Nigeria to meet new OPEC+ oil cuts, make up shortfall

Nigeria has previously fallen short of its production cut targets, but is now said to be “fully committed” to complying with the strategy of its OPEC+ partners. (AFP)
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Updated 11 June 2020

Nigeria to meet new OPEC+ oil cuts, make up shortfall

  • Move seen as significant endorsement of new plan established by Saudi Arabia and Russia in April

RIYADH: Nigeria is fully committed to meeting the ambitious targets on crude oil output set by the new OPEC+ agreement, according to the head of the country’s delegation at the Organization of the Petroleum Exporting Countries (OPEC).

Mele Kyari, managing director of the Nigerian National Petroleum Corporation, told a webinar organized by consultancy firm Gulf Intelligence that the country could achieve full compliance with the level of cuts agreed with OPEC+ by the middle of next month at the latest.

“The shutdowns we are experiencing today mean that we will come to full conformity at the latest by mid-July, and we could even get there by the end of June,” he said.

Nigeria, along with Iraq, Kazakhstan, and Angola, were regarded as the laggards in doing their part to meet the historic cuts of 9.7 million barrels per day (bpd) agreed first in April and extended by another month last weekend.

Kyari admitted that Nigeria had fallen short of the target by around 100,000 bpd but added: “Managing reservoirs in Nigeria is very different to other jurisdictions and we have to have a plan around the wells themselves.

“If you pull all the wells down at the same time you may not be able to recover them. It is a gradual process to cut down production by well and reservoir level.”

In what will be regarded as a significant vote of confidence in the new oil regime put in place by Saudi Arabia and Russia as the two biggest producers in the OPEC+ alliance, Kyari said: “We are fully committed to making sure we comply with the cuts.”

At the OPEC+ webinar meeting last weekend, Saudi Energy Minister Prince Abdul Aziz bin Salman insisted on full compliance with the new production levels and warned all participants to be “vigilant” on output levels, which will be supervised by a monthly meeting of OPEC+ ministers.

Kyari said the OPEC+ measures were necessary to restore balance to global oil markets. “It’s very obvious the market has not achieved balance and is unlikely to do so before the end of the year, and not very soon even in 2021.

“The forecasts indicate there will still be an oversupply of about 7 million barrels even by the end of the year.

“The markets will not balance until people do things to pull down production and supply naturally comes down with that. The OPEC+ agreement is designed to bring down that oversupply by the end of the year so we can see some balance,” he added.

On the recent run up in the price of crude oil — which has more than doubled in the past six weeks to above $40 a barrel for Brent crude — Kyari said: “It is actually driven more by sentiment than demand. We have not seen that much of a rise in demand, and even the cuts did not achieve 100 percent conformity.

“The significant jump we’ve seen appears very cosmetic to me and that means the price could slip back to the levels we saw in March.”

Big Oil confronts possibility of terminal demand decline

Updated 10 min 34 sec ago

Big Oil confronts possibility of terminal demand decline

  • IEA forecast that average daily oil demand will drop by 8 million barrels per day this year

PARIS: Although crude prices have rebounded from coronavirus crisis lows, oil execs and experts are starting to ask if the industry has crossed the Rubicon of peak demand.

The plunge in the price of crude oil during the first wave of coronavirus lockdowns — futures prices briefly turned negative — was due to the drop in global demand as planes were parked on tarmacs and cars in garages.

The International Energy Agency (IEA) forecast that average daily oil demand will drop by 8 million barrels per day this year, a decline of around 8 percent from last year.

While the agency expects an unprecedented rebound of 5.7 million barrels per day next year, it still forecasts overall demand will be lower than in 2019 owing to ongoing uncertainty in the airline sector. Some are questioning whether demand will ever get back to 2019 levels.

“I don’t think we know how this is going to play out. I certainly don’t know,” BP’s new CEO Bernard Looney said in May.

The COVID-19 pandemic was in full swing then with most planes grounded and white-collar workers giving up the commute to work from home.

“Could it be peak oil? Possibly. I would not write that off,” Looney told the Financial Times.

The concept of peak oil has long generated speculation.

Mostly, it has been focused on peak production, with experts forecasting that prices would reach astronomical levels as recoverable oil in the ground runs out.

But in recent months, the concept of peak demand has come into vogue, with the coronavirus landing an uppercut into fuel demand for the transportation sector followed by a knockout punch from the transition to cleaner fuels.

Michael Bradshaw, professor at Warwick Business School, said environmental groups are already lobbying to prevent the Paris agreements becoming another casualty of the pandemic, stressing the need for a Green New Deal for the recovery.

“If they are successful, demand for oil might never return to the peak we saw prior to COVID-19,” he said in comments to journalists.

The transport sector may never fully recover, Bradshaw posited.

“After the pandemic, we might have a different attitude to international air travel or physically going into work,” he said.

Other experts say we haven’t reached the tipping point yet, and might not for a while.

“Many people have said, including some CEOs of some major companies, with the lifestyle changes now to teleworking and others we may well see oil demand has peaked, and oil demand will go down,” IEA executive director Fatih Birol said recently.

“I don’t agree with that. Teleconferencing alone will not help us to reach our energy and climate goals, they can only make a small dent,” Firol added while unveiling a recent IEA report.

Moez Ajmi at consulting and auditing firm E&Y dismissed as “science fiction” the idea that a definitive drop in oil demand could suddenly emerge.

He expects a slow recovery in demand even if the coronavirus leaves the global economy weakened.

That weakness would also likely slow adoption of greener fuels.

“It will take time for fossil fuels, which today still account for some 80 percent of primary global consumption to face real competition” from rival energy sources, he said.

Meanwhile, the oil industry could face financing challenges.

Bronwen Tucker, an analyst at Oil Change International, says the industry is now under pressure from investors.

After “a pretty big wave of restrictions on coal and some restrictions on oil and gas, the risks to oil and gas investment right now feel a lot more salient,” she said.

The industry is already writing down the value of assets to face up to the new market reality of lower demand and prices.

Royal Dutch Shell said this past week that it will take a $22 billion charge as it reevaluates the value of its business in light of the coronavirus.

Last month, rival BP reduced the worth of its assets by $17.5 billion.

“This process has further to run, and we expect further large impairments to occur across the sector,” said Angus Rodger of specialist energy consultancy Wood Mackenzie.