Shell Petroleum Development Company (SPDC) has reportedly made the decision to increase its oil and gas production in Nigeria in the coming months.
This development comes as a result of a significant decline in revenue from renewables, according to anonymous sources familiar with the matter.
Concerned about the unexpected dip in revenue, Shell Plc, the parent company, has allegedly instructed its Nigerian affiliate, SPDC, to ramp up production of oil and gas in the country. The company’s renewable arms, including SPDC’s All On, have been generating revenues as projected, which has prompted the oil giant to refocus its efforts on oil and gas production until 2030.
An unnamed source revealed, “Shell did not anticipate such a decline in revenue, especially given the global shift towards reducing oil investments and increasing support for renewables. Now, the company is grappling with lower income due to sluggish oil and gas exploration, and investors are starting to voice their concerns.”
According to Reuters, Shell’s Chief Executive Officer, Wael Sawan, is determined to restore investor confidence by ensuring that oil and gas profits continue to flourish. At an upcoming investor event, Sawan is expected to announce the abandonment of a target to reduce oil output by one to two percent annually. This decision comes as Shell has already achieved its production cuts goal through the sale of assets such as its US shale business.
Earlier, Shell had planned to sell its stake in SPDC but halted the process due to a Supreme Court ruling that demanded a wait for the outcome of an appeal regarding a 2019 oil spill.
The Supreme Court’s decision upheld a lower court ruling that prevented Shell from selling its assets in Nigeria until a dispute over a $1.95 billion compensation awarded to a Niger Delta community for the spill was resolved. Shell intended to sell its 55 percent stake in SPDC, which it operates, as the joint venture continues to grapple with numerous spills primarily caused by theft.
However, sources suggest that SPDC is considering a more diplomatic approach to address its internal issues with local communities. Sawan, who assumed the role of CEO in January with a commitment to improving Shell’s performance and closing the gap with its competitors, emphasized that oil and gas would remain central to Shell’s operations for years to come. He insisted that efforts to transition to low-carbon businesses should not come at the expense of profits, marking a departure from his predecessor’s strategy.
In recent months, Shell has abandoned several projects in offshore wind, hydrogen, and biofuels due to projected weak returns. The company is also divesting its European power retail businesses, which were once seen as vital to its energy transition.
Despite these changes, Shell reported record profits of $40 billion last year, largely attributed to robust oil and gas prices.
Sawan has indicated that the 2021 target to reduce oil output by 20 percent by the end of the decade is currently under review. The company’s oil production in the first quarter of 2023 stood at approximately 1.5 million barrels per day, reflecting a 20 percent decline from its 2019 production of 1.9 million barrels per day.
Oil Prices Surge as China’s Holiday Demand and Tight US Supply Drive 2% Weekly Gain
Oil prices to close the week with about a 2% gain as robust holiday demand from China and constrained U.S. fundamentals overshadowed concerns about potential supply increases from Saudi Arabia.
Brent crude oil, against which Nigerian oil is priced, gained 5 cents to $95.43 per barrel at about 6:00 a.m. Nigerian time on Friday while the U.S. West Texas Intermediate crude (WTI) rose by 16 cents to $91.87 per barrel.
The market’s resilience became evident as it rebounded from a slight 1% dip in the previous session when profit-taking followed a surge in prices to 10-month highs.
China, the world’s largest oil importer, played a pivotal role in driving prices higher. Strong fuel demand coincided with China’s week-long Golden Week holiday, with increased international and domestic travel significantly boosting Chinese oil consumption.
Analysts at ANZ noted that this holiday season’s surge in travel was underpinned by the fact that the average daily flights booked were a fifth higher than during Golden Week in 2019, pre-dating the COVID-19 pandemic.
Also, improving macroeconomic data from China and the steady growth of its factory activity further supported the bullish sentiment.
The U.S. economy’s robust growth and indications of accelerated activity in the current quarter also bolstered expectations of sustained fuel demand.
Also, tight supplies in the U.S., evidenced by dwindling storage levels at Cushing, Oklahoma, provided additional support to oil prices. As rig counts fell, U.S. oil production was expected to slow down, potentially pushing the market into a deficit of more than 2 million barrels per day in the last quarter.
Investors are now eagerly awaiting the upcoming meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+), scheduled for October 4th.
