The devastation of the global economy by the COVID-19 pandemic is real, as many countries are still struggling to recover from the impact of the first wave of a health challenge that has stirred a global economic crisis.
But, on Wednesday during the virtual meeting of the “Gulf Intelligence global UAE Energy Forum 2021” on the topic: “Outlook for Africa: Nigeria’s Oil & Gas Sector in Post-COVID-19 Era”, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), MELE KYARI, said although the COVID-19 pandemic has posed serious challenges that have fundamentally changes the way people live and do business, it presents an opportunity for Nigeria to produce more of her huge reserves of oil and gas resources. TEAM LEAD, MEDIATRACNET NIGERIA, BASSEY UDO, monitored the meeting from Abuja. Excerpts:
Q: What’s your outlook of the global oil market in the next two years?
KYARI: The global oil market is very tough at the moment. That’s a mild way of putting it. The road ahead is also very difficult. We can see every permutation on what demand and supply is going to be. It’s a curve. Not a straight line.
We expect that demand will pick up soon. But, not to a level we expect. I do not see demand coming back to pre-COVID-19 levels anywhere earlier than 2022.
That is very unlikely, because several things are going on today both in the market and in the world at large.
Today, new habits have come up, irrespective of whether there is COVID-19 or not. There are habits people would not change anymore. People’s transportation needs have changed.
People now learn how to work in virtual spaces. People have stopped going to work in offices. Those who still do are just by choice. Not because of COVID-19 anymore.
So, I see a decline in transportation fuel consumption, especially in the form of aviation fuel consumption. It’s going to be difficult to come back.
But, the other part of it is that new developments are coming up in the form of a new middle class emerging in many countries, including Nigeria and in West Africa.
We are seeing greater organization. A number of cities are growing. People are coming out of poverty. That means more and more demands for energy and transportation fuel and oil requirement. That will balance out the natural decision of people who are afraid not to come out because of COVID-19. So, I see some level of marginal increase by the end of this year.
Q: What are some of the risks to attaining pre-COVID-19 levels? Do you expect a lot of shale oil supply to return in the near future?
KYARI: Clearly, we (OPEC) will not do well below a $45 per barrel oil. We have gone beyond a $25 per barrel oil.
There is need for greater incentive for the shale oil to come back. But, the shale oil producers are also aware that the situation is not long term.
There are a number of capacities that are shutting down due to non-shale oil sources that can easily kick in to the market. If that happens, they would lose money. Nobody wants to lose money. So, they will be very cautious.
Q: What does the OPEC+ pause in terms of output cut mean to you and Nigeria?
KYARI: The OPEC+ decision on output cut is a very convenient balance for Nigeria.
First, as you may be aware, by middle of April last year, Nigeria was able to attain crude oil and condensate production capacity of about 2.49 million barrels per day.
By every standard, that’s huge, looking at our country’s capacity. But, that has gone down to about 1.6million barrels per day, including the condensate production, substantially increasing our capacity. But, obviously this translates to a drop in the government revenue.
You will also be aware that when oil is taken to the market and sold as water, is not what anybody wants to do.
Obviously, OPEC+ decision to cut oil production by its members is understandably the right thing to do at this time, because that market balance is required by both the suppliers and consumers.
So, Nigeria sees a challenge to her revenue sources. But, we see a better picture of getting the best out of this situation by complying with this decision.
For Nigeria as a country, it’s a balanced situation. And we are very happy to go along with it.
Q: How confident are you that Nigeria will hit compliance level in this first quarter of the year?
KYARI: Absolutely, we will. We are actually already at an over-compliance level since November 2020. So, we have no difficulty remaining compliant with the OPEC+ decision.
But, what we are doing differently today is to increase our sources of condensate supply, which is not curtailed by the OPEC+ cut decision. That’s why we are looking at new assets that can produce more condensate into the market.
Q: What volume of condensate do you expect Nigeria to produce this year?
KYARI: Today, Nigeria produces between 270,000 and 300,000 barrels of condensate per day.
Q: Can you update the market on the compensation cuts by Nigeria?
KYARI: I have already said that Nigeria is already in conformity with the OPEC+ decision on output cut, which is within the level of the compensation cuts you are asking about. That’s the point I was making.
Q: What do you expect from the new U.S. Biden administration? What do you think Biden is going to mean for the global oil industry?
