Sunday , April 11 2021

The green energy headquarters of oil companies will hammer Africa’s largest economy

By Paul Burkhardt on the 2/28/2021

Changing energy priorities will trigger African economic growth.

The change in energy priorities will cause African economic growth.

(Bloomberg) – The collapse of Angola, from Africa’s largest crude oil producer five years ago to barely pumping more than war-torn Libya today, shows a large tribute to the decline in investment in the oil industry.

Production in the country has fallen by more than a third since 2015, when international oil companies began to cut investment in response to falling crude oil prices. Despite the government’s efforts to boost activities, only a few drilling rigs now operate in the deep waters of the Atlantic that hold the country’s greatest resources.

The situation could worsen as Big Oil makes another round of deep spending cuts, increasing the possibility that Nigeria – another key member of OPEC – could suffer the fate of Angola. This would have consequences both for the oil market, which needs more cartel supplies in the coming years, and for the economic stability of the region, which depends on oil revenues.

“The fight is for West Africa to compete” when investment is low, said Gail Anderson, chief analyst for West Africa upstream for oil and gas at Wood Mackenzie Ltd. in Edinburgh. When the return is compared to other oil provinces, “Nigeria disagrees, as does Angola.”

Retention consumption

Data on oil production in Angola give a bleak picture, especially for an economy that is heavily dependent on oil exports. According to data collected by Bloomberg, crude production has remained at a 15-year low since November, just under 1.2 million barrels a day.

Even Libya, where the oil industry has been crippled by decades of civil war, pumped out more crude oil than Angola in December.

The seeds of this decline were sown in 2014, when large-scale production of American shale caused a drop in prices. As Brent oil fell from more than $ 100 a barrel to less than $ 30 within a few years, international oil companies have reduced consumption around the world.

The deep decline in production by the Organization of the Petroleum Exporting Countries and its allies eventually spurred a price recovery, but offshore drilling in West Africa recovered much more slowly. Then, the coronavirus pandemic triggered another deep drop in oil prices, leaving only one ship operating in waters near Nigeria and Angola until mid-2020, according to Baker Hughes Inc.

“Investments in research in Angola have been declining since the fall of 2014,” said Siva Prasad, a senior upstream analyst at Ristad Energi AS. Some subsequent offshore projects, Eni SpA and Total SE, prevented the flow from drying out completely, but the global pandemic and market crash “forced almost every oil and gas corporation to put their operations and spending plans back on the drawing board.”

Our mistake

Angola has tried to slow the decline with wide-ranging efforts, including auctions of new areas for drilling and restructuring the state oil company Sonangol.

The government has been negotiating with companies to see if they can squeeze “a little more” out of existing fields, according to Angolan Minister of Resources and Oil Diamantine Pedro Azevedo. Even with that effort, the country is targeting an average production of 1.22 million barrels per day for 2021, which would mean that it is not able to enjoy the benefits of a higher OPEC + exit quota because the cartel opens taps later this year.

“We are guilty of not investing more in operations, we did not invest more in Sonangol’s capabilities, we did not invest more in processing,” Azevedo said at a press conference in January.

Output Fall

Angola is heavily dependent on deep-sea fields, where the natural decline in production is usually faster than on land. Without constant investment in improving oil return rates or exploiting additional reservoirs, production could decline rapidly.

In Nigeria, approximately two-thirds of production comes from shallow waters and inland fields, where production resumed before the Covid-19 pandemic, as unrest in oil-producing areas subsided.

The country sharply reduced production last year under the OPEC + agreement. Crude oil shipments fell to a four-year low last month, with production below 1.5 million barrels a day. That is less than half of the long-term goal he planned to achieve in 2023, and deep drilling could potentially be a “growth engine” for Nigeria in the years to come, according to Anderson Wood Mackenzie.

Oil prices have largely recovered from a historic drop caused by the coronavirus pandemic, while Brent oil in London rose above $ 65 a barrel. When big companies start spending again, fiscal conditions will be crucial in determining whether Nigeria can encourage investment or share the fate of Angola.

But Nigeria increased the fee for deep waters in 2019. Companies, including Total, Royal Dutch Shell Plc and Ekkon Mobil Corp., have expressed concern that the long-delayed Oil Industry Bill could discourage investment.

“Angola’s problem is that deep-water production there has already matured and fallen sharply, and improved fiscal conditions will not change the overall picture,” Anderson said. “Nigeria, on the other hand, has more choices and could obviously produce more if it gets a fiscal and regulatory framework.”

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