The oil and gas industry has not been the same in recent years. A good part of the last decade has experienced bouncing oil prices own to an increased oil consumption in countries like China and conflicts in major oil producing nations like Iraq. Oil production could not keep up with the demand, thereby causing an increase in oil price. Demand for oil dropped in nations like Europe, Asia and United States own to unstable economy. This resulted in a lot of unused oil being stored in reservoirs. By late 2014, Oil prices began to drop. There was a deal from the Organization of Petroleum Exporting Countries (OPEC) between 2016 and 2020. An agreement subjecting countries to not produce oil under a full capacity was reached. The rate of production was rationalized in order to manage oil price, with Saudi Arabia making the largest reductions in production. Russia and Saudi Arabia are the largest producer of oil after the United states. This agreement was supposed to end in April and a new deal was to come into operation.
Sometime in December 2019, there was a pneumonia of unknown cause detected in Wuhan, Hubei province of China. This was later attributed to coronavirus and the outbreak was declared a Public Health Emergency of International Concern by WHO on 30th January 2020. By 11th February, the new disease was named COVID-19. The pandemic changed lifestyles; lockdown, social distancing and increased attention to personal hygiene became a new norm. Suddenly a new word “non-essentials” determines who and on what condition a lockdown can be disregarded and from there on everything about our daily lives have been directly or indirectly affected by this disease. Before the pandemic, there was an underlying crisis happening with the oil and gas industry. The negotiation of a new agreement on rate of oil production and oil price took place as scheduled own to the expiration of the existing agreement made in 2016. There was an impasse between Russia and Saudi Arabia which led to a perceived price war with Russia walking out of the new agreement. As a result of the Coronavirus pandemic, industries oil demand fell further, Chinese oil demand was slashed by over 20%, resulting in an aggregate of almost a third drop in demand and oil price began to fall drastically. In order to keep the oil price in a fair state, on 12th April, OPEC and its oil producing allies finalized the largest output cut in history by agreeing to cut down oil production by a total of about 10 million barrels per day (bpd) between May and June. Despite this cut down in oil production, oil price kept crashing and even went negative on 20th April at a cost of -37.63 dollars, partly because demand continues to decline since Air jets, cars and factories are currently not in operation.
As of 20th March, the U.S. Department of Energy says the strategic Petroleum Reserve (SPR) is at 635 million barrels out of a capacity of 713 million barrels, which means the reserve facility was already at 89% full. Cushing, an oil reserve in Oklahoma whose relevance was questioned about two years ago with a capacity of 90 million barrels took its spotlight, accounting for 13% of the United states total oil storage capacity. As at 21st April, it was reported that the world biggest independent oil storage company, Vopak was out of storage capacity for crude and refined products as the coronavirus pandemic has caused a mass halt to global transportation systems. Giant oil tankers were not left out since the conventional oil storage facilities were almost filled up. About 160 million barrels of oil has been stored in supertankers outside the world’s largest shipping ports. These tankers which is able to hold up 2million barrels of oil went in high demand by oil traders. Charter rates for this supertankers doubled and was rated at about 350,000 dollars per day. The concern for storage capacity got so bad that oil traders were willing to pay people to take barrels of oil.
Nigeria as an OPEC member is the largest oil and gas producer in Africa. The nation, whose economy has not fully recovered from the oil price crash that occurred between 2014 and 2015, is one of the few nations strongly affected by the fall in oil price with low storage capacity. Nigeria is in a struggling state as a result of its operational and regulatory challenges. The nation’s currency (Naira) has remained tied to global oil prices for a long time coming. The oil price is putting a huge pressure on the country. About 90% of the nation’s foreign exchange revenue is dependent on oil exportation. Naira has been consistently stable against the dollar in the last 3 years. Recently, the value of naira has depreciated, which could be partly own to the plunge in oil prices. This oil crisis has made the government revise the national budget as dwindling export revenue depletes foreign reserves. A possible temporary solution at the moment could be devaluation. Devaluation of the nation’s currency, which will inevitably lead to increased cost of raw materials and commodities that has to be paid for using foreign currency. The implication of this temporary solution will be more evident on the average consumer whose purchasing power will be crippled and cost of living increased. However, it is uncertain how the nation intends to bridge this gap.
There is an unprecedented stress on the oil and gas companies and quite a number of industries are already going under with lots of jobs lost. According to CNN Business, the likes of Noble Energy, Halliburton, Marathon Oil, and Occidental have all lost more than two thirds of their value. Exxon-Mobil for instance had to close some oil wells and is down by 38%. Many oil companies took on too much debt when the economy was stable, hence some of them may not be able to survive this historic. As the coronavirus pandemic rolls out, things are gradually coming back to life, China is back to buying more oil. A lot of uncertainties is however expected to take place afterwards. A new norm will naturally take its cause. The longer the crisis in the oil and gas sector lingers, the higher the risk of mass unemployment and lots of oil companies folding up.
Kemisola Adeniyi is a Software Engineer with 5 years of experience in the Technology & Environment industry. She resides in Germany and can be contacted on firstname.lastname@example.org