The predicted death of OPEC oil producers including Nigeria, seems exaggerated as BP’s energy outlook through 2035 released yesterday, sees record demand for the cartel’s crude as shale production slows.
Growth in US shale oil is expected to flatten out in coming years, reflecting high well decline rates and less extensive resources than gas.
The strength of U.S shale oil production and the relative weakness of demand have reduced the market requirement for OPEC crude in recent years.
“This pressure on OPEC is likely to persist in the early years of the Outlook… Further out, as tight oil supply growth slows and demand strengthens, the call on OPEC crude begins to increase, exceeding the historical high (32 Mb/d in 2007) by 2030,” said BP in its report.
“OPEC’s market share by the end of the Outlook is around 40 percent, similar to its average of the past 20 years.” US oil production growth in 2014 (roughly 1.5 Mb/d) was the largest in US history, driven by tight oil and NGLs (natural gas liquids).
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Oil prices have declined some 50 percent in the past year, hitting the currencies and stock markets of producers like Nigeria, which depend on the commodity for 70 percent of its Federal budget and 90 percent of dollar earnings.
The naira has weakened 7.5 percent this year, while domestic stocks are down 15.81 percent in the same period.
BP projects that fossil fuels are to provide the majority of the world’s energy needs, meeting two – thirds of the increase in energy demand out to 2035.
Population growth and increases in income per person, are the key drivers behind growing demand for energy. By 2035, the world’s population is projected to reach 8.7 billion, which means an additional 1.6 billion people will need energy.
“The story is that over time, the oil market will grow out of its current weakness, reflecting the call that shale oil does not continue to grow so rapidly and demand will grow sufficiently to absorb it,” Spencer Dale, BP’s chief economist, said.
Global demand for oil will be underpinned by Asian energy import dependency, which will rise from 23 percent in 2013 to 27 percent by 2035.
Oil accounts for 60 percent of that rise, with imports accounting for over 80 percent of Asian oil consumption by 2035.
Asia’s oil imports in 2035 are forecast to be almost as large as OPEC’s current entire oil production. Nigerian stocks rose 2.55 percent on Wednesday, as investors snapped up oversold names, the naira stabilised, and oil prices stayed above the $60 mark.
Seplat Petroleum Development Corporation rose 2 percent to N416 per share, up 30 percent since February 05.
The naira gained 0.9 percent to N197.75 per dollar as of 1 p.m. in Lagos, as traders said a new system introduced by the Central Bank of Nigeria (CBN) stabilised the nation’s currency and will result in daily intervention by the regulator.
“Crude price is already recovering, just as the European Central Bank is set to commence a €60 billion monthly quantitative easing programme from March,” said Abiodun Keripe, head of research and strategy at Elixir Investment Partners Limited.
“I believe these variables (mostly crude price recovering) will have a positive catalyst on the equities market.”
PATRICK ATUANYA
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