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Wednesday, September 27, 2023

Africa’s Oil Producers Miss Out on Russian Sanctions Opportunity – Tellimer

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Africa is one of the largest supplying regions of oil to the EU, after Europe’s own suppliers, such as Norway, and Russia. The EU’s vote to ban oil imports from the latter on 3 June has left a gap to be filled and led to a significant reshuffle in global oil flows.

Last year, Russia supplied 25% of the EU’s oil imports as well as 40% of its gas imports, so there is a clear opportunity for Africa’s major producers. But do they have the capacity to meet this urgent demand? The answer, unfortunately, is probably no, for three key reasons.

Weak production numbers

Leading producers in Sub-Saharan Africa (SSA) have been recording steep declines in oil production for several years. Most notably, production from Angola and Nigeria has dropped to record lows and, in fact, Nigeria could soon lose its much-coveted position as Africa’s leading oil producer.

Moreover, they are now the biggest laggards in meeting OPEC production quotas – Angola is 298,000 barrels per day (bpd) under quota and Nigeria is 534,000bpd under quota as of the end of June.

Exiting IOCs

Nigeria and Angola are heavily reliant on international oil companies for production. Recently, we highlighted the imminent risk of IOCs leaving SSA, as they look to make their operations greener and exit environmentally unfriendly operations.

In addition, according to Rystad Energy, IOCs find the cost of operations in SSA too high relative to most other emerging markets.

Instability and insecurity

Beyond the impact of IOC exits on the continent, the likes of Libya also continue to record increased volatility. Just recently, renewed political instability – reversing the progress made in 2021 – forced the shutdown of pipelines in the country, which is home to Africa’s largest oil reserves.

As a result, oil production has dropped from 1.1mn bpd in January 2021 to 629,000bpd as of the end of June, according to OPEC’s sources.

In Nigeria, the persistent problem of oil theft robbed the country’s coffers of US$1bn in oil receipts over Q1, according to the country’s Upstream Petroleum Regulatory Commission. Shell Nigeria has described it as an “existential threat” to the sector.

So, African producers will probably miss out on the opportunity to capture new markets in the EU, as well as missing out on the US$100/barrel oil price moment.

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