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Oil Companies Cut Upstream Expenditure by $100bn in Five Years

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  • Oil Companies Cut Upstream Expenditure by $100bn in Five Years

Capital expenditure (Capex) in the oil and gas industry in sub-Saharan Africa has been cut by $100 billion over the next five years, according to Wood Mackenzie’s latest report on upstream activity in the region.

The new report revealed that deepwater has suffered the deepest Capex cuts due to its high breakeven price relative to other sectors and identified Nigeria and Angola as having endured the worst of these cuts.

As a result, Wood Mackenzie predicted that sub-Saharan African liquids production will decline to 2.6 million barrels a day by 2030, from 4.8 million barrels a day presently.

While acknowledging that the giant Owowo discovery made by ExxonMobil in deepwater Nigeria shows the quality of resources Sub-Saharan Africa still has to offer but added that the major oil companies that heavily invested in Sub-Saharan Africa account for the bulk of the capex cuts.

For operators with deep pockets, the report identified Mozambique, Angola and Nigeria as leaders in upstream mergers and acquisitions (M&A) opportunities.

The report however noted that the M&A market has slowed down as buyers and sellers are unable to align on asset values due to oil price volatility.

According to the report, “deal activity may see an uptick if prices remain low for longer, as companies opt to divest non-core assets.”

Wood Mackenzie further revealed that exploration cuts will contribute to 46 per cent oil production decline by 2030, adding that governments in Sub-Saharan Africa need to revive the industry with attractive fiscal terms.

The report described East Africa’s emergence as a major global gas region as the industry’s biggest recent success in Sub-Saharan Africa Speaking on the report, the Senior Research Manager for Sub-Saharan Africa at Wood Mackenzie, Mr. Femi Oso stated that exploration cuts in the region would lead to long-term slump in crude oil production.

“Exploration cuts in the region will also contribute to a longer-term production slump as explorers have shied away from greenfield prospects, in favour of appraising known discoveries. However, the confirmation of the giant Owowo discovery in deepwater Nigeria shows the quality of resources that Sub-Saharan Africa still has to offer,” Oso added.

Wood Mackenzie expects a slow recovery for exploration, adding that operators will benefit from cost deflation and will improve efficiency through streamlining project design.

“Governments in Sub-Saharan Africa need to revive the upstream oil and gas industry by offering attractive fiscal terms rather than look to increase state revenues in the current climate,” Oso added.

Wood Mackenzie described East Africa’s emergence as a gas region of global importance as the biggest upstream success story in Sub-Saharan Africa.

“With over 168 trillion cubic feet of gas found and limited regional demand, East Africa is on track to become a major global LNG supplier and various export projects are awaiting final investment decision,” said the report.

According to Wood Mackenzie’s research, Mozambique and Tanzania gas project economics are resilient and will “transform the global LNG market”.

“Mozambique and Tanzania’s LNG projects have remained relatively unscathed by cuts and will be timed to align with global LNG demand growth to achieve a better price,” Oso said.

“The projects will appeal to buyers looking to diversify their portfolios and BP has already committed to offtake all volumes from Eni’s Coral FLNG,” he added.

“The expected increase in gas production in Sub-Saharan Africa, from 6 billion cubic feet a day (bcfd) currently to 13 bcfd next decade, is very good news for the region,” Oso explained.

The report acknowledged that onshore LNG plants remain the preferred way to monetise gas, although liquefaction via third-party-owned floating liquefied natural gas (FLNG) vessels is emerging as a simpler and less expensive alternative.

“Floating storage regasification units (FSRU) and piped gas supply to the power sector will play an increasingly important role in the longer term as domestic markets develop from their very low base. An FSRU is a floating LNG import terminal,” Wood Mackenzie added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Slide as U.S. Crude Stockpiles Surge, Heightening Demand Concerns

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Oil prices declined on Thursday as concerns over demand intensified due to a larger-than-anticipated build in U.S. crude stockpiles.

Brent crude oil, against which Nigerian oil is priced, dropped by 0.5% to $83.25 a barrel while U.S. West Texas Intermediate crude oil fell by 0.3% to $78.28 a barrel.

