• Thursday, March 28, 2024
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Mixed fortunes for Nigeria as shale producers run out of ‘sweet spots’

Shale producers run out of ‘sweet spots’

The shale oil revolution that initially focused on ‘sweet spots’ with lower-cost extraction is running out of steam; faces lower oil prices and lack of investor interest in financing loss-making operations for another season. Outside the sweet spots, there is oil, but it is much more costly to extract.

BusinessDay’s report of August 13 showed how last year, Nigeria lost a 540, 000 barrels per day United States of America (U.S.A) market to shale producers.  Shale oil producers have also gone after Nigeria’s traditional Asian and European markets. Nigeria’s crude grades had earned the reputation of containing low sulphur making them easier to refine for petrol, but shale oil possesses this quality too.

In one of the last interviews he granted to BusinessDay’s editor and other media houses, Ibe Kachikwu, former Minister of State of Petroleum Resources stated clearly that shale oil production was a major existential threat to Nigeria’s economy.

“Shale is more of my immediate worry than electric cars. I worry about oil prices which are beyond our control, and any country that can produce with the minimal level of cost challenges our existence automatically,” Kachikwu said.

This existential threat to Africa’s biggest oil producer may linger to arrive as the Permian Basin and shale oil production face slowing growth. U.S. shale oil output growth is slowing and nowhere is this more evident than in the Permian Basin, where growth will be under 1 percent in August according to the Washington D.C. based Energy Information Administration (EIA).

The EIA estimated July Permian production reaching 4.23 million barrels per day, twice Nigeria’s daily oil production. This is an increase of 55,000 b/d (barrels per day) on June. In contrast to July, the EIA revised production downwards to 4.17 mb/d forecasting growth of just 34,000 b/d by the end of August.

Two big players in the U.S. shale industry have suggested there is trouble looming. The first said the industry has destroyed 80 percent of the capital entrusted to it since 2008. This came from a chief executive officer no longer in the industry.

The second, Scott Sheffield, pioneer CEO of Natural Resources and one of the largest players in the Permian Basin, the heart of shale oil activity said that the industry is running out of so-called Tier-1 acreage. This is oil-speak for “sweet spots.”

The shale energy revolution is now over a decade old and investors and lenders are becoming impatient for a return rather than laying out more money to compensate for high rates of oil well depletion or finance new wells.

Shale oil producers’ troubles could have served as an opportunity for Nigeria to reposition and retake lost market shares for its sweet crude. But this does not seem to be happening.

“Our oil reserves today is a thirty-year reserve so technically unless there are new serious finds so in 30 years your oil should be dwindling,” Kachikwu had said.  Gas is in 60 years. Luckily gas is seen as a clean fuel but Nigeria has shown a lack of ability to harness it quickly, put infrastructure and replicate its usage. Experts have said the current 2 mb/d is quite ridiculous and needs to move to three mb/d and the refinery programme has to be bullish as well.