AEC Calls on African Oil Producers to Stay in OPEC

The African Energy Chamber has called for African oil producers to stay within the Organization of the Petroleum Exporting Countries (OPEC), noting that it is important for protecting investments, stabilising finances and energy development in Africa.

The request is specifically aimed at major producers such as Algeria, Republic of the Congo, Libya, Equatorial Guinea, Gabon and Nigeria amid changes in oil markets globally as well as geopolitical uncertainties.

According to the organisation, OPEC has been able to create a structure that allows for stability amid price fluctuations experienced by the African economy repeatedly, especially during times of crisis.

This was made possible through the Declaration of Cooperation which was introduced in December 2016 and started from 2017 involving OPEC countries and allies with 24 oil-producing countries coordinating the production strategy.

The strategy was very successful in helping restore balance after the oil price crash between 2014 and 2016 when the price fell from above $100 per barrel to below $30, putting severe pressure on the finances of oil-dependent countries.

For several African producers, the coordinated output strategy proved to be helpful in stabilising their budget in addition to making it easier to invest in the upstream oil industry.

Another important moment was demonstrated during the pandemic where the demand for oil was reduced by more than 30 million barrels daily.

Coordinated production cuts by OPEC countries allowed for stabilising prices and ensuring a steady income for African oil producers amid the unprecedented shock to the market.

The organisation notes that such cooperation continues to be relevant today with tensions in the Middle East impacting the stability of the supply.

In particular, the disruption in some transit routes, for example, the Strait of Hormuz, has caused increased concerns regarding stability of oil prices.

As a result, the organisation stresses that production coordination is necessary to avoid sudden spikes in prices which can destabilise the oil market in Africa.

Apart from the stability of prices, the organisation emphasises that OPEC provides an important platform for influencing the development of the oil market by coordinating efforts of African countries in terms of increasing supply.

It also allows for the implementation of strategies to stabilise the market, which is important for producers.

In addition, the leadership of the organization helps in strengthening positions. In particular, it mentions Saudi Arabia's Energy Minister Abdulaziz bin Salman who advocates for developing the oil industry in Africa through initiatives to bring investors to the region and tackle energy poverty.

The current Secretary General of OPEC Haitham Al Ghais also prioritises collaboration with African oil producers who are recognised as key suppliers contributing to global energy stability, focusing on enhancing production resilience and increasing energy investment and access across Africa.

According to NJ Ayuk, Executive Chairman of the AEC, OPEC's ability to stabilise the market is crucial for African oil producers.

"OPEC has been good for Africa," he explained. "During periods of extreme instability from 2014 when prices collapsed to the COVID shock when we saw huge reduction in demand, coordinated actions have helped stabilise prices, protect our revenues and investments in the upstream sector.”

Ayuk adds that this helps ensure that there is sufficient stability required for scaling up production and increasing oil reserves as well as attracting investments in the sector.

Oil experts generally agree that smaller and developing producers are more vulnerable to price shocks because of their dependence on oil revenue for funding national budgets.

Today's oil market is highly volatile amid geopolitical uncertainties, changes in energy transition policies and demand shifts. That is why coordinated efforts through OPEC become critical.

In particular, they help reduce exposure to risk and allow for managing volatility and uncertainty in the global market.

As for African producers, the challenges are significant with many of them actively involved in exploration and expansion of production amid demands for economic development and energy transition.

Therefore, remaining in OPEC becomes important for ensuring market stability and participation in global energy discussions.

With more debates taking place about the future of oil markets and energy transition pace, the organisation stresses the importance of maintaining strategic alliances for securing their interests.

The organisation warns against any risks associated with abandoning such an approach to production coordination.