Africa Oil & Gas: Nigeria is no longer “Africa’s top dog” – Petroleum Economist reports

NNPC oil facilities
“Even if there was a universal agreement tomorrow it would take time to fix the pipelines” says Gail Anderson, an analyst at Wood Mackenzie

Militant attacks on Nigerian oil pipelines have forced around 0.5m barrels a day of its oil output off line this year, causing the country to cede its place to Angola as Africa’s biggest crude producer – for now.

In August, Nigerian oil production was just 1.46m b/d, well down from 2m b/d in October 2015. But things could be looking up. ExxonMobil was expected to resume loading oil at the Qua Iboe terminal, Nigeria’s largest, after rerouting supplies. The facility has been under force majeure since July. Shell has also lifted force majeure on its Bonny Light exports after patching up a damaged pipeline. Combined export capacity from the facilities is about 0.5m b/d, though it isn’t yet clear how much they will ship just yet.

More significant seems to be progress in ending the violence in the Delta. At the end of August, the Niger Delta Avengers (NDA)-a militant group that has been attacking oil infrastructure since earlier this year-announced a ceasefire, in a deal brokered by local elders on behalf of the government.

Even if the ceasefire holds, analysts say Nigeria’s oil output will not rise significantly for at least the rest of this year because of damage already inflicted on pipelines and the dire economic situation the country is in.

Cause for concern

“We’re not talking about a universal ceasefire here. Even if there is a universal agreement tomorrow with all the groups it will take time to fix the pipelines,” says Gail Anderson, an analyst at Wood Mackenzie. “And it will be dependent on a ceasefire holding and what the other groups do.” (On 19 September, another group of militants claimed to have blown up another pipeline belonging to Nigerian Petroleum Development Corporation, a subsidiary of the state company.)

The militant attack which has caused the largest disruption to Nigeria’s output came in February when the NDA targeted a subsea section of the Forcados pipeline. Around 250,000 b/d of output was shut in and remains offline.

Anderson says there’s uncertainty around Nigeria’s crude export levels as international firms are deliberately withholding supply information to avoid further security breaches on their operations.

“So the numbers are approximate but with certainty we can say there are problems at all the major terminals,’ Anderson goes on to say.

Nigeria’s economy is suffering from it all. Two years of depressed crude prices combined with the outages sent the economy into recession in the second quarter. Inflation has been rapid, helped by a devaluation of the naira.

“With oil prices remaining low the government doesn’t have money to spend on militants so any wide-reaching deal will be difficult to broker,” Anderson says. “It’s a very difficult situation the government is in.”

Last year, before the militant attacks ramped up, Nigeria had around 0.6m b/d of onshore crude production, around 0.8m b/d in shallow water and output from deep water accounted for another 0.8m b/d.

Depending on Bonny Light and Qua Iboe, production will struggle to sustain an increase-but at least it’s not likely to fall below 1m b/d, as some analysts feared. Nigeria’s offshore output remains largely intact.

While the Qua Iboe crude stream transits into an onshore terminal, all of the production into it comes from shallow water. The Escravos crude stream-another important grade-is supplied by a mix of oil produced both onshore and offshore. So far, the escalation of violence in the Delta hasn’t stretched into shallow- and deep-water terminals.

While Nigeria’s production has tumbled this year, Angola’s has remained stable at around 1.77m b/d, making it the continent’s top producer. Analysts don’t expect much growth, forecasting it to remain at around 1.8m-1.9m b/d for the rest of the decade.

The longer-term outlook is different. After 2020, believes Wood Mackenzie, output will fall by 200,000-300,000 b/d because of a lack of investment in costly offshore fields.

Angola’s deep-water projects need oil prices of around $65-70/b, sustained for periods of five or six years, just to break even, according to David Thomson, another analyst at Wood Mackenzie. Those are levels for Brent that producers now only dream of.

“Before the oil price crash in 2014 we were confident Angola would push past 2m b/d, up to around 2.2m b/d. But that was dependent on several deep-water projects going ahead which now are not economic,” Thomson says. “If Nigeria gets itself sorted out it will regain the top spot.”(Source: The Petroleum Economist)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s