The current shortage of natural gas has big implications for Nigeria and Organisation of Petroleum Exporting Countries (OPEC), who are expecting higher demand for other fuels as gas prices hit a record high this year in Europe and Asia.
Analysts have said that higher gas prices spurred by the tightness in the European gas market have offered support to the oil market.
The gas market crisis which has driven prices 280 percent higher in Europe this year and led to over 100 percent surge in the United States is being blamed on a range of factors from low storage levels to carbon prices to reduced Russian supplies.
The usually quiet market for the commodity has become hot in the last couple of weeks, as investors focus on the growth in demand around the world and supplies remain below normal.
Most experts say the natural gas situation in Europe will have a spillover effect on most oil-producing countries, with natural gas in short supply and crude, oil one of the only viable alternatives, as wind and solar power prove insufficient at this time.
Read Also: Soaring gas prices test Europe’s resolve to gut emissions
Goldman Sachs said that a colder winter and soaring natural gas prices globally could lead to higher-than-expected oil prices at the end of this year, with the potential for oil hitting $85 per barrel in the fourth quarter.
“The tightness in global gas supplies creates a clear and potentially meaningful bullish catalyst for the oil market this winter, larger than the downside risk to global oil demand from another Delta-like COVID wave,” the analysts at Goldman Sachs wrote in a note on Sunday.
Iraq, OPEC’s second-largest oil producer after Saudi Arabia, also believes that demand for crude will rise amid the shortage of gas, Iraqi oil minister Ihsan Abdul Jabbar Ismaael told Bloomberg.
Africa’s top oil producer and exporter, Nigeria, sees the soaring gas prices seeping into the oil prices because consumers would be forced to seek fuels alternative to natural gas this winter, Mele Kyari, managing director of the Nigerian National Petroleum Corporation (NNPC), told Bloomberg Television in an interview on Wednesday.
Demand for oil could be boosted by as much as 1 million barrels per day (bpd) due to the gas crisis, said Kyari, adding that the gas crunch could push oil prices up by around $10 per barrel over the next three to six months.
Higher oil demand will be welcome news for Nigeria and other OPEC members as it looks to ease its cuts by 400,000 BPD each month until it unwinds all the collective cuts at some point next year.
Before the gas crisis hit Europe, analysts doubted that OPEC could stay the course of monthly additions to the market in view of the COVID resurgence in the past months.
Early Friday morning, oil prices were up by more than 1 percent, with Brent Crude trading above $75, signalling good news for most petrodollar economics.
For Nigeria, the narration is different, policy missteps, wasteful spending and an inability to diversify away from petrol dollars or build a life after oil plan have restricted the country’s economy from attaining its full potential and have rendered it fully susceptible to the renowned “resource curse”.
Although the government recently signed the Petroleum Industry Bill (PIB) into law, statements from Nigeria’s economic manager show Nigerians may live longer with the painful subsidy era. The government also pays N30 billion monthly subsidies in the electricity sector to close liquidity shortfalls, despite its privatisation since 2013.
With oil prices experiencing a rebound due to the European gas crisis, stakeholders say the Federal Government might continue to find it difficult to sustain subsidy payments, or even borrow to fund subsidies, but continue to avoid a backlash from households dealing with poverty and inflation.
Other stakeholders say subsidy payments have continued to rise, not just due to low production, but as a result of the surge in consumption, especially from smuggling and other related activities.
