Nigeria’s oil production to take 200,000bpd hit amid underinvestment – IEA

Poor investments into oil exploration due to the perceived unfavourable fiscal regime by investors will cut Nigeria’s oil production by at least 200,000 barrels per day (bpd) before 2026, the International Energy Agency, a Paris-based think tank advising European countries on energy policy, has said.

In its closely-watched medium-term market forecast released on Wednesday, the IEA says it expects a decline in oil production from Nigeria and other African producers, with the exception of Libya, emerging from years of civil war.

Angola will see the biggest fall in crude production capacity, down by 330,000bpd from current levels, continuing a long slide as mature fields are exhausted, while Nigeria will see a 200,000bpd decline due to underinvestment, the report states.

Nigeria’s oil production has long suffered from underinvestment; its oil and gas sector is trying to recover from one of its worst crisis in more than 20 years, brought on by low oil prices that have slashed government revenues, hammered the currency and caused chronic dollar shortages.

“Nigeria needs at least $14 billion a year in new investment over the next five years to raise oil output to 2.2 million bpd and even higher spending to lift it to 3 million bpd,” Charles Akinbobola, an energy analyst at Lagos-based Sofidam Capital, said while reacting to IEA’s report.

IEA expects Libyan production to swiftly recover to above one million bpd following the end of a rebel-led blockade on key oil ports, but further gains will be dependent on political stability and infrastructure repairs.

The IEA also dismisses talks of a super-cycle in oil, saying there is “more than enough oil in tanks and under the ground” to keep global oil markets “adequately supplied” for now.

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But it says that demand will rise as the economic recovery continues, vaccine programmes gather pace and containment measures ease, and with OPEC+ continuing its production restraints this all points to sharp inventories draw in the second half of this year.

On the demand side, it notes that consumption appears to be “slightly higher than expected” in the current quarter, supported by cold weather in northern Asia, Europe and the US.

It sees global oil demand growing by 5.5 million bpd this year to 96.5 million bpd, following an 8.7million bpd drop in 2019. In last month’s report, the IEA forecasts demand to grow by 5.4 million bpd this year.

“A stronger economy and vaccine deployment will support growth in the second half of 2021, reducing the oil demand gap vs 2019 from 4.8 million bpd in the first quarter of 2021 to 1.4 million bpd in the fourth quarter,” it states.

“Oil inventories still look ample compared with historical levels despite a steady decline from a massive overhang that piled up during the second quarter of 2020,” IEA notes.

The IEA calculates that OPEC’s effective spare crude production capacity will narrow to 2.4 million bpd by 2026, from 6.5 million bpd in 2020, the bulk of it in Saudi Arabia.

The agency defines spare capacity as idled production that could be brought back online within 90 days and sustained for “an extended period.”

The forecast assumes that Iran will remain under stringent US sanctions. A breakthrough in talks between the US and Iran that leads to sanctions relief could add up to 1.7 million bpd of Iranian crude supplies to the market, the IEA says, easing some of the tight OPEC spare capacity concerns.

“However, many contentious issues still need to be resolved before sanctions could be eased,” the IEA notes.