MARKET NEWS

BY Emmanuel Addeh in Abuja

The Organisation of Petroleum Exporting Countries (OPEC) and allies known as OPEC+ has approved changes to its oil production quota system, which will likely spark a wave of upstream investments among members, particularly in low-cost Gulf producers.

But countries like Nigeria, whose production is concentrated in more expensive geological structures or offshore, may potentially be at a disadvantage as they will require more time and money in order to grow capacity.

OPEC and other major producing nations, including Russia and Kazakhstan, collectively known as OPEC+, approved at the weekend a new mechanism to assess members’ maximum production capacity, which will be used to set output baselines from 2027.

The capacity assessment will be done between January and September using a reputable U.S. auditor for 19 out of the 22 group members, Reuters reported. It will involve a review of each country’s oilfields and infrastructure to assess how much oil it can bring on stream within 90 days and maintain for one year.

Saudi Energy Minister Prince Abdulaziz bin Salman said on Monday the new mechanism will help to stabilise markets and reward those who invest in production. OPEC+ accounts for nearly half of the world’s oil supply of 106 million barrels per day in 2025, according to the International Energy Agency.

Members’ capacities will be approved in a November meeting, where OPEC+ will also agree on its 2027 output quotas, which will represent an equal percentage of capacity for each member. The open Maximum Sustainable Capacity (MSC) will be reviewed on an annual basis going forward, it was learnt.

Although the system appears primed to spark a wave of investments among members wanting to increase their own production and revenue, it nevertheless favours wealthy members that have low development and production costs such as Saudi Arabia, the United Arab Emirates and Kuwait.

While the UAE targets growing its production capacity to 5 million bpd by 2027 from 4.85 million bpd today, Abu Dhabi’s national oil company ADNOC said on November 24 it plans to invest $150 billion over the next five years to expand operations.

Saudi Arabia, the world’s top oil exporter, has a production capacity of 12 million bpd and by far the group’s largest spare capacity, which reached 2.2 million bpd in October, 60 per cent of total OPEC+ spare capacity.

Aramco, whose capital expenditure is set to reach $52 billion to $55 billion this year, will bring two new fields on stream by year-end, adding 550,000 bpd of production capacity, it said in its third-quarter results.

“The new system, however, puts members whose production is concentrated in more expensive geological structures or offshore, such as Nigeria and Kazakhstan, at a disadvantage as they will require more time and money in order to grow capacity.

“Russia, Venezuela and Iran may also struggle to increase investments and production capacity due to international sanctions that severely restrict supplies of vital drilling equipment and access to Western technologies,” the Reuters report said.

The new investments will nevertheless serve OPEC’s intrinsic goal of growing its market share, in particular after losing ground in recent years as production in the U.S., Brazil, Canada and elsewhere soared.

But the spending will also ease growing concerns that the oil industry could face a supply crunch towards the end of the decade and beyond due to lower global spending and the slowdown in production in U.S. shale basins and elsewhere.

Nigeria currently has an OPEC quota of 1.5 million bpd and has indicated its intention to request a higher production level, although raising production has been significantly challenging in recent years.