COVID-19, cheap oil set to hit African new projects and slash state budgets

48893006196 157ce727b0 cMost of Africa’s top planned oil and gas projects were expecting sanctioning under an oil price assumption of between US$55 and US$60 per barrel

Now, with oil prices falling to below their break-even costs, Rystad Energy expects many projects to be delayed, causing the continent’s expected liquids production to decline for most of this decade and energy-reliant state budgets to take significant hits.

While the oil price is currently hovering well below US$35 per barrel, the top upcoming final investment decisions (FIDs) in Africa have a breakeven crude price of over US$45 per barrel, with some even close to US$60 per barrel.

“The investments for major planned oil and gas projects will now see a timeline shift or even a spending cut altogether, which will ultimately impact production levels in this region,” said Siva Prasad, senior upstream analyst at Rystad Energy.

Rystad estimates that the timeline delays for these pre-FID projects in Africa could lead to a 200,000 bpd drop in expected liquids production on average between 2021 and 2025. The impact could be much higher in the longer term, with liquids production set to drop on average by close to 1.185 million bpd over the years 2026 to 2030.

The economies of the hydrocarbon-producing African nations are heavily reliant on their respective oil and gas output to meet both domestic energy needs and exports. For example, Nigeria based its 2020 capital budget on plans to produce 2.1 million bpd of oil this year at a crude price of US$57 per barrel.

“An extended period of the current price scenario could therefore prove detrimental to the health of these economies,” added Prasad.

Although the OPEC+ members that are currently pumping millions of unneeded barrels of crude into the market are mainly seeking to undercut the US shale revolution, the collateral damage on African petroleum producers’ economies whose hydrocarbon projects are disrupted may be severe.

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