© Reuters. FILE PHOTO – A man operates a crude oil tap during the demolition of Bakana II illegal camp in Okrika Rivers state Nigeria, January 28th, 2022. REUTERS/Afolabi Sotunde2/3
Alex Lawler. Julia Payne. Ron Bousso
LONDON/LAGOS – Nearly half the shortage in planned oil supplies by OPEC (and its allies) is attributable to Nigerian and Angola. Data seen by Reuters shows that this data reflects a range of factors such as moves by Western oil giants away African projects.
Reuters shows that OPEC and its ally OPEC+ pumped 1.45million barrels per daily (bpd). This is equal to 1.5% world supply. However, this figure falls below the target of March.
The figures show that Angola contributed almost 300,000. bpd to the OPEC+ supply shortage, while Nigeria produced almost 400,000 bpd less than its target. Russia’s oil trading has been also affected by the war in Ukraine. Its March output fell to 300,000.
Global oil prices reached a new 14-year high of $139 per barrel in March because of the OPEC+ shortage. This has prompted the United States, and other consumer countries to call for more production.
However, the Organization of the Petroleum Exporting Countries has consistently rebuffed the requests – one factor being that not all its members have enough oil to pump.
OPEC considers that the reduction in investment after 2015-16’s collapse in oil prices, as well as a focus of investors on ESG (economic, social, and governance) issues has led to a decrease in demand-side spending.
Mohammad Barkindo, Secretary General of OPEC told Reuters that the industry suffered from massive underinvestment. The situation was further complicated due to ESG.
The industry experienced a 25% contraction in 2015 and 2016, which was unprecedented. “There was no recovery in this industry before 2020,” he stated.
The International Energy Agency (IEA), which tracks global oil and natural gas production and exploration, shows that there has been no increase in investments in 2017-2019. This was followed by a plunge of 32% in 2020.
Although they are slowly withdrawing from Nigeria’s oil industry, international oil companies continue to invest in the vast offshore resources of oil and natural gas, which remain affordable.
Shell (LON): Shell, which has helped Nigeria become a major producer in the 1930s and 1940s, didn’t immediately reply to my request for comment on investment or the reason for declining Nigerian production.
GULF PRODUCERS INVESTMENT SUSPENSION
OPEC’s Gulf Producers, led by Saudi Arabia, are largely meeting their OPEC+ goals. OPEC sources claim that their relative dependence on investors outside has contributed to their success.
According to an OPEC+ source, a Gulf producer stated that the investment deficit affected countries more heavily dependent on foreign capital.
According to IEA data, final investment decisions in 2019 (FIDs), which affected crude oil reserves more in the Middle East than African ones, were eight times greater.
Approvals for the Middle East were consistently higher between 2011 and 2018.
Audun Martsen, Rystad Energy analyst said, “Saudi Arabia and the United Arab Emirates, Kuwait are increasing investments and that can some extent offset declines elsewhere.”
Martinsen stated that “it also highlights why OPEC has not intervened more, because it’s quite difficult for OPEC production to increase overnight.”
Reuters reached out to Nigeria’s State Oil Company NNPC and Sonangol, the Angolan oil company. Neither responded immediately to Reuters inquiries about their production declines or why.
The 2021 report of APICORP (Arab Petroleum Investments Corporation) states that North African and Middle East producers still expect to invest $805 billion to energy in 2021-2025. That’s $13 billion more than the 5-year outlook.
APICORP, a Saudi Arabia-based company that is based in Saudi Arabia, stated it expects rising oil prices to support regional energy investments.
TOO MUCH RISK
While major Western corporations are increasingly turning their attention to the energy transition, and selling oil assets for that purpose, they still produce large amounts of crude oil in Africa. According to Rystad, 40% of Nigeria’s output comes from big Western corporations and 60% come from Angola.
Rystad believes there is potential for investment in Nigeria or Angola, but the projects are too expensive for majors.
Martinsen from Rystad said that majors had been focused on costs since 2015. “Developing things in Africa is too risky with cost overruns.” “It is not their primary focus anymore.”
According to him, Angolan output fell by 50% in 2015 while it has declined by around 30% in Nigeria. Nigerian production is forecast to increase slightly at 200,000 bpd, then drop again by 2024.
Last month, Shell reported that oil spillages resulting from pipeline taps in the Niger Delta nearly doubled between 2016 and 2021.
As a result, the exports for Nigeria’s key crude grade Bonny Light dropped from eight to nine cargoes per month previously due to oil theft.