Month: April 2020

The collapse of crude oil prices and the oversupply of the commodity in the global market amid shrinking demand may force some producers in Nigeria to shut down their oilfields, ’FEMI ASU reports

Given the high cost of producing a barrel of crude oil in Nigeria, the current market turmoil caused by the coronavirus pandemic and exacerbated by the price war between Saudi Arabia and Russia is taking a huge toll on producers in the country.

Industry analysts have said the downturn in the global oil market might lead to the suspension of production by some operators in the country.

The international oil price benchmark, Brent crude, fell to $22 per barrel on Monday, its lowest level in 18 years this week, forcing some global producers to start shutting down their oil rigs.

Goldman Sachs, the US banking group, said on Monday that oil well shut-ins had reached at least 900,000 barrels of oil a day, but “the true number [is] likely higher and growing by the hour”.

“Given the cost of shutting down a well, a producer would be willing to pay someone to dispose of a barrel, implying negative pricing in landlocked areas,” the bank said in an investor note.

Last month, the Group Managing Director of the Nigerian National Petroleum Corporation, Mallam Mele Kyari, noted that about 50 cargoes of Nigerian crude oil had yet to find buyers “due to the drop in demand.”

According to Kyari, the current cost of crude oil production in the country is within the range of $15 to $17 per barrel, while Saudi Arabia has a cost of production that is between $4 and $5 per barrel.

He said countries producing at the cheapest price would remain in the market while those with high cost of crude oil production would not be able to cope with the competing prices.

An energy expert and a former board member of the NNPC, Alhaji Abdullahi Bukar, told our correspondent that producers in Nigeria might have to scale down their operations.

“If oil prices drop to around $10 or $15, there has to be a lot of efforts either to reduce some of the things we are seeing now that form part of the cost of operating the fields or a lot of production will go out.”

He, however, said some companies would still be able to produce smaller volumes at those low prices.

Bukar said, “The producers will continue to produce whatever they can but they will slow down in increasing or maintaining capacity. They will try to cut the costs of whatever they are doing, so that the operations remain profitable.

“They need the help of government, communities and other stakeholders to also cut down their demands so that they can keep people happy and working, and lower the unit operating cost of Nigerian crude oil so we can remain in business. It is a very tough time.”

He said the marginal field operators would suffer the most, “more especially as unfortunately in the last few months, the quota system has been applied to them.”

“When you tell someone who is producing 2,000 barrels to cut off 20 per cent of its production, you have damaged him. So, the marginal field operators need to be allowed to produce at whatever level they can, so they can survive,” Bukar added.

An energy expert, Mr Bala Zakka, said several companies would have to shut down their oilfields, adding that the small players would be hit the most.

“The amount of work the small players may need to do to produce the crude oil may not be as complicated as that of the big players. But when it comes to availability of funds, they don’t have the leverage that big players have,” he said.

The Chairman/Chief Executive Officer, International Energy Services Limited, Dr Diran Fawibe, said the loss to be incurred by the companies if they shut down production might be more than the loss caused by the crash in oil prices.

He said, “The situation is bad enough, but if you shut down, it is not at zero cost. So, do you now shut down and start to incur the costs associated with non-production? If you are producing, even though it is not economical, you may then have a reduced level of production.

“There are various scenarios about oil production level in the country depending on what happens. If the situation worsens and the price goes below $20 per barrel, then we will be talking about a new scenario completely. And I believe the government is monitoring the situation very keenly with a view to taking appropriate measures.”

The US oil producers were said to have shut 40 rigs last week alone, according to a review from engineering group Baker Hughes, the biggest one-week drop since the last oil market downturn battered the US shale industry in 2015.

Goldman Sachs estimated that global oil demand had fallen 25 per cent in the wake of the coronavirus outbreak and the price of Brent crude could fall to lows of $20 a barrel.

A Norwegian consultancy, Rystad Energy, said last week that oil prices could fall as low as $10 a barrel if the economic impact of the coronavirus dents global oil demand by 16 million barrels of oil a day.

Last week, a major Nigerian independent oil and gas firm, Seplat Petroleum Development Company Plc, said it was looking to cut costs by at least 30 per cent to counter a crash in crude prices.

Its Chief Financial Officer, Roger Brown, said Seplat’s western Nigeria assets could continue producing even at oil prices below $20 per barrel, as revenues from gas help shield them from the downturn.

He said other projects, such as the Gbetiokun oil field, which produced its first oil in July, would struggle to remain profitable, if oil prices stayed close to $25 per barrel.

“At some point, you would shut it in if the oil price stays below that level,” he added.

Nigeria, Africa’s top oil producer, relies on crude oil for most of its export earnings and government revenue. Oil production in the country has continued to hover between 1.9 million barrels per day and 2.2 million bpd in recent years.

The 2020 budget, which was signed by the President, Major General Muhammadu Buhari (retd.), in December, was based on oil production of 2.18 million barrels per day with an oil price benchmark of $57 per barrel.

The Federal Government, which was looking to generate 32.34 per cent (N2.64tn) of expected total revenue from oil, has been forced to propose the reduction of the oil price benchmark to $30.

