Making Black Gold Out of Oil
As much as year 2020 is a COVID disaster year, it is certainly also an oil disaster year. The decline which we saw year on year from 2018 to 2019’s statistical play would be worse when 2020’s oil play is held under a microscope.
It doesn’t matter what parameters we use, the oil play continues to send worrisome signals. Now, some specifics as a lead to our focus today:
- Production 2019 vs 2018. World production of crude oil declined by 0.7% or 0.56 million bpd, but OPEC countries took a bigger hit, declining by 6% or 1.86mbpd. Whilst this was driven by pragmatic market response by OPEC, the truth is that this pragmatism is compelled by market fundamentals.
- Oil demand 2019 vs 2018 was largely flat, growing at a modest 0.9% and this growth was largely inched up by demands of refined products, gasoline distillates and fuel.
- Oil export from OPEC countries declined sharply in 2019 by 7.4% relative to 2018 to approx. 22.5mbd. Of course, over 70% of that oil was sent to Asian countries including China and India.
- The average price reference basket was approx. $64, down by 8.2% from 2018.
The figures for 2020 in all these indices will be sharply down compared to 2019, partly due to COVID-19, but compelled in the long term by declining demand and growing alternatives to oil as source of energy.
2020 average reference price basket will likely hover between 40 and 50 dollars.
But this humbling data is calmed by flat to positive growth in reserves addition, both in oil and gas, but especially in gas.
The data must mean something and must increasingly be used by oil producing countries, especially OPEC member countries, to redirect what use they make of this natural resource. For instance, given the continued growth in demand for refined products, it is imperative that focus shifts to value added growth for crude oil through enhancing refining capacity. Sadly, a comparison of 2019 to 2018 refining capacity growth shows that whilst it grew by 1.41 million barrels to global 101 million barrels/ordinary day, all the increases were largely in Asia. Refining capacity actually fell in Middle East, Europe, Latin America and, of course, Africa.
So given the global trends in oil and gas in 2020, how can an OPEC member country turn this vanishing asset into Black Gold?
- Internalise oil fundamentals. This covers domesticating production, cutting cost, using local content push, and ensuring competitiveness of our oil cost on a global scale.
- Increase value added. Money taken to build private sector-led refineries and refurbishing local refineries will be good investment. But for this to work,the structure of management of public refineries must quickly be put into private sector control through joint ventures or full or partial privatisation.
- Right sizing of oil businesses and getting subsidiaries to nimble profitable entities is a must, so we can yield dividends out of these businesses.
- Market place Africa and Africapitalism need to be unleashed to reawaken loads of dormant oil public assets that could meaningfully contribute to economic growth in the owner countries. There is great urgency for this now.
- Modern regulations, policy plans and laws need to be developed and applied, with a focus on tapping the best returns from our oil sector.
- Massive Infrastructure rebirth is needed in this sector, and proper regulatory framework can unleash private sector investments in this area. This sector is primed for public and global debts financing, as pay-back is guaranteed and the systemic impact on the overall economic growth of a country will be immense.
So one wonders why many OPEC countries with these resource gifts cannot do more to translate its crude oil to the Black Gold we always dreamt of.
The time is NOW to match the data and fundamentals with the beckoning of tomorrow.
The Changing Face of COVID
I am sure that like me, you are tired of all the statistics COVID has left in its wake. In USA, over 150 thousand are dead, over 4 million are infected, and no one can see an end in sight. Israel, earlier lauded for its very low numbers and super controls, has experienced a resurgence so high that the country is resorting to lockdowns. Same alarms in Brazil, most of Latin America, and Australia. In Nigeria, the numbers are climbing, though luckily still manageable relative to our population.
So with no end in sight for the foreseeable future, what do we take out of the new COVID era?
- COVID is here to stay for the time being, and the world must begin to see it as the “new normal.” For us Africans, who have lived with malaria, yellow fever, Lassa fever, and other pandemics, we must see this as our usual normal and adjust to living with it and survive it.
- Individually, each person must be his own best protector. Use masks, sanitize, wash hands and limit contact. The rule must be to help save yourself so as to save your neighbour.
