Daily Management Review

African Oil Producers Face Hard Times As Oil Price Plummets


African Oil Producers Face Hard Times As Oil Price Plummets
The coronavirus pandemic bringing down global demand for oil as well as the breakdown of the production pact between the oil cartel OPEC and Russia and other oil producers earlier this month has crashed global oil prices. This has severely impacted African oil producing countries as they are not only facing shortage of revenues at a time when they need it most to fight the coronavirus pandemic but also the potential loss of market share that they may never recover.
The lower cost of production for oil giants Saudi Arabia and Russia, who are flooding the market with oil, is no match to compete for African oil producers like Nigeria, Angola and Algeria.
The desperation among the African oil producing countries was evident when the oil minister of the Republic of Congo urged the OPEC secretary general Mohammad Barkindo on March 20 to make arrangements for an emergency meeting of the body to find out ways to enable the African producers form slipping into recession.
But even though African oil producers are critically dependent on the Organization of the Petroleum Exporting Countries plus Russia, also known as the OPEC+ oil producer, the y have little leverage over them.
"They have no power," one Nigerian oil industry source was quoted in the media as saying. "All they can do is ask."
Even though the cost of production for many of the non-OPEC oil producers such as Britain, Norway and the United States is quite high, they have not been impacted as much because their economies are not dependent on oil. 
Major oil companies have been forced to cut billions from spending plans in addition to tightening their already tight budgets. But for the African oil producers with comparatively higher costs of production, the impact of the situation in the long run could be much harsher.
"Companies are reviewing their whole portfolios on a daily basis," said Roderick Bruce, principal research analyst for Africa at IHS Markit, which forecasts final investment decisions on the continent could hit historic lows this year. "They (African countries) are in a very difficult position," Bruce added, citing their higher production costs.
For example, there was a 35 per cent drop in production without offshore field investments has been predicted in Nigeria. There could be an estimated drop of about 200,000 barrels per day (bpd) in output by 2025 across Africa, according to the estimates of Rystad.
"The discipline that's going to be introduced will be a shock to the system," said Alex Vines, head of the Africa Programme at British think-tank Chatham House. "This is really different terrain, and these are very vulnerable economies," Vines added.
African producers are also being elbowed out of incredibly competitive spot trade by the larger oil producing countries. The agility and the aggressive marketing, such as the immediate slashing of its of prices after the collapse of the OPEC+ deal by Saudi Arabia, is very hard to be matched by African producers.
In contrast, more than two weeks were taken by Nigeria to implement record cuts to its official selling prices.