The Head of Exploration and Production at Vitol, Andrew Lewis, said many companies would want to avoid shutting production entirely, but even small cuts could be political decisions involving host countries that rely on energy royalties.

“Governments are going to be involved in these decisions. When the production needs to come back, it will not, however, be switched back on overnight,” he was quoted by Financial Times as saying.

Source: Punch

COOKING gas retailers have obtained an exemption from the lockdown, the Nigerian Association of Liquefied Petroleum Gas Marketers (NALPGAM) said on Wednesday.

Its Executive Secretary, Mr Bassey Essien, said in a statement that in a bid to avoid a misinterpretation of the directive, NALPGAM sought clarification from the Lagos State Ministry of Energy and Resources.

It said it got clarification that gas plants and retail outlets are part of essential service providers.

NALPGAM said: “The fact that people have to stay indoors for two weeks in the first instance entails that households must cook and eat for the stay-at-home order to be effective.

“Lagos State Government, through the Ministry of Energy and Mineral Resources, granted the approval that gas plants and cooking gas retailers and their personnel are classified as essential service providers and their product essential in ensuring the sustainability of the people’s continued stay at home to curtail the spread of COVID-19.

“Therefore, LPG plants are part of the essential services and are exempted from the lockdown and should thus be granted access to the smooth running of their facilities and operations, as well as free movement of their personnel from their homes to the facilities.”

Essien urged gas plants to maintain all safety and hygienic measures to prevent the spread of COVID 19 while workers must have their identity cards.

NALPGAM said it has written the Nigeria Governors’ Forum (NGF) for other states to make similar clarifications.

SOURCE: The Nation

The Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) has distributed hand sanitisers, safety gears to tanker drivers and other vulnerable members at various operational locations.

According to a statement jointly signed by the National President of NUPENG, Williams Akporeha, and General Secretary, Afolabi Olawale, the union carefully engaged a pharmaceutical company to produce the sanitiser specifically for its members in Nigeria.

The statement explained that the sanitisers come in 10 litres transparent jerry cans to serve as refill for dispensers with other safety kits, such as hand gloves and mouth masks, “which we had already distributed across to all our zonal offices in Port Harcourt, Kaduna, Warri and Lagos.”

It explained there are 154 petroleum loading depots across the country, adding that presently there are 120 of these numbers in active operation.

According to the statement: “Petroleum Tanker Drivers (PTD) Branch of NUPENG has about 300 places across the country that serve as their Stop-Over-Point for resting and recreation, we will be distributing these items to all these places too.

“Conservatively, we will be sending out about a 1000 of these items every week until the siege is over. ADCEM pharmaceutical company may not have the capacity to meet this demand and we are in talks with other companies to support this production. We are also going to provide further logistics and support to our members as we deemed necessary. Oil and Gas Workers need all your support at this period and we are doing this from the meager savings we have.”

SOURCE: This Day

The Organization of Petroleum Exporting Countries (OPEC) has invited Nigeria and other members of the group for an emergency meeting scheduled for Monday next week in an attempt to strike a deal to cut production output to strengthen crude oil prices.

The meeting, which is expected to be via video conference, would be coming days after OPEC daily basket crude oil price made a marginal recovery to $18.93 per barrel on Thursday, after crashing to an all-time low level of $16.87 per barrel on Wednesday.

OPEC secretariat officials said the meeting called by Saudi Arabia, the group’s largest producer, would involve Russia and other non-OPEC allies to attempt to reach a consensus on output cuts to halt the rapid slide in crude oil prices in recent times.

The United States President, Donald Trump, had tweeted on Thursday that he had prevailed on the Saudi Arabia to convene the meeting that would allow members end the price wars and agree on production cuts to restore “balance” to the oil market.

The last time the group attempted to take a decision on a 2.5 million barrels cut, Russia mobilised its allies to frustrate the Saudi Arabia-led effort, resulting in a decline in price below $30 per barrel.

With the outbreak of the deadly coronavirus hitting hard on the global economy, crude oil prices have continued to drop since then, with most resource-dependent countries like Nigeria forced to review its budget fundamentals and benchmarks for the 2020 fiscal year.

News of the proposed meeting resulted in a rally in price on Friday, with Brent Crude for June delivery rising by about 14.20 per cent increase to about $34.19 per barrel on Friday.

The recently inaugurated Economic Sustainability Committee headed by Vice President Yemi Osinbajo said the country is facing an unprecedented economic challenge.

The ommittee was constituted by President Muhammadu Buhari on Monday to design and respond to the impact of the COVID-19 pandemic and the crashing of oil prices in the global market.

In the last several weeks, crude oil prices have crashed below the budget benchmark price of $57 per barrel to less than $20, even as the impact of the coronavirus pose a grim prospect of looming recession.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, said the government will implement a 50 per cent cut in revenue from privatisation proceeds.

The government also announced a cut in crude oil benchmark price, down to $30, while crude oil production remains at 2.18m barrels per day as earlier contained in the budget estimates.

Amid the growing uncertainty, Nigeria faces the challenge of seeking buyers for its unsold crude, with reports of the country compelled to lower its official crude oil selling price to record lows to attract buyers.