KYARI: For Nigeria, we are very conscious of the disposition of the incoming Biden administration towards the global oil industry, which is not different from what Nigeria is currently doing, or where we are going as a country.
These include paying closer attention to the environment; making sure that oil is a benefit or blessing and not a curse to anyone, particularly for the developing countries.
There are rules for doing that, especially for reducing flares in many oil producing countries and producing cleaner fuels, which is what Nigeria is trying to do and doing so transparently.
In Nigeria, we have deep engagements with the Department of Petroleum Resources (DPR) to support the process to bring up some strategic infrastructure projects designed to bring down the level flares in our country.
We are very excited to work with the oil companies to ensure that these initiatives that are designed to clearly cut down on the carbon footprints; ensure that most of these resource-dependent countries, including Nigeria, give attention to the development of infrastructure and getting people out in office, are very primary to global peace and security. So, we know that the DPR will support us on this.
Q: Do you expect the Biden administration to do to global oil and energy as Trump administration did during the last summer?
KYARI: Yes, indeed, but from a different perspective. I am very convinced the Biden administration would be very interested in carrying out projects and production will reduce carbons flares.
Q: All eyes are going to on what Biden administration does with Iran, in terms of the decision for it to rejoin the OPEC output cut agreement. How tough is that a job for OPEC+ if Biden resolves the issue and the group sees more barrels into the market from Iran?
KYARI: One likelihood is that we can have a better situation in managing those relationships so that the market can balance. That’s all I can say.
Q: Do you see a risk of compliance fatigue by OPEC members with the situation we have on our hands?
KYARI: It is very unlikely for the decision to result in compliance fatigue, because for many countries, including Nigeria, compliance with the agreement is the only choice we have chosen over anything else.
Of course, it is not what for one to just change one’s mind of course, managing reserves and cut back production and come back the next day.
There are some technical considerations one has to make to get out of it. I am not sure whether anybody will bother to worry about non-compliance, because it serves our interest to deal with the matter technically.
Q: What’s would you say is your biggest risk for the industry in 2021?
KYARI: My biggest risk for 2021 is getting people to get back to work in the normal way, which is very very unlikely.
Getting back to work means getting back to the workplace, which is now seriously challenged, and people do not want to go back to the workplace.
That also means that people do not want to travel from one place to another. Therefore, there is a need to shut-in some demand both in transportation fuel and aviation fuel. And that’s a big challenge.
Q: What will be the long-term trend that will develop in terms of the energy transition story?
KYARI: We are likely to see more presence of gas in the energy transition mix as we go forward with much faster forecast than oil that we have seen.
That is where everybody is going. And the market is showing that. We are also taking that direction. We are increasing our domestic gas production capacity and also taking our gas exports seriously as everybody else in doing. Without gas, today Nigeria would have been out of business.
Q: How do you see the OPEC+ evolving at the end of the agreement?
KYARI: If you mean members of the non-OPEC in OPEC+ becoming members of OPEC, I believe that is not necessary, because it is in the informed interest of the global market for that balance to take place. So, we will rather see more members in this platform than participating in OPEC, probably including the U.S.
Q: Like other members, Nigeria wants more freedom to sell its crude oil. Could you see a situation where Nigeria leaves OPEC and lives in OPEC+ world?
KYARI: They are one and the same thing. They are all about balancing the market by ensuring that demand does not exceed supply. So, there will be no incentive for Nigeria, or any country to leave the OPEC+.
Q: What’s the challenge for Nigeria and the West African energy in terms of investment considering the instability that COVID-19 has brought to geo-politics?
KYARI: What we are seeing today in the industry in the COVID-19 situation is an opportunity we must take advantage of. Nigeria has the largest reserves of oil and gas in the whole of Africa. Not only that. In Africa today, Nigeria has the fast growing middle class. Economies are expanding and nations are growing.
Also, Nigeria is so centrally located in the geo-politics of Africa, in terms of distance to the market and consumers.
So, we see the COVID-19 crisis as an opportunity for producing more oil and becoming the hub for petrochemical industry operations.
These days that refineries in the world are shutting down, we want to be where the supply of refined petroleum products will come from. That is where we are going with what we are doing now.
In three years to come, we plan to dominate the oil and gas market and control the flow of trade to other countries in Africa and beyond.
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