• Sunday, July 21, 2024
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BusinessDay

Africa’s oil states facing fresh challenges in 2015

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The slump in global oil prices is expected to hit Africa’s economies far more than the Ebola epidemic and will likely have more far reaching implications for countries facing elections and states heading for first oil.

With the price of Brent crude at five in a half year lows, Africa’s top oil producers, Nigeria, Angola, Libya and Algeria face growing fiscal challenges because more than 70 percent of these countries’ revenue stems from oil production.

Deutsche Bank and the International Monetary Fund say Libya would need $184/barrel to balance its budget; Nigeria would need $123/b to balance its spending plans

Nigeria’s oil output was already falling before the drop in oil prices largely due to oil theft and pipeline vandalism in the oil-rich Niger Delta.

Nigeria’s oil unions suspended a four-day national strike after the government agreed to discuss their demands including an immediate passage or the petroleum industry bill.

While the unions may well be taking advantage of the political climate ahead of the February 14 elections to boost their bargaining powers, these demands are unlikely to be resolved any time soon and will be issues for the next government.

President Goodluck Jonathan will face a tough battle to win re-election February 14 against former military ruler Muhammadu Buhari, the candidate for the main opposition party, who are looking to take power for the first time since the return to civilian rule in 1999.

Jonathan has been attacked by the opposition for his record on security, his inability to tackle corruption and his handling of the economy, now reeling from low oil prices.

In the likely case of disputed elections, the risk of severe political violence will continue after the elections and raise the currently low probability of a military coup, according to IHS Control principal analyst Robert Besseling.

What is certain is that Nigeria’s elections are a watershed for the country.

Will they produce an effective government able to pass key reforms in the oil industry? Will they address the ongoing power crisis?

Will they address the social-economic issues in the Niger Delta and Boko Haram in the north, and so set the Nigerian economy back on track?

Shale, price impact

Nigeria was the first casualty of the US shale boom, but oil flows to the US displaced by shale has also altered oil trade in Angola, Libya and Algeria, which produce light sweet crude oil, similar to the type produced in new fields in North Dakota.

Angola’s exports to the US fell to 4.9 million b/d in July from 21.9 million b/d in March 2007. The drop in exports to the US means Angola will be hard pressed to find other buyers for its crude.

“The biggest market challenges is finding new clients but we are confident we will do so,” Sonangol US president and CEO Elma Pegado de Almedia told local media this month.

Lower oil prices come on top of declining oil production, below the government expectation which averaged 1.66 million b/d in the first half of 2014, due to technical difficulties at existing fields.

Angola’s draft budget for 2015 is currently based on $81/b compared to $98/b in 2014 but it also includes a provision that a number of projects will receive funding only if the oil price exceeds a given threshold, according to a report by Deutsche Bank December 5.

If oil prices average $80/b in 2015, export revenue could fall by over $10 billion or 7 percent of GDP which would translate into a major current deficit in 2015, Deutsche Bank said.

Lower oil prices coupled with declining oil production are likely to lead to a reduction in Gabon’s exports in 2015. Exports are also hit by the US shale boom. The US used to be Gabon’s main export market.

Tension in the oil industry, which contributes 50 percent of government revenue and 80 percent of exports, has climbed to its highest point since a four-day strike in February 2013 that shut down all of the country’s 240,000 b/d.

The country’s power ONEP workers’ union is forcing the government to settle a long-standing dispute over the use of expatriate labour and other employment issues, and is ready to stop production again unless it gets its way.

In spite of the modest oil revenues, oil has become a major source of financing the government of Ghana’s capital budget.

With average production of 100,000 b/d, annual oil revenues have risen from $709 million in 2013 to $780 million in 2014.

The projection for 2015 is put at $215 million but this is unlikely if oil prices stay low. Ghana hopes the Tullow Oil-operated TEN projects will boost the country’s production when it is completed in 2016.

But the TEN project economics was based on an oil price of $80/b. With oil below $65/b industry experts are skeptical about the schedule of the project.