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Inflation Fears Hit Fever Pitch As Gas Rally Continues

Inflation Fears Hit Fever Pitch As Gas Rally Continues

With natural gas prices climbing,…

African Oil Producers Struggle To Raise Oil Production As Investment Lags

Sub-Saharan Africa, especially its largest oil producers Nigeria and Angola, will struggle to raise oil output through the middle of this decade, as international majors are shifting their investment priorities, data and analytics company GlobalData said on Friday.

Lack of sufficient investments and few new projects could derail Sub-Saharan Africa's ambition to increase its crude oil production through 2025 after a difficult pandemic-hit 2020, GlobalData said in its report.

As international oil majors are reassessing their investment priorities and projects compete for less capital amid an ongoing capex discipline, Nigeria and Angola—the leading African producers in OPEC—are seeing few new projects being approved.

According to GlobalData, the two countries will see falling crude oil and condensate production from this year onwards. At the same time, they also have a relatively small number of oil projects that would come on stream within 2025.

Sub-Saharan Africa has a lot of potential and could easily top Europe in terms of oil and gas output, Conor Ward, Oil and Gas Analyst at GlobalData, said, commenting on the findings.

"However, companies have been more cautious than ever over their investments. Some of the huge discoveries made over the past decade have seen significant delays with no final investment decision (FID) in sight: as is the case with Shell's Bonga Southwest/Aparo, which was discovered over 20 years ago," Ward said.

"Sub-Saharan Africa is seeing a shift of investment away from the more developed countries in the region, most notably Nigeria, and more towards frontier countries such as Mauritania, Senegal, Mozambique, and Uganda as the fiscal terms offered by the host countries are far more appealing and have a large untapped resource base," Ward added.

Nigeria has to address the above-ground risks for companies if it wants to attract investment, the analyst noted. 

Nigeria approved last month a new petroleum industry bill in Africa's top oil producer and exporter, putting an end to 20 years of debates and delays. International oil majors have not been flocking to Nigerian oil assets now that fossil fuels are even more fiercely competing for Big Oil's capital plans as majors start shifting more funding to low-carbon energy sources.

By Tsvetana Paraskova for Oilprice.com                                

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  • Fredrik Clementz on August 09 2021 said:
    The nigerian oil bill (PIB) is not signed by the president yet. Only when that happens it is completed, however, that should hopefully only be a formality but still it isn't done.
  • Mamdouh Salameh on August 08 2021 said:
    Nigeria and Angola are struggling to attract foreign investments to raise their production because of lack of proper governance and rampant corruption in addition to pressure on international oil companies (IOCs) to divest of their oil and gas assets.

    Therefore, the IOCs will have to take more risk and invest in countries like Nigeria and Angola because of their fast declining reserves and the increasing difficulties to replace the reserves they produce because of rising resource nationalism.

    The power structure of global oil markets is already undergoing a major transformation exemplified by the rising power of the National Oil Companies (NOCs) and the declining influence and power of IOCs.

    Whilst remaining reserves of top IOCs such as Total, BP, Shell, Chevron, ENI and ExxonMobil are expected to last 8.0-10.5 years, the NOCs of countries like Saudi Arabia, Iraq, UAE, Venezuela and Kuwait to name but a few have access to proven reserves that could last from 66-91 years at the 2019 production levels .

    Between 1998 and 2002, top IOCs replaced 99.7% of oil produced. This declined to 51.7% between 2003 and 2007. Reserves have fallen further by 25% since 2015 with less than 10 years of total annual production available. For instance, oil supermajor Shell expects to have produced 75% of its current proven oil and gas reserves by 2030, and only around 3% after 2040.

    Resource nationalism has been on the rise around the world underpinned by governments wanting to fully control whatever hydrocarbons and mineral resources they have in order to maximize their revenues, growing global demand for these resources and also growing influence of the NOCs. That is why resource nationalism has become a major threat for the IOCs.

    As a result, IOCs are virtually not welcome in the major oil-producing regions of the world. The bulk of their production comes nowadays from Alaska, the Gulf of Mexico and the North Sea, areas which are witnessing rapid decline and where production is becoming increasingly more expensive and profit margins per barrel far lower than their counterparts in the Middle East and Russia.

    The largest and the cheapest oil reserves to produce are located in the Arab Gulf region and Russia. They are all controlled by NOCs and their governments.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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