Peak oil forecasts shaky as global consumption approaches 100mbd

Global oil consumption is set to hit a historical all time high of 100 million barrels per day despite forecasts, fifteen years ago that peak oil supply was imminent and possible production decline among non-OPEC (Organisation for Petroleum Exporting Countries) members.

“Both global oil demand and supply are now close to new, historically significant peaks at 100 mb/d, and neither show signs of ceasing to grow any time soon” an Oil Market Report published Oct. 12 by Paris-based International Energy Agency said.

According to the report, a lot of potential supply could come to the market from places like Iran, Iraq, Libya, Nigeria and Venezuela, if their various challenges can be overcome. There is no peak in sight for demand either. The drivers of demand remain powerful, with petrochemical being a major factor. Rising living standards, particularly in developing countries, are already underpinning strong demand growth for plastics and this will continue for many years to come.

Fatih Birol, the IEA’s executive director, said in a Bloomberg interview earlier this week that prices are “entering the red zone” that signals danger to consumption, and called on OPEC members with spare supplies to increase production. The latest report showed that Saudi Arabia and other key nations in the OPEC member states are already delivering to make up for fellow members – notably Iran and Venezuela – who are suffering losses. Producers in the so-called OPEC+ coalition, which also includes Russia, have added 1.6 million barrels a day since May, the report showed.

Nigeria does not have spare supplies and may not be able to help increase production and supply to the global market for a number of reasons.

Since 2016, Africa’s biggest crude producer is yet to finilise bid round plans. Meanwhile, Madagascar, Algeria, Ghana are among African countries have concluded plans to conduct oil licensing rounds before this year ends, which will boost their reserves, increase revenue as well as their capacity to take advantage of soaring oil prices.

Nigeria’s active rig count contracted in August and its oil reserves replacement ratio has been abysmal in the last decade as OPEC peers strive to increase exploration and production.

In July, Africa’s largest crude producer had seen its active rig count increase by 9.38 percent, from 32 oil rigs in June to 35 in July, according to OPEC’s August Monthly Oil Market Report (MOMR). But it fell by 5.71 percent, from 35 in July to 32 in August signalling reduction in exploration and production activities in the oil and gas sector.

Rig count is a function of the level of exploration, development and production activities occurring in the oil and gas sector. A drop in active rig count means oil exploration and production activities in Nigeria have decreased month-on-month.

“Both elements correlate. To replace oil reserves, you need to intensify exploration and production activities. This means more active rigs. It also means more investment inflows into Nigeria’s oil and gas sector” Ayodele Oni, energy partner at Lagos-based Bloomfield Law Practice said. “Falling active rig count and reserves mean there have been no fresh investments in the sector.”

According to data obtained from the National Bureau of Statistics, (NBS) Nigerian Capital Importation report for the second quarter of 2018, foreign capital inflow into the oil and gas industry declined by $60.77 million, about N18.6 billion, to $24.85 million, about N7.6 billion in the second quarter of 2018, compared to $85.62 million, about N26.2 billion recorded in the first quarter.

Nigeria’s active oil rigs had remained static at 32 since the first quarter of the year. In 2015, Nigeria had recorded 30 oil rig counts. In 2016, it decreased to 25, and later to 28 early 2017.

Other OPEC members such as Algeria have increased the number of their active rigs from 45 oil rigs in July to 49 in August, Angola still has four, Ecuador from 8 to 10 active rigs but Equatorial Guinea still has one.

“Continued delay to tackle the Petroleum Industry Governance Bill (PIGB) sends a wrong signal to current and would-be investors.  It is either government wants to amend the laws regulating oil and gas or they don’t. Whatever it is, they should come out clear” Oni said. “Otherwise, it will delay projects, spending and certain activities in the industry, because of the uncertainty and lack of stability.”