Nigeria, others suffer production setback over rising US interest rates

Nigeria and some other African countries including Senegal, Angola and Ghana are currently battling with a major production decline over rising US benchmark interest rates.

Chief Africa Frontier Markets Analyst, DaMina Advisors LLP, Sebastian Spio-Garbrah, in his presentation at the 11thAnnual Sub-Saharan Africa Oil and Gas Conference at Marriot Westchase, Houston, Texas, USA, added that the production setback also included other factors.

The Chief analyst disclosed that the rising US interest rates will hit the Net Present Value (NPV) values of high-risk African oil producers, adding that rising interest rates almost always leads to financial crisis/recession

Spio-Garbrah, listed some of the other factors affecting Nigeria and other African countries production target to include; The Paris Climate Accords & Effects, Saudi-Russia détente on oil production, rise in US and non-US Shale oil exports.

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Others are; Domestic demands for indigenization/ stronger local content laws, and rising regulatory risks in mining sector.

On the Paris climate change agreement, he said diesel takes a hit first – then gasoline, adding that, China, India, California, Paris, Madrid, Mexico City and Athens are to ban diesel vehicles from 2025.

He added that Copenhagen wants to ban new diesel cars from entering the city from 2019 while France and Britain will ban new gasoline and diesel cars by 2040.

Spio-Garbrah also disclosed that, there will be a switch by road freight truckers from diesel to natural gas/gasoline, a major structural change that will surge demand for gasoline, and ultimately lower prices

He, however, stated that the shift by European Union/US car/truck manufacturers from diesel will force growing emerging economies to use more gasoline and natural gas.

On what African oil exporters can do to get more value from its oil, Spio-Garbrah, advised that they build more local refineries to develop domestic petrochemical capacities, citing the 650,000 bpd Dangote refinery as a step in the right direction.

He noted that oil exporters should stabilize their macroeconomic environment to make investment climate more attractive by reducing domestic interest rate to spur local borrowing.

Going forward, he said they should enter into long term technology and training partnerships with major IOCs and National Oil Companies (NOCs) to professionalise local technical capacities

‘‘Hedge future sales to reduce export income volatility and papidly de-fossilise major economic exports.

Reduce overall costs of doing business  in order to bring down the average cost of production while buying  into US shale oil companies to access technology and critical intelligence,’’ he advised.