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How much can Nigeria add?

The country has a chance to lift output - but that doesn't mean it will

Nigeria was given a pass when Opec agreed to new group-wide cuts in November-unrest in the Delta throughout 2016 had already lopped off much of its supply. Now it needs to make the most of its exemption, by restoring lost production. It won't be easy.

President Muhammadu Buhari thinks Nigerian output can reach 2.2m barrels a day in 2017-0.7m b/d more than production in December, but just 100,000 b/d more than the government says it was producing before the Niger Delta troubles resurfaced early in 2016. If it pulled off that kind of output recovery, Nigerian production growth on its own would replace more than half of the barrels the rest of Opec has pledged to remove.

None of the core Opec cutters will say it aloud, but the success of their strategy to prop up the market partly depends on persistent trouble in Nigeria.

The country's output was plagued by a resurgence of attacks on oil pipelines and rigs in 2016, following several years of comparative calm after a 2009 truce with one of the key militant groups. While production picked up over the second half of 2016, new attacks kept output at around 1.5m b/d in December 2016. Shell's Forcados and ExxonMobil's Qua Iboe export terminals were major casualties.

Talks to resolve the unrest-or at least stop it from disrupting production further-are underway and will be crucial to realising Nigeria's ambitions to raise output. But the recent news isn't encouraging: diplomatic momentum is sagging. Renewed violence and oil flow disruption in the coming months remain all too plausible.

Even if a sizeable amount of capacity can be returned to production, oil exporters still face several other pressures, both foreign and domestic.

0.7m b/d - volume Nigeria hopes to add to output this year

ExxonMobil's Nigerian operations have been affected by a workers' strike that has hit both output and production. Fuel depots and ports are also affected. The company's Erha field has been shut for maintenance. Shell may do the same at its 200,000-b/d Bonga field in February.

Beyond Nigeria's borders, the oil glut that the Opec cuts are designed to end is most intense in the type of sweet crude that the country produces, limiting its short-term, export opportunities. This will only get worse if a price rise coaxes more American tight oil out of the ground. The US is one of Nigeria's most important markets, and it can ill afford to be squeezed out again, as it was before the price crash. US exports of similar light grades of crude could even pinch Nigerian volumes in markets like Europe.

For that reason, Nigeria's petroleum minister Emmanuel Kachikwu said in December he thought the oil price shouldn't crest $60 a barrel, or tight oil would start to threaten his country's supplies.

For all those problems, Nigeria's exports should rise in February-possibly above 1.6m b/d, if unrest can be kept in check, as a backlog of cargoes deferred from the previous two months starts to hit the market.

In the longer term, Nigeria must hope that a $5bn settlement announced in November to reimburse international oil companies, including Exxon, Shell, Chevron, Total and Eni, for operating costs they said had not been paid, will start to draw more investment back to the upstream, where activity has largely stalled.

The only sizeable new project due on stream in the next year or so is Total's Egina field. Centred on a $3bn-plus floating production storage and offloading vessel, first oil is expected in early 2018 with output reaching 200,000 b/d later in the year

PE verdict: Nigeria's exemption from the cuts makes it a threat to the Opec deal's success. In reality, it will struggle to sustain an output recovery

Not why it joined

Gabon is Opec's smallest producer and only rejoined the organisation in mid-2016, having left in 1994 over an argument about the size of its membership fees. The government said it intended to increase production on rejoining, but has now signed up to reduce oil output by 9,000 barrels a day-the 4.5% that others have also accepted. It's not obvious where or how it will make the cuts.

Observing the quota might even have to wait for new oil minister Pascal Houangni Ambourouet to get his feet under the table. He replaced Etienne Dieudonne Ngoubou on 9 January.

He probably won't need to issue many edicts. Declining reserves and supply disruptions will probably do the job anyway. Production has been gradually falling for most of the past decade and was further affected by a wave of strikes over 2016. The country has been producing little more than 200,000 b/d at best in recent months. The latest unrest came in January, when staff employed by Shell Gabon went on strike. They were protesting over Shell's proposed sale of its Gabonese assets, probably to US fund Carlyle. Total dominates the oil sector of the former French colony.

PE verdict: Marginal producer with marginal impact. The Opec deal won't hang on whether Gabon complies or not

This article is part of a report series on Opec. Next article: Will rising Libyan oil production ruin the Opec deal?

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