As Nigerians Await Nigeria Air - NIGERIAN TRIBUNE
The Organisation of Petroleum Exporting Countries (OPEC) yesterday raised the alarm that it is impossible to make up for the loss of over seven million barrels per day (bpd) owing to the sanction on Russia for invading Ukraine.
Its Secretary-General, Mohammad Barkindo, spoke at the 61st meeting of Joint Technical Committee (JTC) videoconference.
He said irrespective of efforts to cover the lost output, which is about seven per cent of global demand, it is already harmful to the global energy demand.
“The potential loss of more than 7 mb/d of Russian oil and other liquids exports [around seven per cent of current global demand], either through sanctions or voluntary actions, is already having major repercussions on energy markets. No matter how you crunch the numbers, there is simply no way to make up for a loss in volumes of this magnitude given the current demand outlook.
“Today, we are also confronting a war in Ukraine whose far-reaching consequences could reshape the geopolitical landscape as well as world order itself. This conflict has also compounded the uncertainties related to the pandemic by stoking economic volatility and further elevating risk premiums for oil and other essential commodities.’’ given that both Ukraine and the Russian Federation are key global exporters, including of essential agricultural goods.”
According to him, the last major supply disruption of this size, 5.6 mb/d, occurred in 1978 and 1979 during the Iranian Revolution.
He added that at that time the spare production capacity was 9 mb/d, nearly three times OPEC-10’s current levels of around 3.3 mb/d. Barkindo also recalled that other gross peak supply losses during the last six decades were within the range of 1.5 to 4.3 mb/d.
Citing an instance of during the Iran-Iraq war in 1980-1981, the scribe said, it reached 4.1 mb/d, and in 1990-1991.
He noted that surging the invasion of Kuwait, the loss amounted to 4.3 mb/d.
Barkindo said accordingly, the underlying forecasts for the year are in line with the March issue of our Monthly Oil Market Report and basically the same as presented during our last JTC meeting a month ago.
“We have slightly revised GDP growth for 2021 from 5.6per cent to 5.7per cent, while the worldwide GDP projection for 2022 remains at 4.2per cent. It is, however, crucial to highlight the pronounced uncertainties and risks that are skewed to the downside.
Besides COVID-19-related issues and repercussions of the current geopolitical turmoil, a sustained rise in inflation that has already soared to multi-decade highs in the US and EU, along with accelerated tapering by major central banks, could result in rising interest rates and slowing investment, and all may dent growth considerably, including in China and India.
World oil demand for last year was also stronger than previously reported, rising by 50,000 b/d to 5.7mb/d, driven by higher consumption in the final quarter of last year.
“Demand is seen growing by around 4.2 mb/d this year to an annual average of 100.9 mb/d, thus exceeding pre-pandemic levels. Consumption in the non-OECD group of countries has led the way, accounting for growth of 3.1 mb/d in 2021 and an expected 2.3 mb/d in the current year.
“On the supply side, non-OPEC liquids production is seen rising by 3.02 mb/d year-on-year in 2022. In the US, total liquids supply is expected to grow by 1.03 mb/d in 2022, and Brazil, Canada, Kazakhstan, Guyana and Norway will also contribute to supply growth this year.
“We continue to monitor the JCPOA negotiations taking place here in Vienna amid hopeful signs they will lead to a return of Iranian exports to the market, and at the same time, we remain optimistic about the prospects for the resumption of Venezuelan exports.”
He said weather-related damage to Black Sea offshore infrastructure belonging to the Caspian Pipeline Consortium has disrupted exports of Kazakhstan’s crude.
According to him, this situation is a reminder of the ever-present risks posed by nature, which are also beyond OPEC’s control.
Continuing, Barkindo said: “Also with regard to the supply outlook, I would note that some of the policy makers who have been leading the charge for a rapid energy transition are now focusing on the importance of hydrocarbons as a pillar of energy security.
“We hope this awakening translates into longer-term recognition that oil-producing countries like ours need sustained investment if we are to expand production and ensure adequate spare capacity, which is the market’s insurance policy against volatility and unforeseen disruptions.
“As I noted earlier, OPEC-10 crude oil spare production capacity stands around 3.3 mb/d, roughly 3.3 per cent of global demand.
“Looking at the ten major oil supply disruptions over the past six decades, in only three instances was spare capacity lower than it is today – in 1967, 1991 and 2005.
“The current events are therefore a wake-up call to all stakeholders that crowding out investment in oil and gas is counterproductive, and there is a clear need for ramped-up investment in overall production capacity. We are, however, seeing a number of major positive developments on the investment front.
“Aramco’s decision to boost upstream capital spending by around $50 billion this year underscores the Kingdom’s commitment to addressing the world’s future energy needs.”
The OPEC scribe said furthermore, Norway’s Minister of Energy and Petroleum earlier this month announced plans to issue new licenses to drill for oil and gas in mature areas to expand future production.
He added China’s Sinopec is planning record capital expenditures of around $31 billion in 2022, including in upstream development.
These, he said, are steps in the right direction. Barkindo said regarding inventories, the most recent data shows that OECD commercial stocks remained on the same downward course that OPEC has observed in recent months.
He said latest data shows that stocks declined by 22.8 mb month-on-month in February to 2,599 billion barrels, some 321 mb below the 2015-2019 average, and historically the lowest-ever level.
He added that the International Energy Agency [IEA] member countries have again decided to tap their crude oil reserves, amounting to at least 60 mb, and the US has encouraged other economies to unleash even more barrels onto the market.
He said: “With the supply-demand balance key to maintaining stability, it is important to remain vigilant for sudden shifts in inventory levels as the year advances.
“On a final note, the latest data shows that our conformity levels reached 136% in February, and stand at 111per cent overall since May 2020.
“As of last month, participating countries were producing 2.37 mb more on a daily basis than in August of 2021.
“Some countries continue to produce under their agreed levels [1.053 mb/d in February], which is a reminder of the powerful blow our industry suffered in 2020 and the sharp decline in investment we experienced before the Declaration of Cooperation came about in 2016.
“We are cognizant that current market circumstances are significantly impacted by geopolitical realities, and these developments warrant careful monitoring and timely reflection in our baseline forecasts and scenarios.
“Therefore, it is of utmost importance that we consider different scenarios to help shed light on the global oil market outlook for the coming months.
Earlier, he said two years ago this month, the World
Health Organisation declared the COVID-19 outbreak a pandemic as it spread to nearly every corner of the globe.
The scribe said the world is now much better equipped to handle this persistent virus than we were in the dark days of 2020, aided by the rollout of vaccines, greater awareness and enhanced public health cooperation.
He said: “I think the worst is now over and people around the world are adjusting. Yet we still cannot talk of the worst global health crisis of our times in the past tense.
“More than 6.1 million lives have now been lost to the virus, an unthinkable human tragedy. After a period of decline, COVID-19 case numbers have risen again, especially in Asia as well as in parts of Europe, including here in Austria.
“As the Director-General of the World Health Organization [WHO] said the other day, “The pandemic is not over, and it will not simply go away.”