau from 1991-2002 and then increased again in 2003 and stayed at about this level, fluctuating at or slightly below 4 bbs/yr until the downturn in the last few years.  It is pretty tough to model this kind of production data with the Hubbert Equation or my modified equation 9 because, for the periods from 1985 to present production was likely managed by Saudi Aramco as part of its role as a swing producer. 

In the analysis to follow I have considered two possible production scenarios: one that assumes a production follow the NLLS best fit to the Hubbert equation to the 1985-2009 data as shown in figure 1 (best fit parameters: “a” = 0.101; Qo = 18.8; Q∞ = 151.8), and, one that assumes that production for the next twenty years stays at the average value of production from 2003 to 2009 (3.847 bbs/yr).  The later scenario is probably what Saudi Aramco would like the world to believe.  In my opinion, the former scenario is probably more likely to reflect future production, because as pointed out above, Saudi Arabia’s aging giant field have not being replaced by newly-discovered equally-sized oil fields.

Non-linear least squares (NLLS) analysis of total petroleum consumption

Figure 2 shows the best fit to Saudi Arabia’s petroleum consumption data (as reported in the BP statistical review). 

The red line in Figure 2 shows the best-fit of the Hubbert equation to the full data set 1965-2009 (“a” = 0.0444; Qo =2.78; Q∞ = 3032.).     

As the unrealistically high value of Q∞ suggests the NLLS best fit using the Hubbert equation blows up because the consumption data follows an exponential increase with no signs of rolling over.  I could have just as well as fit this to simple exponential equation, but the Hubbert equation fit does a pretty job of doing the same.  I have my doubts if Saudi Arabia’s could continue to increase its consumption for another 20 years at 4.4 %/yr but they certainly have enough oil to do it for a while.  Just how long will depend on a number of factor but one hard factor would be the shape of that production curve, shown in Figure 1, going forward.

Predicting future trends in Saudi Arabia's petroleum exports

Figure 3 shows the best fits obtained using the Hubbert equation analysis of the 1965-2009 time span of consumption data and the 1985-2009 time span of production data as well the scenario of continued flat production at 3.847 bbs/yr.

The predicted export curve (solid green line) is calculated based on the difference between the production curve (1985-2009 Hubbert equation best fit) and the consumption curves shown in the figure.  Additionally, I show the “measured” export data from 1985-2009 time period (i.e., the BP statistical review reported production minus reported consumption).

The extrapolated export trend predicts that if the Saudi Arabia’s production trend from 1985-2009 follows the Hubbert equation, then Saudi Arabia would have no net exports by 2023.  That’s just one year longer than the predicted cessation of net exports from Venezuela in my previous article, Trends in Venezuelan Petroleum Production and Consumption.

But what if the first production scenario is correct, and Saudi Arabia is able to maintain production at 3.847 bbs/yr (dashed blue line in Figure 3), indefinitely?  Well, then exports (dashed green line in Figure 3) would still decline, albeit at a slower rate, merely because of the exponentially increasing rate of domestic consumption.  Under this scenario, net exports are still predicted to end in 2044. 

Impact on USA

Figure 4 reproduces the USA production and consumption trends, plus Canadian, Mexican and Venezuelan petroleum measured and predicted future exports presented from the previous article, Trends in Venezuelan Petroleum Production and Consumption.

 

The purple line shows the addition of Saudi Arabia’s exportable petroleum to the USA, which equals the predicted total exports (i.e., the solid green line shown in Figure 3) multiplied by 0.18 (i.e., my estimate that 18% of Saudi Arabia’s total exported petroleum will continue to be sent to USA).  The purple circles show my estimate of Saudi Arabia’s measured exports to the USA (total measured production minus total consumption, purple circles in Figure 3, times 0.18).

Based on the predicted export trend, Saudi Arabia’s exports to the USA by 2015 will equal about 0.30 bbs/yr and only 0.12 bbs/yr by 2020.  That is 63% and 25%, respectively, of my estimate of Saudi Arabia’s measured total exports to the USA in 2009 (0.47 bbs/yr).

For 2010, I predict that Canada, Mexico, Venezuela, Saudi Arabia’s exports, together with USA’s domestic production, will provide about 60% of the USA’s predicted consumption.  But by 2015, with Mexican, Venezuelan and Saudi Arabian exports all down, USA domestic production and imports from these top four foreign providers will only amount about 50 percent of the USA’s predicted consumption.  And by 2020, again with nothing coming from Mexico and very little coming from Venezuela and Saudi Arabia, domestic production and imports amounts to about 45 percent of the USA’s predicted consumption—this is mostly from Canada and the USA.

Like Venezuela, Saudi Arabia’s export and government revenues are highly dependent on its exports, and so the cessation of exporting oil will have equally devastating effects on the country's infrastructure.  It will be interesting to see if the kingdom will continue when it's oil export revenues decline and/or domestic consumption is cut to sustain exports.

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February 9, 2011

Here's an interesting piece from the Guardian concerning a wikileak that pertains to my, and many other's speculation that Saudi Arabia’s reserve estimates are over inflated:

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

...

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."

from: WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

Another wikileak pertains to Saudi Arabia’s inability to maintain oil exports in the face of

increased domestic consumption of electricity:

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

If Al-Husseini is right, and the 715 bbs of reserves is overstated by 300 bbs, then the total reserves are 415 bbs.  Now, if 51% of that is recoverable, then the total recoveray of oil equals 211 bbs.  That's still higher than the Q∞ = 152 bbs I got from the Hubbert Equation fit to the production data, but not a whole lot higher.  My hunch is that even with Q∞ fixed to 211 bbs, the overall shape of the production curve, and impending decline, would not be that much different than depicted in Figure 1 above.