- Life must go on, so get up and cautiously begin to work and live again, or depression will set in.
- Limit fun activities if they are crowd-gathering, but take pleasure in ordinary things such as walks with family, visits to villages, and farms; also learn to be useful at home, etc.
- Be conservative with business gains and expectations. This is not the time to be too bullish. A little at a time keeps your body and mind in the right frame.
- Cash is king; hold some money. It is amazing how quickly you can run dry, leaving you and your loved ones in a crisis. Push some capital-sucking businesses forward and hold your survival cash in hand. Be helpful to others, but don’t become a dumping ground for other people’s woes. People are on a begging prowl, and if you don’t limit your selflessness, you may join the new wave of beggars too.
- Be your own in-house doctor. Take your temperature and blood pressure often. Notice changes in your health condition, and react fast to any fever weakness, cough, and loss of senses. Have your vitamins nearby and pop them daily–vitamin B, C, D and, of course, zinc. I have found sauna and steam machines useful. Have a home sanitizer, a nebuliser, and your Zithromax and malaria tablets nearby in your war chest.
- Finally, look to God, have faith, be positive, exercise a lot and keep your mind busy.
WELCOME TO THE NEW NORMAL!
The Blast in Lebanon
As if the world didn’t have its hands already full with COVID-19, then came the blast in Beirut. Lebanon has always been one of the world’s most troubled places. With Israel, Syria, Iran, and various religious warlords fighting to control the soul and governance of every inch of this country, Lebanon has known more catastrophes than most countries of the world.
It is a beautiful small country with amazing scenery and a potpourri of climatic variables. The land is amazingly fertile for all forms of agricultural produce, be it winter, summer or spring varieties and its waters are pristine. But all the gifts of Mother Nature are challenged by natural and man-made disasters, so the country spends most of its history in a cycle of destruction and rebuilding. The recent blast (from all accounts accidental) was one too many. It devastated Beirut and nearby villages, left over 180 people killed and over 4000 injured or missing.
Already enmeshed in a debilitating COVID pandemic and an uprising against corrupt leadership, the latest calamity means that it will be many years before life will be same again. And many more before Lebanon’s pristine waters and climate will attract tourists again.
In all these, one wonders what became of a 2020 that started with so much hope. It has been so full of calamities that the wise thinking is to write off the year. Unfortunately, we cannot because 2020 is here and we still have many months to go…many unpredictable months of uncertainty…
Here is hoping that the good example set by France’s President Macron will be emulated by other world leaders and the world will rise up to help the people of Lebanon.
On Alhaji Ismaila Isa Funtua…
I learnt with sadness of the death of Alhaji Ismaila Isa Funtua. He was a well-respected journalist and also a one-time president of NPAN.
Though, like him, I was once a proprietor of many magazines, I only got to meet Alhaji Funtua after my appointment by HE President Muhammadu Buhari. He was vocal about his views on national issues and spoke with eloquence and passion about his opinions.
The world of journalism and Nigeria will miss this man of varied parts, who brought vibrancy to debates of wide ranging issues. My sympathies to his son Abu and the rest of his family. May his soul Rest In Peace.
On Joseph Darwa, one-time Group Managing Director of NNPC…
His death too came as a shock to most of us, and to the family of NNPC staffers.
I took over from Mr Darwa as GMD of NNPC on the instructions of President Mohammed Buhari. I had not met him before the day of handover, and coming from the private sector where handovers are a bit more orderly, it was with some wariness that I showed up in his office that morning. I am sure he noticed my discomfort as I stepped into his office that morning, but like a true soldier and gentleman, he knew we were both acting under the directives of our boss. He was courteous and quick with the process, and I saw him to his car as he left.
We were to chat a few more times during my short tenure as GMD of NNPC, and my tenure as Minister of State post that. At all times, he was gracious and supportive and praised my efforts at steadying the corporate ship.
I am sad about his demise and wish his family well.
What I’m Listening to…
This week’s music pick:
- SINACH: The Name of Jesus | Live
- Louis Armstrong – What a wonderful world