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‘Nigeria, Others May Lose 85% Of Oil, Gas Income To Coronavirus’

The Secretary-General of the Organisation of Petroleum Exporting Countries(OPEC),Mohammed Sanusi Barkindo and Executive Director of the International Energy Agency(IEA),Dr. Fatih Birol, yesterday said Nigeria and other developing countries risk losing 85percent of their oil and gas income on account of dwindling oil prices which is precipitated by the deadly Coronavirus.

The duo said in a statement that the development will have major social and economic consequences, notably for public sector spending in vital areas such as healthcare and education.

Dr Birol and SG Barkindo assessed the impact of the virus and the recent broad-based financial and oil market volatility on the global economy.

In particular, they discussed the inherent risks of the fast-evolving dynamics, including the most recent developments in global oil markets.

They agreed that these create material impacts, particularly for citizens of developing countries including those that rely heavily on income from oil and gas production for essential services and that are especially vulnerable to market volatility.

They both underscored the importance of market stability, as the impacts of extreme volatility are felt by producers, particularly in terms of much needed income, and by both producers and consumers, who are affected by an unstable and unpredictable market.

They also emphasized the importance of finding ways to minimise the impact of the current situation on vulnerable developing countries. They agreed to remain in close contact on the matter and continue their regular consultations on oil market.

Meanwhile, a Rystad Energy impact analysis has revealed that the total capital and operational expenditure of exploration and production companies (E&Ps) is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level.

It said the development will heavily impact service company revenues, driving some out of the market. Russia’s decision to walk away from the suggested OPEC+ deal is sending shivers down the spine of the service industry, which had already been troubled by the new coronavirus. After Saudi Arabia started to flood the market, oil prices were sent down to $31 per barrel of Brent and are currently trading at $35 per barrel.

It will likely be a volume war until the next scheduled OPEC+ meeting in June. If no agreement is reached then, E&P companies are likely to slash capital and operational budgets to make up for significantly lower cash flows that are expected this year and the next.

Overall oilfield service (OFS) purchases, which Rystad Energy previously expected to remain flat year-on-year, are now forecasted to drop by 8% this year if oil averages $40 per barrel and by 15% in a $30 per barrel scenario.

If OPEC+ continues the volume war and the countries do not agree on cuts in 2020, and this lasts into 2021, we could see additional 2021 spending reductions of 7% at $40 oil and 11% at $30 oil.

‘Now the E&Ps will turn every stone and cancel every single non-revenue-generating activity. In the US shale industry as many as 5,800 horizontal wells could be cut in 2020, which would more than halve the number of wells from the 10,900 planned for 2020,’ says Audun Martinsen, Rystad Energy’s Head of Oilfield Service Research.

This means that the shale industry would carry the biggest burden of this supply shock by taking as much as $65 billion of the $100 billion spending reduction expected globally.