The Energy Information Administration’s report revealed a substantial increase in U.S. crude oil stockpiles by 4.2 million barrels to 447.2 million barrels for the week ending February 23rd.

This surge surpassed analysts’ expectations and marked the fifth consecutive week of rising inventories.

While gasoline and distillate inventories witnessed a decline, concerns regarding a sluggish economy and reduced oil demand in the U.S. were amplified.

Satoru Yoshida, a commodity analyst with Rakuten Securities, highlighted that the significant stockpiles have heightened investor worries.

Moreover, the anticipation of delayed U.S. interest rate cuts further weighed on market sentiment, potentially undermining oil demand.

Traders have adjusted their expectations for rate cuts, with an easing cycle predicted to commence in June rather than March as previously anticipated.

Market participants await the U.S. personal consumption expenditures price index for insights into inflation trends, while the possibility of an extension of voluntary oil output cuts from OPEC+ looms over price dynamics, amid lingering uncertainty in the demand outlook and geopolitical tensions in the Middle East.

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Crude Oil Shortage Threatens Dangote, Government Refineries, Minister Raises Alarm

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Dangote Refinery

The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has sounded a clarion call over a looming crude oil shortage that threatens the operations of the newly inaugurated Dangote Petrochemical Refinery and government-owned refineries in Nigeria.

Addressing stakeholders at the seventh edition of the Nigeria International Energy Summit in Abuja, Minister Lokpobiri expressed concerns that unless deliberate efforts are made to increase investments and crude oil production, these refineries may struggle to obtain enough feedstock for petroleum product manufacturing.

The Dangote refinery, a colossal project spearheaded by Dangote Industries Limited, has a daily requirement of up to 650,000 barrels of crude oil, while government-owned refineries could need approximately 400,000 barrels.

However, the current pace of crude oil production and investment in Nigeria falls short of meeting these demands.

Minister Lokpobiri highlighted the need to ramp up production and attract investments in the upstream sector to ensure adequate feedstock supply for the refineries.

He emphasized the importance of efficiently utilizing Nigeria’s abundant oil and gas reserves to enhance domestic energy security and economic prosperity.

Furthermore, the minister underscored the significance of investing in energy infrastructure and transitioning towards more environmentally friendly practices to address Nigeria’s energy needs effectively.

The alarm raised by Minister Lokpobiri underscores the urgency for strategic interventions and collaborative efforts to mitigate the impending crude oil shortage and secure the future of Nigeria’s refining industry amidst evolving global energy dynamics.

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Energy

NNPCL Pledges End to Nigeria’s Energy Scarcity Within a Decade

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Mele Kyari - Investors King

The Nigerian National Petroleum Company Limited (NNPCL) has announced a bold initiative aimed at ending Nigeria’s persistent energy scarcity within the next decade.

Mele Kyari, the Group Chief Executive Officer of NNPCL, revealed this ambitious plan during the opening ceremony of the seventh Nigerian International Energy Summit in Abuja.

Kyari’s announcement comes as a beacon of hope for millions of Nigerians grappling with chronic power shortages and energy deficiencies.

In his statement, Kyari expressed confidence that all issues related to energy scarcity in the country would be resolved within the next 10 years.

Assuring stakeholders of NNPCL’s unwavering commitment, Kyari emphasized the company’s dedication to collaborating with partners to bridge the energy deficit gap and foster prosperity for all Nigerians.

He highlighted NNPCL’s pivotal role as a key partner to oil-producing companies in Nigeria, facilitating the divestment of international oil companies from onshore and shallow water assets in the country.

Furthermore, Kyari underscored NNPCL’s statutory mandate as the enabler of national energy security, emphasizing the importance of sustainable production from divested assets to ensure energy security for Nigerians.

In addition to addressing domestic energy challenges, NNPCL is also exploring avenues for sustainable energy investment across Africa.

Kyari revealed the company’s intention to invest in the proposed African Energy Bank, aiming to secure funding for energy projects on the continent and guarantee regional energy security.

The event, attended by prominent stakeholders including government officials and representatives from international organizations, marks a significant step towards reshaping Nigeria’s energy landscape and fostering economic development through improved energy access.

As NNPCL charts its course towards energy abundance, Nigerians remain cautiously optimistic about the prospects of a brighter energy future.

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