20mbpd output deficit expected in oil markets signal opportunities

Amin Nasser, chief executive of Aramco, Saudi Arabia’s national oil company, said under investments in the oil and projects will create 20 million barrels per day deficit in future production capacity as natural fields decline, highlighting the urgency Nigeria need to resolve issues constraining its oil production.

Nigeria’s crude oil production started a massive decline in February 2016 on account of militant attacks on Shell’s Forcados pipeline shutting out over 300,000 barrels per day production. Since then, Nigeria has lost over 3 million barrels of crude oil between the first 10 months in 2016.

“A total of 48.88 million barrels of crude oil and condensate was produced in the month of December 2016 representing an average daily production of 1.58 million barrels. This represents a decrease of 15.51 percent compared to November 2016 performance,” says the Nigerian National Petroleum Corporation (NNPC) operations and financial reports for December 2016.

This figure represents the second lowest production in the 2016, with August recording the worst output in 2016. By the three months ending December 2016, nearly all of Nigeria’s crude grades were under a force majeure.

Experts in the oil and gas sector say Nigeria requires $28 investments to ramp up crude output to 4 million bpd which is required to fund the Economic Recovery Growth Plan of the current APC-led government of Muhammadu Buhari.

Ibe Kachikwu, minister of state for Petroleum Resources says that once this required investments flow into the country and planned deepwater projects are fully realised, the country will achieve an incremental reserve of at least 1.5billion barrels.

This looks like a tall order as Nigeria also needs to pass an industry wide bill that would clarify fiscal terms, resolve governance issues and provide effective regulatory framework. Lawmakers are optimistic the fiscal governance aspect of the bill will be presented for consideration on April 24.

Nasser says that the oil market was getting closer to rebalancing supply and demand, but the short-term market still points to a surplus as US drilling rig levels rise and growth in shale output returns according to a Financial Times report.

“That is a lot of production capacity, and the investments we now see coming back, which are mostly smaller and shorter term – are not going to be enough to get us there,” Nasser said at the Columbia University Energy Summit in New York.

Nasser said these developments notwithstanding, they are not enough to meet supplies required in the coming years, which were falling behind substantially. About $1 trillion in oil and gas investments had been deferred and cancelled since the oil downturn began in 2014.

Analysts at Wood Mackenzie forecast that Nigeria will be among countries that will see capital expenditure cuts especially in deep water projects.

“Looking at figures for Nigeria, the capex we have cut is $46billion over the same time period as the $100 billion figure for the whole West African sub region,” says Femi Oso, senior research manager for Sub-Saharan Africa.

Oso added, “The bulk of the CAPEX cuts so far in Nigeria are in pre-sanctioned deepwater projects that are no longer economic at lower oil prices and in joint venture projects where NNPC’s funding has reduced further. The cutting will be done by oil majors,”

ISAAC ANYAOGU