The year 2017 started off on a shaky note for China, one of the world biggest producers of oil following the announcement that its crude production dropped as much as 7 percent, a slide that started since late last year.
The plunge, according to analysts, will see China, world’s largest consumer of oil seek more importation of oil sufficient to meet its domestic consumption this year. With this significant drop, it is forecasted that since China accounts for more than 50 percent of the incremental economic growth worldwide, more demand from the fastest-growing economy, would lead to a further increase in oil prices, which could prove to be a panacea in reversing Nigeria’s economic recession.
Nigeria stands to be the biggest gainer in the slump of production in China, especially with Nigeria exempted from the organization of petroleum exporting countries(OPEC) production cut agreement and a significant increase in production output already experienced in the last few months after drop in production due to militant attacks on oil facilities in Nigeria’s Niger Delta region.
China National Petroleum Corporation (CNPC)’s research arm confirmed that the country’s oil output is in its all-time low and will rely heavily on imports to support local production, for at least, the next six months. This could mean good news for Nigeria’s economy as the country remains China biggest market for crude oil in Africa with over 3,000 barrels per day from Nigeria in 2015. The figure will increase significantly with the drop in China production output. This is expected to lead to more demand for Nigerian crude, a situation that will help in Nigeria’s economy recovery this year.
China’s biggest producer, PetroChina Co., cut its 2016 domestic crude output target to about 2.06 million barrels a day, a drop of about 6 percent from the previous year, as it shuts some high-cost fields. Production from China Chemical & Petroleum Corp., known as Sinopec, is on track to shrink by a similar amount to about 763,000 barrels a day, company forecasts show.
“China’s crude output won’t see an apparent rebound unless Brent recovers to $60 a barrel level, as most of China’s aging oilfields can’t make a profit below this price,” said Tian Miao, an analyst in Beijing with policy researcher North Square Blue Oak Ltd.
With the proposed 2017 budget of Nigeria based on crude oil price of $42.5 per barrel and 2.2 million barrels daily production, this development translates to additional N500.4 billion revenue inflow outside the budgetary estimates.
No doubts 2017 promises to be a very good year, with prices above $50/bbl, having virtually doubled from the lows of February last year. OPEC has already put measures to stop oil glut, through coordinated production cut; Nigeria will be key beneficiary having been exempted from the production cut.
With Nigeria as China’s main importer in Africa, with trade volume over $50 billion yearly, a 42% total between China and Africa countries, the Nigeria government relationship with the Asia giant could play a big role in making Nigeria a greater beneficiary of China’s search for crude.