By NJ Ayuk, Executive Chairman, African Energy Chamber<\/p>\n
Six months after the World Health Organization (WHO) declared COVID-19 is no longer a health emergency, it\u2019s still difficult to fully grasp the far-reaching damage the pandemic has inflicted, from the tremendous toll on lives to economic devastation.<\/p>\n
The chaos certainly was felt in the oil industry, which saw record distortions during the pandemic era, especially during its first few months.<\/p>\n
As David Gaffen wrote for Reuters in February 2022, \u201cLike much else during the pandemic, what was happening in fuel markets was unprecedented. Demand had fallen so sharply as people stopped traveling, the oil industry simply couldn’t cut production fast enough to match it.\u201d<\/p>\n
Add a supply war between OPEC+ members Russia and Saudi Arabia in early 2020 \u2014 flooding already saturated markets \u2014 and by April of that year, we saw the price of a barrel of West Texas crude fall below $0, meaning sellers had to pay to get rid of it.<\/p>\n
Of course, the oil market is nothing if not volatile, but few eras match the last several years for dramatic ups and downs. By early 2022, when Gaffen wrote his article, Brent crude futures were reaching $100 a barrel\u00ad \u2014 the result of Russia\u2019s invasion of Ukraine.<\/p>\n
For now, the wild extremes of the pandemic era appear to be behind us. As the African Energy Chamber reports in our newly released \u201cThe State of African Energy 2024 Outlook,\u201d we are forecasting a \u201crelative calm\u201d in the liquids market for the remainder of 2023. We predict that 2024 will stay balanced and somewhat flat, with only marginal growth.<\/p>\n
A flat market likely is in store for Africa, as well, our report notes, but with a gradual decline in oil production in 2024.<\/p>\n
While, on one hand, a break from dramatic market swings has its appeal, marginal growth and declining production are not exactly welcome news. What\u2019s more, even though the factors that impact oil demand are beyond our control, I don\u2019t believe African oil industry stakeholders should resign themselves to a complacent \u201cit is what it is\u201d mentality about declining production during the next year.<\/p>\n
We should be seizing every opportunity to capitalize on our oil and gas resources. Every drop of oil extracted is a pathway to economic growth \u2014 revenue that can fund social programs, infrastructure development, and much-needed technology transfers from the international oil companies (IOCs) that invest in Africa.<\/p>\n
Even in a period of calm, we must act with a sense of urgency.<\/p>\n
Global Demand and Production<\/strong><\/p>\n So, what will be driving global oil demand in the short term, absent major events like pandemics or global conflicts?<\/p>\n As our Outlook says, with COVID-19 restrictions behind us, road transportation and aviation-driven liquids product demand \u2014 primarily from the U.S. and Asia \u2014 likely will comprise more than half of global demand during the next 18 months.<\/p>\n Another key driver will be industrial demand, particularly from the petrochemical sector in the Middle East, Asia, and the U.S., along with power generation projects.<\/p>\n Our report also considers increasing oil demand in the Northern Hemisphere in the third and fourth quarters of 2023, along with diminished supply due to decreased Russian exports and voluntary production cuts by Saudi Arabia. The result will be a supply deficit setting the stage for increased production \u2014 at least in some regions of the globe \u2014 in 2024.<\/p>\n We are forecasting global output to total more than 84 million barrels per day (bpd) next year, which is a 1.6% increase over 2023. The Americas, both north and south combined, are expected to see a marginal 4% growth in output year over year (YoY) in 2024, while the Middle East is expected to see a smaller 2% YoY growth over 2023 output.<\/p>\n But these increases likely will be offset by marginal declines in output in other regions, including Russia, Asia, Europe, and Australia.<\/p>\n Production Declines in Africa<\/strong><\/p>\n As for Africa, our 2023 \u2013 2024 output is expected to stay relatively flat at about 6.77 million bpd. But month-on-month production looks a bit bleaker, with production declining from 6.9 million bpd in January 2024 to approximately 6.62 million bpd in December 2024.<\/p>\n Currently, a handful of African nations are driving oil and condensate output. This includes OPEC member nations Nigeria, Libya, Algeria, and Angola, which are expected to achieve outputs of 1.51 million bpd, 1.31 million bpd, 1.18 million bpd, and 1.01 million bpd respectively in 2024. Out of that group, Nigeria stands to be a star producer, contributing a little over a fifth of these countries\u2019 combined total annual volume.<\/p>\n Also driving African oil output are Egypt, Chad, and Ghana. Egypt, for example, is expected to see its oil output reach 560,000 bpd by the end of 2023 while totalling 520,000 bpd in 2024.<\/p>\n More on African OPEC Nations<\/strong><\/p>\n \u00a0<\/strong>Our report also explores the impact of OPEC membership on African nations, especially in the areas of production cut requirements. The cartel establishes these cuts to control the global supply-demand balance and volatile market situations or irregularly high or low global oil prices.<\/p>\n \u00a0<\/strong>\u201cThe member nations are expected to adhere to these cuts so that the cartel maintains its control on the global markets as opposed to losing the market share and control to North American shale,\u201d our Outlook report explains.<\/p>\n For years, African OPEC members had a higher production capacity than the cartel\u2019s quota and tended to produce higher, even during periods of YoY production decline. But that is no longer the case. Nigeria, for example, has experienced production outages caused by pipeline vandalism, militant activity, and resulting force majeures imposed by operators, exacerbated by declining legacy fields and a lack of new start-ups. Angola and Equatorial Guinea have experienced outages as well, which likely will reach an average of 25,000 bpd over 2023.<\/p>\n These outages must be addressed: Current producing projects in African OPEC countries represent about 44% of our continent\u2019s total liquids reserves potential of more than 70 billion barrels. An additional 33% is believed to be in the undeveloped discoveries in these countries, along with 2% from under-developed projects.<\/p>\n With that in mind, African leaders must do everything possible to drive and capitalize on oil and gas activity here. Our governments must create enabling environments for companies to operate in their countries and do what they can to minimize investors\u2019 risks by creating safe and inviting business environments and investment-attractive fiscal terms. And the time for action is NOW. This is especially true for the governments of OPEC member nations.<\/p>\n