Thread by @jaki006

Total's Egina field achieved first oil in December.

At its peak, the field will increase Nigeria's production by 10% in 2019.

However, under OPEC's 1.2million production cut agreement, Nigeria is expected to keep OIL production at 1.738mln/day (excluding other liquids).

The development will take Nigeria's total liquid (crude oil, condensate etc) above 2.1mln b/day in 2019.

This is still below the proposed budget benchmark of 2.3mln b/d.

Brent benchmark started 2019 hovering about $53/b.

$7/b below the proposed 2019 budget benchmark of $60/b.

While increasing demand remain a major boost for crude oil in 2019 (barring any further escalation in trade war), the level of expected additional supply is worrying.

The US is expected to add between 1 - 2 mln b/d of crude oil over the next two years.

It is very difficult to see any path for crude oil price returning to 3Q:2018 level.

Average price in 2019 will most likely be between $10 - $30/b lower than 2018 level.

Average brent in 2018 was $71.6/b

Downstream:

The drop in crude oil price is presenting Nigeria with another great opportunity to do away with government subsidy. (Estimated at between N1.0 and N1.3 trillion in 2018)

Subsidy incurred on PMS is at its lowest level in a year.

Estimate put current subsidy on PMS at between N20 and N35 / litre.

Translating to full cost reflective pump price of N165 - N180 / litre for PMS or a little bit higher if all government agencies appropriately charge all fees on the product.

Refineries:

The Dangote refinery is the major development we are monitoring in this space.

We expect first production between 2020 and 2021.

At 650k b/d the refinery will comfortably cater for Nigeria's consumption and that of some neighbouring countries.

NNPC's three refineries still remain partially operational at unimpressive capacity utilization rate. Capacity utilization of the three refineries was 4.83%, 3.02% and 0.00% in Jul, Aug and Sept 2018 respectively.

Despite NNPC's promise of a 2020 target date to raise the refineries operation to a reasonable level, we are not very optimistic.

Plan for another refinery to process crude from Niger also remain questionable.

Moreover, when the Dangote refinery commence operation in 2020 or 2021, the need to continue investing in the three refineries despite their poor performance will be incomprehensible.

We see the need for a new path to be created for the three refineries.

Power:

The major issue here remain industry financial sustainability, the current system is still failing.

To put this in context, below is the amount the Discos were billed in September 2018 and Amount paid by each Disco.

Payment to Invoice ratio:

Highest: Ikeja 40%

The industry tariff need quick assessment to align it with current realities. We believe this should be one of the major priority of industry stakeholders in 2019.

Poor investment in gas infrastructure is still holding the industry back.

At $3.0/Mscf, gas price is highly discouraging to potential investors.

The recently completed OCTP (Sankofa) gas project in Ghana will sell its gas at $9.2Mscf, more than 300% of gas price in Nigeria's gas-to-power industry.

Increase in gas price means increase in tariff.

The current tariff is simply insufficient to sustain the industry or drive investment without significant government intervention fund (aka subsidy).

This thread constitute bit and pieces of our 2019 Oil & Gas and Power industry outlook.

Thank you.