Oil
Bleak forecast for the Oil industry in 2019
Okwy ONYIA
LAGOS-THAT Nigeria depends on crude oil for about 90% of her foreign earning is no longer news. What is even more significant is the fact that rising crude oil price is good news for Nigeria. Conversely, a drop in prices of crude oil portends danger for Nigeria because not only is the Government unable to meet up with budget target, the entire economy risks turmoil resulting from shortage of forex to fund imports.
In the last quarter of 2018, the oil industry has witnessed steady decline in prices of crude oil. This has prompted several oil producing countries especially OPEC to consider production cuts. In fact, OPEC, Russia and other producers have agreed to remove 1.2 million barrels per day from the market beginning in January.
Crude Oil
The move follows a more than 30 percent drop in oil prices that saw international benchmark, the Brent crude, fall from more than $86 a barrel to a 13-month low of $57.50 last month.
Against this backdrop, industry watchers are wondering what the future holds especially as we head into 2019. According to Citi Bank in her forecast for 2019, ‘international oil prices will average $60 a barrel in 2019, remaining near current levels as OPEC-led production cuts encourage U.S. drillers to put more crude on the market’. Some analysts forecast the production cuts will cause Brent to rebound back toward $70 or $80 a barrel.
However, Citi says an earlier round of production cuts from the so-called OPEC+ alliance has only delayed the inevitable. Rather than putting oil on a steady upward trajectory, the new supply cuts “almost certainly” set up another sell-off.
“OPEC+ did the work of drawing down inventories that otherwise would have to be done through a painful period for shale producers,” Citi said in a research note written by a team led by Ed Morse, the firm’s global head of commodities.
Unfortunately for OPEC and her allies, the more they try to stabilize the market and shore up prices by withholding oil from the market, the more they give Shale producers from the US an opportunity to increase production volumes.
The US crude prices would need to hold steady around $45 a barrel in order to keep American production flat. The U.S. output has maintained a steady rise recently and has reached an estimated 11.7 million barrels per day, making the United States the world’s biggest crude oil producer.
Given this scenario, Caritas R&I forecast that Brent crude is likely to trade at $55 to $65 a barrel in 2019, as global oil stockpiles continue to rise through the middle of the year.
The Caritas R&I forecast is however dependent on the ability of the OPEC members and allies to adhere strictly to new production cuts. If the new quotas are held in breach, Brent could fall back into the $40s.
Conversely, if the OPEC alliance succeed in taking more oil off the market, or if there’s supply disruptions, Brent could rise back to $70 or $85 per barrel.
Price volatility in 2019 may be inevitable considering the conflicting priorities of the three top world producers, namely the US, Saudi Arabia and Russia.
While President Donald Trump wants U.S. crude prices to keep falling from the low $50s, Saudi Arabia prefers Brent crude at $70 to $80 a barrel. Meanwhile, Russia is setting its budget assuming $40. Moscow is also content with $60 oil.
The Caritas R&I foresees demand for oil growing at 1.31 million bpd in 2019. Nonetheless, the world’s appetite for oil might only grow by a little more than 1 million bpd if the United States and China escalate their ongoing trade dispute. A trade deal could lead to 1.56 million bpd in growth.
So, where does all these leave Nigeria?
With a crude production volume of 2.3mbopd projected for 2019 and based on crude oil price of $60 per barrel, it remains to be seen how the Nigerian government plans to fund the budget given that oil prices are currently below $60. In addition to this, OPEC has pegged Nigeria’s daily production at 1.6mbopd, below the projected 2.3mbopd.
Nigerian government says the budgeted production volume is achievable notwithstanding the OPEC quota. The Nigerian government says it hopes to make up the difference through condensate.
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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