OPEC-Led Stabilization Seeks to Cushion Leading African Producers
Representing a group of 13 oil-rich countries that hold nearly 40% of the global oil supply, the Organization of Petroleum Exporting Countries (OPEC) plays an integral role in oil market stabilization. In the wake of tumbling oil prices and sustained market volatility, coordination and unity among petroleum producers have proven critical, particularly for African producers that depend on crude oil exports for the lion’s share of their GDP and foreign exchange earnings. Nigeria and Angola, sub-Saharan Africa’s two largest oil producers, are no exception: Angola, for example, relies on its offshore petroleum industry for 75% of government revenue and 90% of exports. OPEC has subsequently played a critical role in both countries, primarily in preserving falling oil prices with recent production cuts; providing political and economic will to member countries on the global energy stage; and prioritizing social welfare programs via oil dividends.
Nigeria joined OPEC in 1971, and subsequently evolved into sub-Saharan Africa’s leading producer, at one time producing as much as 2.5 million barrels per day (bpd). From May 2020, the organization made a landmark decision to remove 9.7 million bpd from the global oil market, with a 23% cut issued for all signatory states based on an October 2018 baseline. While the first period of production cuts extended through the end of July, an additional 7.7 million bpd will be cut from August through the end of December, and cuts will further be reduced by 5.8 million bpd from January 2021 through the end of April 2022. Accordingly, Nigeria will produce 1.41 million bpd, 1.5 million bpd, and 1.58 million bpd, respectively.
By reducing output globally, the decision sought to safeguard crashing prices – which was met with success. Within the first month of execution, Brent crude jumped from $18 per barrel in April to $29 per barrel in May, with OPEC’s market position enabling its coordination of production levels among both members and non-members. In Nigeria, reduced oil demand had decreased the country’s benchmark crude, Bonny light, from $66 per barrel at the start of the year to $14 per barrel by April. As of September, prices had rebounded to $38 per barrel.
Looking ahead, OPEC forecasts demand for its crude production to grow by 25% in 2021, translating to an average production of 29.8 million barrels per day. While the increase is projected in part due to a resurgence of global oil demand, as economies re-start and travel restrictions lift, the other part will come from the competitiveness of OPEC member supply over non-member producers. As a result, Nigeria runs the risk of not capitalizing on the favorable demand forecast, should it fail to implement much-needed oil sector reforms and amend current fiscal frameworks to ensure that operators can return to peak production levels as soon as possible.
In addition to achieving price stability for member countries, one of OPEC’s key objectives is to secure the fair value of member countries’ oil resources in an effort to foster economic development and improve the standard of living across member countries. The OPEC Fund for International Development (OFID), of which Nigeria is a member, is as a multilateral development finance institution that targets key projects – primarily in energy, transportation, agriculture, water, education and health. The institution utilizes public, private and trade sector financing, along with grants, to support sustainable social and economic advancement across member and non-member countries.
Angola has been a member of OPEC since 2007 – joining six other African countries (Algeria, Equatorial Guinea, Gabon, Libya, Nigeria, and the Republic of Congo). In December 2018, OPEC Secretary-General H.E. Mohammed Barkindo made a historic visit to Angola, in which he committed to working with Angolan leadership to improve market stability and strengthen the country’s relationship with OPEC. The Secretary-General also commended Angolan President H.E. João Lourenço and his administration for their series of investor-friendly reforms implemented in the oil and gas sector – from a revised tax regime to new gas monetization policies – that serve to drive investment into Angola’s hydrocarbon sector.
With a view to recent OPEC-led production cuts, Angola’s Ministry of Mineral Resources, Petroleum and Gas has stated its commitment to full compliance with the global agreement to reduce supply and fortify oil prices. Through its compliance with production cuts and its commitment to pan-African cooperation, Angola is continuing to foster an open dialogue between OPEC and African producers, augmenting the role that African member countries are playing in global discussions. Operator and investor confidence – particularly for new investors entering the market – is expected to benefit from enhanced stability and energy cooperation.
Among international trade organizations, OPEC also represents one of the few alternatives, non-Western international political economies with strong bargaining power. Consequently, OPEC membership yields both economic and political value for oil-exporting countries, as the organization stands to protect the interests of member countries within the global arena. While Angola is not a member country of the OFID, the Organization still provides development assistance, targeting economic diversification, poverty reduction, and alleviation of malnutrition through total commitments of $43.28 million in the country.