Since the beginning of 2015, global oil prices have come under intense pressure from an increasingly volatile market arising from geopolitical tensions in key supply markets and the fear of dominance of high cost shale oil over traditional low cost oil drilling.
These developments have, for so long, continued to influence and shape the direction of the oil market, triggering a supply war among conventional crude oil producers led by Saudi Arabia and Russia on one hand, and the producers of non-conventional oil dominated by shale oil producers in the United States on the other. The effect of this superficial war for dominance has left a deepening glut that has sent oil prices on a downward trend with price levels hovering at 30 – 40 dollars to a barrel, asserting considerable stress on oil producing and dependent economies like Nigeria.
To compound an already worsening situation, global economic growth and recovery have remained slow since 2013 impacting on demand for oil. Barely last week, OPEC revised its global economic growth forecast down by 3.2 for the year 2016. This reversion invariably would impact on the call for OPEC oil demand in the very near term.
OPEC’ Secretary General Abdalla El Badri last week voiced concerns over the lingering decline in prices by calling on all major producers to sit together and come up with a workable solution that will see inventory levels down to allow for quick price recovery. He noted that although OPEC sees incremental demand growing by around 17 million barrels from 2016 to 110 million barrels by 2040, citing investment opportunity to be earned of nearly 10 trillion dollars, if these challenges are not addressed they could pose greater risk to achieving the anticipated gains.
These are indeed unusual times requiring an unusual approach to addressing the collective challenge before us. The Minister of State for Petroleum Resources, Ibe kachikwu, has raised the flag with an earlier prediction that oil price would linger for some time between the averages of 30 to 40 dollars per barrels. He has also called for broadening the level of stakeholders’ engagement to address the market anomaly. Although, this is not the first time that the call for dialogue among oil producers and consumers is being canvassed to help address market challenges, what is different this time is the changing dynamics that is associated with the current situation. In the last four decades, the key dominant themes for dialogue and discussion among oil producers, consumers and the investing publics were anchored on ensuring energy supply security; the impact of oil production on the environment and the need for sustainable development and dialogue. Today, however, the driving issues are defined by growing internal competition within the industry players putting pressure on prices coupled with a weakening demand that is fuelled by a slowing world economic growth amidst an overly saturated oil supply.
These are the fundamental concerns presently confronting oil producers including Nigeria that makes the current dialogue and diplomacy of utmost importance to the Heads and Governments of OPEC members and other producers outside of its fold.
Mediation
The growing influence of OPEC’s swing producers like Nigeria, Angola, Qatar, Iran and Venezuela whose economies are directly impacted by the falling oil prices affirms the new impetus to finding common grounds to addressing the dwindling prices. Already, Nigeria has begun acting in the real sense of the commitment by supporting every effort to stabilize prices in the interest of the global recovery.
Nigerian President Muhammadu Buhari led Nigeria’s delegation to the meeting in Riyadh. Saudi is OPEC’s largest oil producer and a game changer in OPEC. Other countries visited by President Buhari included Qatar and the UAE, both influential members of OPEC. The collaboration with heads of government of OPEC is a pointer to the seriousness of the situation at hand.
Earlier the Saudi-Russia preliminary understanding to freeze oil production output as a measure to address falling oil prices is seen as a significant boost to the effort at strengthening OPEC and non OPEC collaboration and solidarity.
OPEC consensus mechanism
The collaboration effort among OPEC and other oil producers and consumers dates back to the 1970s when the control of oil pricing were the exclusive preserves of multinational oil companies up on till 1971 when OPEC was formed. And with its institutionalization and consolidation as an organization, OPEC became strategically influential in defining developments in the oil market at every given time. Of note is the organization’s consensus decision making mechanism which is unique to it on issues of mutual and global interests. However, the key determinant to success in today’s volatile market would be the ability of OPEC to build internal cohesion and strengthen external stakeholder engagements. The consensus approach mechanism for resolutions of all issues is a potential trigger that would surely move the market to respond in a positive manner.
Technology lead
The present predicament notwithstanding, there seems to be clear signs that consumers and producers of crude oil would converge in the very near future along finding access to new technology and capital for research and development. These are the key critical enablers that would shape future exploration and production activities global, Nigeria inclusive.
The projection by Nigeria to increase its present daily production output to 3 million barrel per day by 2017 is predicated on the strength of capital investment and technology. If this objective is achieved, it would be an impressive record from the country’s long held average production levels of 2.2 million barrels per day.
As the Nigerian oil industry undergoes critical reform as a response to its internal challenges and in responding to the external market exigencies, the task would be daunting, but not insurmountable.
Coordinated by the Minister of State for Petroleum Resources and the GMD of NNPC, Ibe Kachikwu, the reform of the NNPC has a clear roadmap which is intended to achieve operational excellence and efficiency across the entire business value chain. As a first step, the corporation is being proposed to run under four autonomous businesses; Upstream and Downstream; Refineries, Gas & Power with a lean Corporate Center in order to improve governance and enhance transparency and accountability.
No doubt, the gains of the current institutional reforms in the oil and gas sector when fully unveiled will position Nigeria to take full advantage of the paradigm shift in the evolving global energy resource management benefit and utilization.
Umar Gbobe Aminu
Aminu was former Head, OPEC News Agency (OPECNA) and presently serving with the NNPC, CHQ, Abuja.
