But they may not be able add new volume to the market quickly
Agency Report
The US-Israel war on Iran and the ensuing difficulty of moving oil tankers through the Strait of Hormuz have severely disrupted global oil and liquefied natural gas (LNG) supplies. Crude oil price has surged past the US$100 per barrel mark. This has handed the leading crude oil producers of Africa a windfall. But except for Angola, few others will be able to ramp up production quickly. Among the biggest winners are Nigeria, Algeria, and Angola.
Algeria has entered frantic negotiations with European buyers to boost gas flows and is considering selling additional volumes via the spot market at higher prices. State-owned oil monopoly Sonatrach says it is ready to redirect supplies through the two gas pipelines (TransMed and MedGaz) connecting North Africa to Europe. Bu these pipelines are already near full capacity. What Algeria is appears to be doing is using the crisis to secure higher prices and renegotiate terms rather than expand output. Libya is trying to ramp up its oil production to 2 million barrels per day and its National Oil Corporation (NOC) has signed a number of new oil exploration and re-development contracts with international oil majors. Egypt has raised domestic fuel prices to manage the fiscal shock from higher global oil prices and is ramping up offshore gas drilling activity. Angola has begun producing 150 million cubic feet of gas per day from the Quiluma project and plans to ramp up production to 330 million cubic feet per day by the end of this year. It is one of the few African producers adding new volume onto the market right now.
Nigeria has reduced the approval time for reviving idle oil wells from several weeks to mere hours, a rapid pivot by Africa’s top crude producer to take advantage of surging energy prices triggered by the Iran war. By expediting paperwork that previously consumed up to six weeks, the Nigerian Upstream Petroleum Regulatory Commission hopes to fast-track production. Repairing suspended wells offers a cheaper and significantly faster alternative to drilling new ones, which often requires years of planning. But Nigeria pumped just 1.31m bpd in February – its lowest volume in 17 months thanks to maintenance work being carried out at a 225000 barrels per day site operated by Shell.
Oil and gas importing nations around the world are actively seeking to secure African energy supplies. Yet most African producers are unable to fully capitalise. Nigeria, Angola, Libya, and Algeria sit on more than 100bn barrels of proven reserves, yet each of these nations is now exporting between 500000 and 1m fewer barrels per day (bpd) than at their peak. A combination of underinvestment, insecurity and retreat by Western oil majors has meant that most African countries have little or no spare capacity to take advantage of a windfall as presented by this recent crisis.
Then there are losers as well. Net oil importers such as South Africa, Kenya and the Democratic Republic of Congo will be among the hardest hit. The conflict in West Asia is also expected to spark inflation across the continent as the debt distressed governments struggle to find the foreign exchange to buy fuel, food and fertilisers – much of which is still imported.
The disruption to oil supplies from the Gulf region is also prompting a shift in regional fuel procurement. Several African governments have approached the Lagos-based Dangote Petroleum Refinery and Petrochemicals to secure refined products. South Africa is now exploring a diversified range of sources and has reportedly inquired about a 12-month supply contract with the Dangote facility. Ghana and Kenya have expressed similar interest, while Tanzania this month (Mar) received its first Dangote shipment.
Owned by Aliko Dangote, Africa’s richest man, the 650000 barrels per day refinery reserves roughly 75% of its output for Nigeria, leaving the remainder for export. To account for rapidly rising global oil costs, the facility has raised fuel supply prices for domestic consumers multiple times in March.
Some 20% of the global oil and gas moves through the Strait of Hormuz. Iran has restricted movement through the Strait and oil tankers are avoiding passing through the war zone. A complete closure of the Strait would result in the removal of almost 20 million barrels of oil per day from the market triggering an oil crisis not seen since the 1970s