..As OPEC Fails To Meet Market Demand
There are strong indications showing that underinvestment and maintenance work has significantly hampered the ability of the Organization of Petroleum Exporting Countries, OPEC and its allies to raise production.
The OPEC+ group lifted its production in August, but supply could be insufficient to meet the world’s growing oil demand, Reuters suggested on Tuesday.
Global oil demand has recently risen to near-record levels as global activity picks up steam despite the pandemic.
In response, OPEC+ agreed to increase oil production starting in August by another 400,000 bpd each month. But not all producers have responded to the call for more barrels.
Nigeria, Angola and Kazahkstan have been unable to lift their oil production to meet the call for more oil. In Kazakhstan’s case, this was due to maintenance in its Tengiz field—maintenance which ended mid-September. For Angola and Nigeria, years of underinvestment in their oil industry has rendered them unable to respond quickly to increased demand.
The current plan is for OPEC+ to continue increasing production by another 400,000 bpd in October and another 400,000 bpd in November.
Two Reuters sources said on Tuesday that OPEC+’s compliance with the cuts rose to 116 per cent in August, excluding Mexico.
Meanwhile, U.S. production has also been hampered—in this case, due to Hurricane Ida. Production has dipped by 1.5 million bpd in recent weeks, adding to the tight supply situation created by OPEC+’s underperformers.
Add to what some see as inadequate production the tight supply situation for natural gas in Europe. This could also increase the demand for crude oil and gas supplies run thin.
Iraqi Oil Minister Ihsan Abdul Jabbar said over the weekend that if all goes to plan, the market will remain in balance through Q1 2022, with Brent at $70 per barrel, if OPEC+ sticks to its plan.
Meanwhile, Nigeria is discussing with the OPEC, for an increase in its oil production quota to about 2.2 million barrels per day.
Minister of state for petroleum resources Timipre Sylva said, “What we’re getting right now is 1.74 million barrels per day (bpd) we think we can do about 2.2 [million bpd],” as he spoke to the media on the sidelines of the Gastech conference in Dubai on Tuesday.
He added that Nigeria can achieve that production level in six months.
Nigeria was currently producing below its 1.74 million bpd quota due to technical challenges, Sylva said, but he expected to hit that output target in the next month or two.
Sylva said that he didn’t expect the OPEC+, to take any extraordinary measures when they meet next month.
He said that current oil prices were a very “comfortable level” adding that $70 a barrel was an optimal figure.
Brent prices were up 81 cents a barrel at $74.73 a barrel yesterday
Sylva said that he expects peak oil demand to come in 2030.
Oriental News Nigeria learnt that some operating multinational oil and gas companies in Nigeria are considering going back to their abandoned oil fields which they have either earlier thought of divesting due to absence of fiscal policies and uncertainties in the industry.
Some Joint Venture partners with the Nigerian National Petroleum Corporation, NNPC, are considering new measures to optimise production from matured fields as well as spud oil from near abandoned fields.
The Petroleum Industry Act, PIA, has put in place incentives that will guarantee transformation of the industry, said Mele Kyari, the Group Managing Director of the NNPC.
“As a matter of fact by six months the PIA transition committee would have come up with a clear implementation process. Although it has been given a one year mandate to provide all necessary guidelines for seamless transition we have fully engaged the committee and Nigerians will see a clearer understanding of the law” said Kyari at an energy forum in Abuja.
For the NNPC, a number of its assets will be wound down and funds deployed to massive oil production as it’s commercialisation will create opportunities to upscale investments.
The asset divestment and lack of investment by oil majors when the PIB was delayed scaled down production as investors awaited the outcome of the Bill.
“Nigeria would begin to witness asset development instead of divestment and ofcourse most NNPC/partners are no longer talking of leaving. You hear recently that TotalEnergies is boosting gas development and would champion energy transition and this is what we will expect others to start contemplating”
The source said Nigeria missing its August target was because the country was witnessing a transition period and anticipated outcome of the PIB.
The OPEC, has speculated stronger demand for its crude on a combination of rising global fuel consumption and output disruptions elsewhere.
The latest data from the group indicate that the world will continue to face an oil supply deficit in the coming months even as its members revive idle production. Despite the threat of the delta variant of COVID-19, fuel consumption is recovering while crude production from the North Sea to the U.S. and Mexico comes in lower than anticipated.
“The global economic recovery, in combination with a considerable rebound in mobility, significantly lifted oil demand growth in the first half,” according to a monthly report from the Organization of Petroleum Exporting Countries’ Vienna-based secretariat published on Monday. “While this dynamic is forecast to soften towards the end of 2021,” the overall trend is positive.
The world’s appetite for OPEC crude was revised up by 260,000 barrels a day for this year, compared with last month’s estimate, largely due to supply disruptions outside the group. North American output was curbed by Hurricane Ida and a fire at an offshore platform in Mexico, according to the report. North Sea production has also been lower than expected this quarter.
The demand for OPEC crude was revised higher by 1.12 million barrels a day for 2022. Global consumption is expected to increase by 4.2 million barrels a day next year to 100.8 million barrels a day, 980,000 barrels a day higher than last month’s estimate and exceeding pre-pandemic levels.
OPEC’s production rose by 151,000 barrels a day to 26.76 million barrels a day in August still significantly below the average global demand for OPEC crude in the third quarter. That leaves plenty of space for the organization and its allies to gradually revive 400,000 barrels a day of idle production each month, in line with the July OPEC+ agreement, Bloomberg reports.
Still, the cartel’s data showed that it isn’t just non-OPEC nations experiencing production problems. Despite being permitted to increase production in August, several African members showed little growth, or in the case of Nigeria saw a 114,000 barrel-a-day drop in production.