Rebounding oil prices, increasing exploration activities and a more strategic approach from shale oil producers in the United States (US) are reopening 2014 scars for Nigeria and some of the biggest oil producers in the world, as they seek to support prices and reduce oversupply.
The federal government hopes to make N7.69 trillion as oil revenue to partly finance the 2024 budget of N27.5 trillion.
The resurging shale oil production will be scary for Nigeria and most Organisation of Petroleum Exporting Countries (OPEC) who went into recession after Shale caused a supply glut that sent oil prices crashing to a historic low in mid-2014, while also making the US the largest producer of the commodity.
US crude oil production set a record for the second month running as condensate production increased by 224,000 barrels per day (bpd) to 13.24 million bpd in September from August, according to the U.S. Energy Information Administration.
The EIA reported that average daily production in September had remained unchanged from August when it hit the record-high rate of 13.24 million barrels.
Analysts said the situation is perhaps worryingly similar to 2014-2016 when oil prices dived, falling by 70 percent when the Saudi-led OPEC hit back at US shale by boosting production to tank prices and sink as many U.S. producers as possible.
“At the same time, however, the situation is markedly different in several ways. U.S. producers have consolidated and this has made many more resilient to price wars,” said John Evans, an energy analyst at PVM, one of the world’s leading brokers of oil instruments.
He added, “At the same time, Saudi Arabia and its Gulf allies are probably more risk-averse than they were back in 2014: that oil price crisis prompted Gulf governments to adopt austerity measures for probably the first time in their history. They did not like it”.
Other analysts said the Saudis’ only move in the current situation is to open the taps and try to kill U.S. shale all over again.
“However, this is a sort of nuclear option that would hurt Saudi Arabia and its OPEC friends as well. But they do have another option: keep cutting,” analysts at S&P Global Commodity Insights said.
They say the increase in production also provided the US government with substantial leverage in its dealings with oil-exporting foes like Russia, Venezuela and Iran while reducing its need to cajole more friendly countries like Saudi Arabia to temper prices.
But the comeback in US oil production poses big risks, too. More supply and lower prices could increase demand for fossil fuels when world leaders, who are meeting in Dubai, United Arab Emirates, are straining to reach agreements that would accelerate the fight against climate change.
Not long ago, the US oil industry was in deep trouble. It had suffered repeated busts since 2015, culminating in a collapse of prices during the pandemic. Investors fled. Exxon Mobil was kicked out of the Dow Jones industrial average, and some European oil companies announced plans to pivot from fossil fuels to renewables more quickly.
With concerns over climate change growing, President Joe Biden during his 2020 presidential campaign, promised to stop drilling on federal lands and federal waters offshore. He also pledged to accelerate the transition to renewable energy and electric cars to drastically reduce the emissions responsible for climate change.
But as president, Biden has taken a much different tack. While he has supported green energy and battery-powered cars, he has also hectored oil companies to increase production to drive down prices for consumers.
Experts said most of the new U.S. oil production is coming from the Permian Basin, which straddles Texas and New Mexico. There are also some new projects and expansions in Alaska and offshore in the Gulf of Mexico.
“I am very surprised by how much we have produced this year,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Permian Basin producer that Exxon is acquiring. He predicted that the country could produce 15 million barrels a day in five years.
Production is also growing in Canada, Guyana, Brazil and Norway.
Sheffield said “the big question” was how Saudi Arabia might respond if production in the United States and other countries continued to rise.
Implication for Nigeria
The shale boom has upended the global market, turning the United States from a keen buyer of Nigerian oil to an aggressive competitor.
If the shale boom or revolution ground to a halt, it will increase supply in the global oil market, a development that will automatically lead to lower oil prices which would hurt Nigeria’s economy.
Africa’s biggest oil-producing country needs the oil price to rise and in the worst case, remain steady at any price above its revised budget benchmark of $77.96 a barrel to feasibly raise N7.69 trillion as oil revenue to partly finance the 2024 budget of N27.5 trillion.
The proposed oil revenue for 2024 is over three times the amount budgeted for 2023, which was about N2.23 trillion.
This means that the federal government plans to triple revenue from a sector, crippled by challenges, such as oil theft, and infrastructural deficit, among others, which led to declining revenue over the years.
“The light at the end of the tunnel is that of an approaching train. Stand clear,” said Oluseun Onigbinde, co-founder of BudgIT, a civic organisation focused on strengthening civic engagement and institutional accountability.