Rystad: Oil price drop to slash African state budgets

Africa’s expected production is set to decline for most of this decade and energy-reliant state budgets to take significant hits, as top planned oil and gas projects were expecting sanctioning under an oil price assumption of between $55-$60 per barrel, according to energy intelligence firm Rystad Energy.

Illustration. Author: SP Mac
Illustration. Author: SP Mac

Rystad said on Thursday that the top upcoming final investment decisions (FIDs) in Africa have a breakeven crude price of over $45 per barrel, with some even close to $60 per barrel which was far from the current oil price currently hovering well below $35 per barrel.

Siva Prasad, senior upstream analyst at Rystad Energy, said: “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.

The intelligence estimates that the timeline delays for these pre-FID projects in Africa could lead to a 200,000 barrels-per-day 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 barrels per day over the years 2026 to 2030.

It is worth noting that 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 barrels per day of oil this year at a crude price of $57 per barrel.

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

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