Despite the onslaught from the Organisation of Petroleum Exporting Countries (OPEC) with the output cut deal, Shale oil has remained a threat to the oil cartel and Nigeria’s ability to bolster her economy through revenue from crude oil sale.
The Organisation of the Petroleum Exporting Countries and 11 other leading oil producers, including Russia, agreed in December to cut their combined output by almost 1.8 million barrels per day in the first half of the year, with a view to maintaining stability in the price of crude in the international market.
“Most Shale productions are now profitable at $35 per barrel. That means Shale oil producers remain a threat to Nigeria and OPEC, even with low oil price”, said Dolapo Oni, head of energy research, Eco Bank, Nigeria.
Shale produces nine million barrels of sweet crude per day, almost 900,000 barrels more than expected at the international market, which has put other crude oil producers on the edge.
US shale producers cut production by about one million barrels per day, from a peak production of nine million bpd and prices have kept inventories near the ceiling. Oil prices recovered slightly from lows of $30 to about $50 but there are concerns over the deal stumbling prices.
Nigeria depends on crude oil revenues for about 70 percent of government earnings and more than 90 percent of foreign exchange income. The recent surge in crude oil prices and production has helped the country rebuild its dwindling external reserves to more than US$30 billion, strengthening the CBN’s capacity to intervene in the foreign exchange market.
This action by shale oil producers, industry watchers believe, poses a great danger for OPEC, as well as Nigeria’s revenue earnings, because of its heavy reliance on revenue from Brent to drive its economy.
Industry watchers argue that the introduction of advanced technologies in the production of shale oil represents a major threat to OPEC’s efforts at boosting the price of crude through production cuts.
Consistent production of shale oil would continuously bring down the price of crude oil in the international market, as industry sources indicate that the emergence of shale drilling has prevented OPEC from controlling supply and demand in the way it did in the past.
All attempts by OPEC to reach agreement with producers of shale oil have met a brick wall, on account of the perception that OPEC contributed to the great losses they suffered in the past, when some OPEC members clamoured for increases in the production of crude oil into the market in an attempt to gain market share.
It was expected that oil prices would hold above Nigeria’s budget benchmark of US$44.50 as more oil producing countries on 26 March backed a proposal to extend the restrictions on oil output for another six months.
Any agreement to extend the restriction would have a positive impact on crude oil prices, which had been declining in recent weeks from an average price of US$55, traded for most of this year.
In a statement released after the last OPEC meeting, the oil ministerial committee “expressed its satisfaction with the progress made towards full conformity with the voluntary production adjustments, and encouraged all participating countries to press on towards 100 percent conformity.
It was reported that the committee said it took note that certain factors, such as low seasonal demand, refinery maintenance and rising non-OPEC supply, had led to an increase in crude oil stocks. It also observed the liquidation of positions by financial players.
“However, the end of the refinery maintenance season and noticeable slowdown in U.S. stock build, as well as the reduction in floating storage, will support the positive efforts undertaken to achieve stability in the market,” it said.
It asked the OPEC Secretariat to review oil market conditions and come back with recommendations in April regarding an extension of the agreement.
Analysts warn oil producing countries like Nigeria to strive to prepare plan B for the future, because depending on oil as a sole source of income for their economies is not viable, considering that if the USA is finding and encouraging investments in shale oil and gas sector, other countries will follow suit. International oil companies that are investing in non-traditional oils, will do the same in other countries that have higher shale oil reserves of almost double the current availability in USA. These countries include China, Algeria and Russia.
KELECHI EWUZIE
