OPEC requires $10tr to bridge investment gap in oil, gas business

The Organisation of Petroleum Exporting Countries (OPEC) has said that the global oil and gas sector would need additional $10 trillion investment to save the industry from total collapse due to the present investment cut, occasioned by low oil prices.

Speaking at the 17th International Oil Summit in Paris, France at the weekend, OPEC Secretary General, Abdalla S. El-Badri, stated that in the current oil market environment oil producers were already witnessing significant investment cuts due to low oil prices.

In Nigeria, Royal Dutch Shell in February announced the postponement of the final investment decision on the $12 billion Bonga South-West project in deep-water Nigeria amid the sustained drop in oil prices.

Already, an estimated $380 billion worth of oil and gas projects have been cancelled since 2014.

Experts warn that even more projects could be delayed if prices don’t recover soon. It believes oil would have to climb back above $60 a barrel before companies start dusting off their plans again.

The OPEC secretary stated that global exploration and production spending fell by around 20 per cent last year, and a further 15 per cent drop is anticipated this year. “This is a major concern for an industry that generally sees investments increasing year-on-year.

“To put these investments concerns in some context, we see oil-related investment requirements of around $10 trillion over the period to 2040. This is to help meet an increase of around 17 million barrels a day over the period, with demand reaching close to 110 million barrels a day. New barrels are also needed to not only increase production, but to accommodate for decline rates from existing fields.

The current environment is evidently putting this future at risk. It is vital to keep in mind the link between the marginal cost, the price and investments”, he added.

Speaking recently on investment cut in Nigeria’s oil and gas sector, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu said that that the government may jettison some planned and ongoing oil and gas projects in the country if the unit price of crude oil for such projects fails to hit a set threshold. The Federal Government put the threshold at $20 per barrel.

According to Kachikwu, the Federal Government is engaging with oil majors and other stakeholders and it is being very astute in terms of asset management to trim down costs, adding that it is becoming a bit more preferential in terms of cost, driving the investments that it makes going forward.

He said: “Not all projects that are on the table would see the light of day. If the unit price of oil for such project does not come below a certain threshold, and the sort of threshold we try to set is that below the $20 per barrel mark.

“Quite a lot of production is within the $14 to $15 mark, and those naturally, Joint Venture acreages, but as you go into the Production Sharing Contracts, PSC, they sort of climb and the challenge would be how do you continue those projects, if, ultimately, the price of oil does not justify that?”

According to him, cutting cost is an efficiency issue, adding that even when you have very high prices, you should be cutting your costs to increase your margins.

He said: “Unknown to all of us, every month that you delay a project, you are adding literally, between two to three per cent of cost to the outlay. So we got to work in such a parallel mix that things are being done sequentially at the same time to be able to bring that sort of cost. It is certainly a focus area for us; we have seen that over the last four months of just looking at the NNPC operations.”

“And different from the oil majors cutting costs and we forcing them to do that, our whole operational network, how we manage the oil industry is going to change. It takes something like security, every oil major for example, have their own security apparatus. We need to have an integrated security model; we need to increase on speed. There is always used to be a lap time between what the NCDMB does and what the NNPC does and the effect of that are unnecessary delays in terms of approval process.”