Fallen energy demand, energy transition, decarbonisation, and shale production have sent the global oil market into a historic crisis that has seen crude oil prices collapse to record levels.
COVID-19 is arguably the biggest shock in the history of the oil and gas sector; the demand collapse has caused investments of $690 billion to disappear, according to the African Energy Chamber, in its latest Africa Energy Outlook, 2021 report.
This dramatic change to demand has sent shockwaves into the global markets by putting enormous negative pressures on prices. Most notably, West Texas Intermediary reference price even ended up trading at negative levels in April as there simply was no ability to store more oil.
The global context forces Nigeria and other African petroleum producers to adapt quickly or become uncompetitive.
Nigeria’s situation looks dire: a 15-month-old land border closure, a weakening naira, rising food inflation (accelerated by 110.50 % in five years), youth unemployment (13.90 million Nigerian youth), youth restiveness in the Southern parts, and insurgency in the North East. Currently, Africa’s biggest petroleum producer has slipped into a recession in the third quarter of 2020.
Some of the headwinds, petroleum producers in sub-Saharan Africa have to navigate include the coronavirus pandemic (COVID-19) that has accelerated this underlying pressure by causing unprecedented havoc on global energy markets that Africa is not insulated from.
Conventional petroleum resources such as those in Africa should be competitive in the global supply stack, but above surface conditions related to fiscal regimes, carbon emissions and general difficulty of doing business are holding projects back.
The capital expenditure (CAPEX) spending 2020 – 2021outlook pre-COVID-19 was almost $90 billion for 2020 and 2021 but has been significantly reduced to about $60 billion due to project delays and cost-cutting measures.
The 2021 outlook, therefore, appears weak on new project sanctions, but relatively stronger for jobs and drilling markets on the back of on-going projects initiated pre-COVID-19.
The impact of COVID-19 on 2021liquids production is however not so severe as the current 2021 outlook stands at about 7.60 million barrels per day compared to 8.20 million barrels per day at the beginning of the year.
Outside COVID-19, regulatory matters have also unnecessarily delayed major projects in Nigeria, Kenya, Uganda and Tanzania that represent big opportunity losses for local content development delayed job creation and further deteriorated Africa’s competitive position versus resources elsewhere.
The African Energy Chamber believes that the short-term outlook can be remedied by applying more competitive fiscal regimes that can help unlock 4.4 billion barrels of liquids and $100 billion of additional investments by 2030.
Curbing flaring and monetising gas, which will help improve the carbon emission profile of African petroleum production that currently bottoms tier among the continents.
Others are developing gas to power infrastructure that will increase access to affordable energy to all sectors of the economy. Reducing lead time as higher risk premiums are put on long-cycle projects versus short-cycle projects.
