OPEC favours institutionalising re-balancing pact with non-member
Chineme Okafor in Vienna
Nigeria may not be able to fund the expenditure proposals in its national budget majorly with monies earned from sale of its crude oil in about 20 years from now, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has warned.
Kachikwu, said in an early Thursday morning conversation he had with journalists including THISDAY before the 173rd meeting of the Organisation of Petroleum Exporting Countries (OPEC) conference commenced in Vienna, the capital of Austria, that emerging developments in the global oil market indicated that member countries of OPEC who still rely on just sale of crude oil in the next two years to support their economies would find it very difficult to cope.
He noted that beyond the threats that cyclical movements in oil prices portend to economies of oil producing countries in the OPEC group, the race at which technology develops alternative energy sources and their efficiencies, was also alarming and thus represented a credible threat to oil producers.
In this regards, Kachikwu, said price alone was not a challenge to oil producers like Nigeria but technological advancement in energy sources which he said Nigeria has failed to appreciate and move alongside.
â€œWhat can go wrong is that suddenly we hit a plateau of number that will really again incentive shale producers. I get very edgy once we begin to approach the $65 per barrel mark. Sweet crude right now is about $65/b, so, it gets very edgy, but then the only thing that is keeping it calm is how predictable and long lasting are these numbers, there is still a bit of uncertainty.
â€œWhat other thing can go wrong, technology can move so fast that the demand for oil may basically deep faster than before. Already, inventories are going down, demand curves are reasonably okay but you have seen a lot of technology race, and that is usually what happens when there is price uncertainty,â€ said Kachikwu, in his response to a question on potential dangers for the oil market.
He further stated: â€œPeople begin to look at other alternatives â€“ the solars, and electric vehicles. Countries that do not move fast enough to sell off hydrocarbon stocks laying in their backyards very soon â€“ best predictions between 10 to 15 or maybe 20 years (will find it difficult), and certainly for Nigeria, we need to begin to run this race and Iâ€™m not exactly sure weâ€™ve gotten the momentum and how this race is being run.â€
The minister said on Nigeriaâ€™s situation: â€œWe believe that every year, we are going to have budgets and oil planted in it and we are going to have oil fund it and life just continues but the bad news here is that this is not going to last for too long.â€
He further explained that the market was moving very fast and some producers thinking along its movements to checkmate potential dangers for their economies, and warned Nigeria would have to likewise act fast to avoid these potential dangers to its economy.
â€œ2018 for Nigeria is a very critical year, there are lots of things we started but we havenâ€™t moved as fast as we should. We need to drive policies as fast as we should, we need to have cost of production hit its bottoms because we are still massaging it but we need to force it down otherwise if prices hit below $40 per barrel again, we are going to have major problems.
â€œWe need to move into refining and get the best value added. We need to cut through the chase of modernising our refineries and move on, sometimes I think people in the industry donâ€™t get it or maybe those of us in the policy space donâ€™t get it. In my times in these meetings, I realise how much the Gulfs are doing to move themselves away from dependence on the traditional models of oil production and sales and Nigeria has got to cut the chase.
â€œAnybody in the OPEC platform who is quite frankly still importing refined products in the next one or two years is going to be in some difficulties,â€ added Kachikwu.
Kachikwu, stated that a lot of international investment funds looking towards Nigeria were left hanging because the country was slow in deciding what it wanted with its oil industry.
According to him: â€œThere is a lot of competition for international investment money and we need to make sure that we capture some of ours before the interest in Nigeria lapses.â€
Meanwhile, OPEC has proposed to formally institutionalise the partnership it struck in December 2016 with non-OPEC members led by Russia, to stabilise oil prices and rebalance the market, saying it had resulted in a lot of positives for the market.
OPECâ€™s President and Saudi Arabiaâ€™s energy minister, Khalid Bin Abdulaziz Al-Falih, said in his opening remarks at the 173rd OPEC conference that the partnership had led to drops in oil stock overhang by 50 per cent to 140 million barrels (mb) in October 2017, from 280mb that it was in May.
He also stated that the market structure was flipping into backwardation for Brent and West Texas Intermediate (WTI) for the first time since 2014, thus indicating the market was gradually moving towards a more balanced condition.
Based on this, he called on the two groups to institutionalise the partnership to ensure they achieve results that would be long lasting and sustainable.
â€œIn May, the OECD stock overhand was about 280 million barrels above the moving five-year average, but it has since fallen by almost 50 per cent to 140 million barrels as for the month of October. Crude in floating storage is also down by an estimated 50 million barrels since June, and the drawdown applies to all regions including both crude and products.
We have also witnessed the market structure flipping into backwardation for both Brent and WPI for the first time since 2014, indicating the marketâ€™s gradual move towards more balanced conditions. All in all, market stability has improved and the sentiment is generally upbeat. The rebalancing trend has accelerated and inventories are on a generally declining trend,â€ said Al-Falih.
He further explained: â€œThis gratifying outcome has resulted primarily from a near 100 per cent or more compliance to the production target by the combined OPEC 12. OPECâ€™s credibility has also been enhanced, although a couple of members have lagged behind and we hope they will pick up in months to come, all producers have benefitted from this improving situation.â€
â€œHistory tells us that as we get closer to the goals, sometimes commitments can start to waver. So, to achieve our goals on a sustainable basis, I call on all of you to stay on course with each member country taking responsibility for its own contribution and not relying on others. Thatâ€™s the only way to succeed.
â€œTo succeed going forward, it is essential that we continue to maintain unity within OPEC. But let me hasten to add that without the support of our non-OPEC partners, the encouraging situation we see today would not have been achieved. So, we should seek to institutionalise the OPEC and non-OPEC cooperation framework as very well built by the healthy foundation we had laid in 2017.
â€œWe need to continue to foster a secured and stable market in the interests of both producers and consumers. And, to protect the long term interest of consumers, we must invest in capacity. To do that, trillions of dollars must be invested in addition of oil capacity and infrastructure over the next couple of decades. These staggering investment will not be forthcoming unless there is sufficient market certainty,â€ he added.