COVID-19 has caused the worst oil industry challenges in history and looks likely that demand for crude oil might never recover to pre- COVID-19 levels.
Major oil producers in Africa face a combined shortfall in oil production of about 19% amid COVID-19 pandemic distorting crude oil demand/supply dynamics at the major international markets including Europe and South East Asia suffer immensely from the viral onslaught.
According to PWC, COVID-19 has caused the worst oil industry challenges in history and looks likely that demand for crude oil might never recover to pre- COVID-19 levels.
Nigeria is the leading crude oil producer in Africa according to data retrieved from Statista. Its total oil output stood at 101.4 million tons, followed by Angola (69.1 million tons), and Algeria (64.3 million tons).
In Nigeria’s case, crude oil sector makes up about 10% of Nigeria’s GDP and it contributes about 57% of government’s revenue at the federal level and 94% of export earnings – which means that Nigeria’s coffers will be hit harder. As a result, it would have to borrow more to fund its infrastructural projects amid soft demand for its liquid hydrocarbon.
A leading US consultancy firm – McKinsey, highlighted at the start of Q2, that Africa’s largest economy’s best-case scenario in containing the virus would produce a 2.5% contraction. An “uncontained” scenario could see Africa’s biggest economy shrink by 8.8%, leading to urgent calls by leading energy experts on the need for Nigeria and other African oil producers to diversify their economies, as it has become glaring that the black liquid hydrocarbon is losing relevance at an alarming rate, taking into consideration that the world seems to be making more investments on renewables.
“With the oil price at approximately $40 per barrel, oil-exporting countries will experience long-term decline in their export revenues as a result of the renewed weakness in global oil prices, coupled with the accelerated transition to renewables in key importing countries,” the report added
“Covid-19 has not only caused the biggest global oil demand slump in history, at nearly 40 times worse than the global financial crisis of 2007, but has, in fact, accelerated the global energy transition by as much as five years, as the developed world uses the renewable energy transition to anchor economic stimulus packages and new economic diversification,” the report also said.
It is fair to say that despite the blurry outlook on energy demand globally, it’s high time for leading African oil producers like Nigeria, Angola, Egypt, Libya, and Algeria to properly utilize their present oil revenues to diversify to other alternatives such as the adoption of renewable energy.