These have been portentous times for the Nigerian oil industry. Internal politics in the creeks of the Niger-delta as well as fluctuating events on the global scene continue to influence the black gold’s fortune. Oscillating between the island of despair and the shore of hope, how do the current sectoral dynamics augur for investors’ interests in the short term projections?
The latest waves of oil platforms bombings by militancy warlords who ascribed to themselves the dreaded name of ‘Niger Delta Avengers’ has pushed Nigeria’s oil production to a 30-year low with deficits induced by production cuts reaching as much as 600,000 barrels per day. Against this backdrop, oil majors operating in Nigeria, including Shell, Agip, ExxonMobil and Chevron have all been forced to declare force majeure this current year.
From another horizon, economic slowdowns in Europe, technological breakthroughs in the United States, wild fires in Canada as well as embargo lift on Iran’s oil from January of the current year are creating fluctuating imperatives on the Nigerian oil market, albeit sometimes with twisted kind of serendipity for other players involved. America’s recent attainment of self-reliant status in oil reserves through its use of fracking technology to recover oil from erstwhile inaccessible shale, consigned generous portions of Nigeria’s crude oil to abandonment on the high seas with no home to call its own. The U.S. was formerly the biggest consumer of Nigeria’s crude oil and its emergent self-sustenance in oil and gas therefore translated to loss of a key market for the latter. Crashes in global oil prices has been another result that arose from fracking-induced over-supply of the commodity.
While wild fires in Canada affects output from one of the world’s largest producers of crude oil, helping to push up prices marginally, slowed-down economic activities in Europe and ban-lift on Iran oil due to negotiated compromise on its stance on nuclear energy projects have respectively driven down global demands and global prices of crude oil on the international stage- realities which also naturally affect Nigeria.
But a ray of hope exists…
The ongoing slump in global oil prices is making it less profitable for the U.S. shale oil producers to continue in business the new way. Furthermore, as more U.S. refineries are better suited to refine light crude, the type Nigeria produces, building new refineries to process heavy variety of crude oil from fracking is not currently cost-effective in view of the ongoing non-competitiveness of the barrel price. The current pricing of crude has made oil recovery from shale far more expensive than importing, signaling resumed consumption of Nigeria’s light sweet crude previously floating idle on the sea for what seemed eons before.
In addition, the oil futures market signals that oil prices will rise as OPEC members are considering decision to stabilise the market through production freeze, and have scheduled an informal meeting slated for September in Algiers to deliberate on same. Even hitherto reluctant Saudi Arabia is more disposed to the suggestion now and appears willing to work with other oil producers to stabilise prices. Meanwhile refineries in the US have resumed buying foreign oil to replace the deficit in internal output, storing much of the less-expensive imported oil to sell in anticipation of a price rise in the short term future.
The forgoing, along with ongoing negotiation talks to create peace in the bomb-ravaged Niger-delta as well as promotion of marginal field development imperatives, suggest the Nigeria oil market might yet exult in some measure of positive turnaround in fortune sooner than expected despite transient depressions bequeathed on the sector.
-Lanre Fashina, Research &Strategic Communications, Zenera Consulting.