The meeting will be a crucial indicator of whether Saudi Arabia will consider stepping up its supply in response to the nearly 30% surge in oil prices this quarter.
Analysts, however, caution that the market may be entering overbought territory, leading to possible hesitancy among participants and concerns that OPEC+ could ease production cuts earlier than planned if prices continue to rise.
The outcome of next week’s OPEC meeting will undoubtedly hold significant implications for the oil market’s future trajectory.
Oil Prices Soar to a Year High as Crude Reserves Plummet
Crude stocks at a pivotal storage hub in Cushing, Oklahoma, hit their lowest levels since July last year, sparking concerns about future supply stability.
Oil prices surged to their highest level in over a year during Asian trading hours, following a significant drop in crude stocks at a key storage hub.
Crude inventories in Cushing, Oklahoma, plummeted to a mere 22 million barrels in the fourth week of September, close to operational minimums, according to data from the U.S. Energy Information Administration (EIA).
This translates to 943,000 barrels compared to the prior week.
The U.S. West Texas Intermediate (WTI) rose to $95.03 per barrel during Asian trading hours, a peak not seen since August 2022 before settling at $94.61 per barrel.
Meanwhile, Brent crude oil, the international benchmark for Nigerian oil, rose by 1.05% to $97.56 per barrel.
Experts have attributed this rapid price escalation to the precarious situation in Cushing, with Bart Melek, Managing Director of TD Securities, stating, “Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022.”
Melek expressed concerns about the challenges of getting crude oil into the market if inventories continue to dip below these critical levels.
Predicting the future trajectory of oil prices, Melek suggested that prices could remain at elevated levels for the remainder of the year, especially if the global oil cartel, OPEC+, continues to enforce supply restrictions.
He noted that the global oil market is facing a “pretty robust deficit” on top of an already significant shortfall for this quarter due to OPEC’s production cuts.
Saudi Arabia, a key player in OPEC+, has extended its voluntary crude oil production cut of 1 million barrels per day until the year’s end, bringing its crude output to nearly 9 million barrels per day.
Russia has also pledged to continue its 300,000 barrels per day export reduction until December.
However, Melek added that, “We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”
Nigerian Pump Prices May Increase as Crude Oil Hits $93.55 Per Barrel
Amidst growing concerns over the surging price of crude oil on the international market, Nigerian citizens are bracing themselves for a possible increase in pump prices.
Crude oil, the lifeblood of Nigeria’s economy rose to $92.42 per barrel on Monday, casting a shadow of uncertainty over the already volatile fuel market.
This surge in crude oil prices comes in tandem with the persistent depreciation of the Naira in foreign exchange markets, where it traded at N980 to $1 on the parallel market. For many Nigerians, these simultaneous developments trigger memories of the recent fuel price hikes that followed the removal of fuel subsidies earlier this year.
In June, the government removed the subsidy, leading to a sharp 210% increase in the pump price from N175 per liter to N546.83 per liter. In a further blow to consumers, less than a month later, the price surged again, reaching N617 per liter.
However, since then, there have been no additional fuel increments, despite fluctuations in the Naira’s exchange rate. President Bola Ahmed Tinubu, along with key government officials and industry leaders, has reiterated their commitment to stabilizing petrol prices in the country.
According to Ajuri Ngelale, Special Adviser to the President on Media and Publicity, “The President affirms that there will be no increase in the price of petroleum motor spirit.”
Mele Kyari, Group Chief Executive of the Nigerian National Petroleum Corporation Limited (NNPC), echoed this sentiment, emphasizing that NNPC is the sole supplier of petrol nationwide and has not proposed any price hikes.
Industry experts like Chinedu Okonkwo, President of the Independent Marketers Association of Nigeria (IPMAN), have urged the government to expedite efforts in implementing Compressed Natural Gas (CNG) as a viable alternative to traditional fuels, providing a long-term solution to the country’s energy needs.
While the global crude oil price surge is a cause for concern, Nigerians are holding onto the government’s commitment to price stability and the potential for CNG to provide a sustainable energy alternative in the future.
In a market with unique dynamics, where NNPC remains the sole supplier and importer of fuel, the hope is that prices will remain stable for the benefit of all Nigerians.
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