West Africa’s crude output pushed into ‘lasting decline’

Global oil production is slowly recovering towards pre-COVID-19 levels, but in West Africa the pandemic is set to leave lasting effects,  according to the latest analysis from Rystad Energy. This important region for sweet crude oil production faces numerous challenges as it strives to heal from the pandemic, including underinvestment, a lack of infill drilling at mature fields and infrastructure that is either ageing or threatened.

Sweet crude is the preferred oil grade to make jet fuel – the worst-hit segment as oil demand plunged last year. West African crude oil production dropped to 3.71mn b/d last year from 4.12mn b/d in 2019, and is set to decline further to 3.39mn b/d this year, forecasts the market analyst. While output is expected to be back up in 2022 and 2023 as jet fuel demand returns, production is set to fall below 3mn b/d already from 2025 unless heavyweights Nigeria and Angola can stage a strong comeback and shake off the dismal growth trends of the past decade.

West Africa’s oil production was not destined to follow this current grim projection before COVID-19 hit – in fact, the region was in line for more investment and activity. Last year’s low oil prices and the unstable market conditions that have continued into 2021 changed the outlook, however, as major operators decided to practice capital discipline and limit their investment exposure in regions including West Africa. As a result, Rystad Energy has reduced its forecast for West African crude oil output by 600,000 b/d for 2021 and by 650,000 b/d for 2026, compared with pre-COVID-19 projections.

‘The structural upstream obstacles that West Africa faces are realities that are not going away in the short term. Even if jet fuel makes a spectacular recovery and demand for light and medium sweet crude grades returns, Nigeria and Angola, as well as other neighbours in structural upstream decline, will not be in a position to supply the market,’ says Nishant Bhushan, Upstream Analyst at Rystad Energy.

The region’s decline in 2021 is driven by its two biggest oil producers, Nigeria and Angola, which together are estimated to have lost 440,000 b/d versus the pre-COVID-19 forecast. It is also estimated that crude oil production has dropped significantly in countries such as Congo, Gabon and Equatorial Guinea, which together produced between 250,000 b/d and 300,000 b/d in 2010. Equatorial Guinea has seen a 60% reduction in oil production and Gabon nearly 35% in the past 11 years.

Crude oil production from West African countries was expected to pick up pace in tandem with their Middle Eastern counterparts as the OPEC+ group opened its supply taps. But even as OPEC+ production caps have gradually eased, Nigeria and Angola have not been able to ramp back up to their pre-shut-in production levels.

Crude production is not the only thing that’s been hit in the past couple of years. Since the start of 2020, overall crude production capacity in Nigeria and Angola has taken a major blow. This is due to a number of reasons, says Rystad Energy, including rapid declines at mature fields due to a lack of infill drilling, postponement of final investment decisions (FIDs) that were originally planned for 2020 and 2021, a lack of investment in oil and pipeline infrastructure which leads to frequent production shut-ins (prevalent in Nigeria) and civil unrest caused by militia groups. 

West Africa has never had much unused capacity – most of its countries have produced at maximum capacity even as that capacity was gradually declining. When OPEC+ unveiled its 9.8mn b/d cut programme in May 2020, the region had an overall oil production capacity of 4.2mn b/d. It is estimated this has dropped by almost 420,000 b/d to around 3.8mn b/d by the end of 2021, and will keep shrinking to 3.5–3.6mn b/d by the end of next year, according to Rystad Energy.