Page 5 - AfrOil Week 10 2020

AfrOil COMMENTARY AfrOil
 At the time, both Brent and WTI were closing above that threshold.
Nevertheless, market sentiment was gen- erally bearish, largely because perceptions of oversupply were widespread but also because the introduction of stricter emissions standards for marine fuels on January 1 were having less of an impact than previously anticipated.
Financial strain
Local experts have acknowledged the problem.
Biodun Ogunleye, the managing director of PowerCam Nigeria, told The Nation several days ago that the country was in a tight spot and might not be able to implement this year’s budget. “Given the fact that Nigeria is heavily dependent on crude oil for sustenance, coupled with the fact the country has benchmarked its 2020 budget of NGN10.59tn [$29.1bn] at $57 per barrel, what I can say is that Nigeria is in trouble,” he remarked.
According to Ogunleye, signs of trouble are already evident, in that the balance of Nigeria’s Excess Crude Account (ECA) has fallen by $253mn within the last two months. ‘’The prices of crude oil are falling globally, coupled with the fact that they are having reverberating effects on Nigeria’s Excess Crude Account,” he said. “This implies that the country has no choice [but] to hope for an increase in the prices of crude oil in the next few weeks, if it wants to grow its econ- omy well.”
Unsold oil
Under these conditions, Nigeria has simply not been able to sell as much oil as it would like to do.
Bloomberg reported last week that traders were having a hard time finding buyers for Nige- rian crude, partly because Chinese demand was down but also because European refinery oper- ators were worried about low margins.
As of March 5, trading sources indicated, around 85% of the Nigerian cargoes slated for loading in April were still unsold, up from the usual level of about 50% at this point in the trad- ing cycle.
(According to the sources, who specialise in West African crude grades, Nigeria and Angola are trying to sell about 100 April-loading car- goes altogether. Angola has sold off about half of its share but is still looking for buyers for 18 car- goes, while Nigeria is still attempting to unload 55 cargoes, the sources said.)
But the problem does not end there. Nige- ria is not the only African producer suffering; according to Bloomberg’s sources, traders have also been hard-pressed to find buyers for April-loading cargoes of Angolan crude.
Meanwhile, Nigeria, Angola, Chad, Gabon and the Republic of Congo are all struggling to unload the crude oil that they failed to sell in March, and they are likely to have an even harder time as the unsold April-loading barrels come into play.
In other words, Nigeria is, along with other African producers, contributing to perceptions of a global oil supply glut. If conditions do not change, the West African country will have a difficult time on multiple fronts – financially, because it is so dependent on crude revenues, and operationally, because it will surely strug- gle to meet output targets if lower prices render some upstream projects unviable.™
“ along with
Price crash raises questions
about energy transition
Enthusiasm for the switch to renewables could wane in the face of the events rocking world oil markets
Nigeria is,
other African producers, contributing to the perception of a global oil supply glut
WHAT:
Oil and gas operators’ commitments to clean energy may be in doubt.
WHY:
Lower prices will force a review of strategy.
WHAT NEXT:
Funding may become harder to secure.
THE global oil and gas industry’s enthusiasm for the energy transition could be in doubt as the world reacts to the collapse of the oil price and the spread of the coronavirus.
While it may take time for falling oil prices to have any effect downstream in the power and renewables markets, oil companies will be thinking about their strategy and investment priorities during a time of lower revenues and greater risk.
IEA executive director Fatih Birol said this week that the spread of the coronoavirus could have a knock-on effect on the global oil indus- try’s energy transition plans, and he urged
producers to act carefully.
“Companies will be faced with lower rev-
enues and their commitments to clean energy transition will be a challenge,” he said. “Actors need to behave responsibly.”
“The coronavirus crisis is adding to the uncertainties the global oil industry faces as it contemplates new investments and business strategies,” Birol said.
“The pressures on companies are changing. They need to show that they can deliver not just the energy that economies rely on, but also the emissions reductions that the world needs to help tackle our climate challenge,” he added.
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Week 10 11•March•2020 w w w . N E W S B A S E . c o m
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