Four major oil and gas projects with a combined capacity of 1.4 billion barrels of oil equivalent (boe) scattered around Nigeria, Africa’s biggest oil-producing country, may suffer delay in Final Investment Decision (FID) as a result of lower break-even oil price and the impact of the deadly coronavirus pandemic.
The critical oil and gas development projects include Bonga SouthWest Aparo with 630 million boe operated by Shell, Etan-Zabazaba with a capacity of 510 million boe operated by Italian ENI, Preowei field with a capacity of 145 million boe operated by French major Total, and HA gas project with a capacity of 210 million boe operated by Shell Petroleum Development Company of Nigeria Limited (SPDC).
Norway-based independent energy research and business intelligence institution, Rystad Energy, said these projects are at a risk of being delayed which will lead to a decline in liquids production for most of this decade.
These big-ticket projects are expected to create thousands of new jobs, spur domestic gas demand, generate electricity, and create an opportunity to diversify Nigerian government revenue, strengthen the country’s revenue base and turn the country into a dominant geopolitical player in Africa, using its gas resources, just like Australia, Russia or Qatar.
“There is no economic sense in taking FIDs on Bonga SouthWest Aparo, Etan-Zabazaba, and Preowei oil field now because of the current economic challenges,” Charles Akinbobola, an energy analyst at Sofidam Capital, said.
While the oil price is currently hovering well below $30 per barrel, Rystad Energy said upcoming final investment decisions (FIDs) in Africa have a breakeven crude price of over $45 per barrel, with some even close to $60 per barrel.
“The investments for major planned oil and gas projects will now see a timeline shift or even spending cut altogether, which will ultimately impact production levels in this region,” said Siva Prasad, senior upstream analyst at Rystad Energy.
Rystad Energy noted that the economies of the hydrocarbon-producing African nations are heavily reliant on their respective oil and gas output to meet both domestic energy needs and exports. For example, Nigeria based its 2020 capital budget on plans to produce 2.1 million barrels per day of oil this year at a crude price of $57 per barrel.
“An extended period of the current price scenario could, therefore, prove detrimental to the health of these economies,” Prasad said.
Although the Organisation Petroleum Exporting Countries (OPEC) and allies are currently pumping millions of unneeded barrels of crude into the market, Rystad Energy said the collateral damage on African petroleum producers’ economies whose hydrocarbon projects are disrupted may be severe.
Nigeria has already reduced the official selling price of its crude oil to entice buyers as the global oil industry brace up for something that hasn’t happened on a large scale in about 35 years: producers shutting down their wells as pumping crude makes no economic sense.
Exports of Qua Iboe and Bonny Light crude – two banner Nigerian grades – will be sold in April for discounts of more than $3 a barrel to the international Dated Brent benchmark.
Even in the depths of the 2008-09 recession, neither grade was sold anywhere near as cheap, but a collapse in demand caused by the coronavirus – and a price war led by Saudi Arabia – has changed everything.
Bonga SouthWest Aparo (break-even oil price $58.75)
Further analysis revealed taking an FID on $10 billion Bonga South West Oil field (Bonga II) planned by oil major Shell might be difficult because its breakeven price of $58.75 is above current market price. The field has a capacity of 630 million boe and is expected to increase Nigeria’s total oil output by 10 percent with an additional 200,000 barrels of crude oil daily.
Etan-Zabazaba (break-even oil price $41.95)
Zabazaba and the Etan fields located in oil prospecting lease (OPL) 245 operated by Italian oil firm ENI have a breakeven oil price of $41.95 which is also above current market realities of below $30.
The Zabazaba and Etan fields are estimated to hold a combined total of 510 million barrels of oil-equivalent (Mboe).
Preowei field (break-even oil price $43.30)
Total is working up the Preowei structure in the vicinity of the Egina Field. However, taking FID might be a challenge with a break-even oil price of $43.30.
Preowei oil field is located on OML 130, about 25km north of Egina field in water depths of 1,150 metres. Preowei is the third producible field on OML 130; the other two are the Akpo and the Egina.
HA gas field (break-even gas price $6)
The HA field is located in Shell Petroleum Development Company of Nigeria Limited’s shallow offshore acreage OML 77, approximately 20km south of the eastern Niger Delta coastline. The HA gas project with a capacity of 210 million boe operated has a break-even gas price of $6 is 72 percent above the current market price of $1.64.
