Nigeria may trail behind Africa’s new top oil exporter Angola

By Sherif Tarek
Posted on Monday, 12 September 2022 16:31

Kaombo Norte floating oil platform is seen from a helicopter off the coast of Angola
Kaombo Norte floating oil platform is seen from a helicopter off the coast of Angola, November 8, 2018. REUTERS/Stephen Eisenhammer

Persistent oil thefts in Nigeria have caused Africa’s largest economy to lose its status as the continent’s biggest crude producer to Angola, a new ranking that is not likely to change any time soon.

Last August, Nigeria’s average output stood at 1.13m barrels per day (bpd), slipping marginally, for the first time since April 2017, behind Angola’s daily production rate of 1.17m barrels, according to Bloomberg’s survey of monthly OPEC output.

Figures from Nigeria’s regulator, as cited by Reuters, showed that Nigeria’s output in August fell below 1m bpd, the lowest level in decades and less than half the daily production rates of the West African nation 10 years ago.

“Oil theft is a perennial issue in Nigeria which I can’t see changing in the foreseeable future,” Stephen Brennock, an analyst at broker PVM Oil Associates tells The Africa Report. “The country is clearly stuck in a rut and could play second fiddle to Angola for quite some time.”

Nigeria’s output has been declining since 2020 amid a mounting security crisis. The widespread oil theft has greatly damaged state finances, according to President Muhammadu Buhari, who recently demanded that security agencies contain the situation.

Adding insult to injury, members of the Nigerian oil workers’ union, the Natural Gas Senior Staff Association of Nigeria (PENGASSAN), are threatening to go on strike should authorities remain incapable of deterring the recurrent oil thefts.

Oil workers have been threatened by “cartels” who tap Nigeria’s pipelines using sophisticated methods, according to PENGASSAN President Festus Osifo, who says the status-quo may urge the association to “withdraw our workforce from the operating companies.”

A strike by oil workers in Nigeria would mean that “more of the country’s oil supply is at risk”, says Brennock.

The oil sector in Africa’s most populous country, which is suffering multiple economic hardships, amounts to nearly 7% of its GDP.

Will oil prices be affected?

Analysts differ on whether Nigeria’s beleaguered oil sector could culminate in higher prices at some point in the future.

Oil prices soared above $100 a barrel for months after the Ukraine war erupted on 24 February. Global sanctions imposed on Russia for invading its neighbouring country have caused the energy exports of the world’s third largest oil producer to massively shrink.

A material drop in [Nigeria’s] production, particularly if expected to be extended, would cause prices to rise

Prices started to decline below the $100 mark in early August as global recession fears kicked in, taking a toll on demand forecasts. OPEC+ this month opted to slash oil production for October by 100,000 bpd (0.1% of global demand) to boost prices.

Additionally, the recovery of chaos-hit Libya’s output, which exceeded 1.2m bpd in August up from 700,000 bdp in June after the lifting of force majeure on oil fields, is among the factors that have eased prices in recent months.

Nigeria’s diminishing production might have a similar effect to that of Libya when domestic disturbance reflected on its output, says Matt Smith, lead oil analyst at Kpler.

“A material drop in [Nigeria’s] production, particularly if expected to be extended, would cause prices to rise,” Matt Smith, lead oil analyst at Kpler, tells The Africa Report. “We have seen a similar scenario play out in Libya this year.”

Brennock, however, believes that Nigeria’s oil troubles are not expected to change much in the grand scheme of things. “Although Nigeria’s supply outlook is skewed to the downside, I suspect this will have … [an] impact on prices,” he says.

Overshadowed by stronger determinants, including the possibility of reaching a new nuclear deal with Iran and enforcing more sanctions on Russia, the effect of Nigeria’s dwindling output is not of a paramount importance, Brennock says.

“The volumes involved pale in comparison to other major supply developments in the oil market, such as the potential return of Iranian barrels, shrinking Russian volumes to Europe and the looming stoppage of US SPR [Strategic Petroleum Reserve] releases” after it has fallen to its lowest level in 37 years, he says.

Generally speaking, “years of underinvestment, [and] political tensions have resulted in African production being very volatile despite high oil prices”, UBS analyst Giovanni Staunovo tells The Africa Report.

“This trend is likely to continue over the coming years,” he says.

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