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Oil crash compounds coronavirus hit for cash-strapped OPEC states


By Libby George

LAGOS (Reuters) - Collapsing oil prices are costing some OPEC members not only lost revenue when they most need it to tackle the coronavirus crisis, but also market share they may never recoup.

OPEC producers such as Nigeria, Angola, Algeria and Venezuela cannot compete with the lower costs of erstwhile allies Saudi Arabia and Russia, who are flooding the market.

The Republic of Congo's oil minister wrote to OPEC secretary general Mohammad Barkindo this month asking for urgent talks to help to keep some members from sliding into recession.

But while desperate for OPEC+, the Organization of the Petroleum Exporting Countries plus Russia, to ride to the rescue, Africa's oil producers have little leverage.

"They have no power," one Nigerian oil industry source told Reuters. "All they can do is ask."

Although non-OPEC nations such as Britain, Norway and the United States all have relatively high-cost production, their diversified economies mean they are not dependent on oil.

As well as hitting already tight budgets, the oil price drop had led oil majors to cut billions from spending plans. The longer-term impact for these nations' comparatively costly fields could be far more painful.

(Graphic: Estimated 2020 cash costs for oil fields link: https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-OIL-OPEC-BUDGETS/0H001R8JXCJT/eikon.png)

"Companies are reviewing their whole portfolios on a daily basis," said Roderick Bruce, principal research analyst for Africa at IHS Markit, which forecasts final investment decisions on the continent could hit historic lows this year.

"They (African countries) are in a very difficult position," Bruce added, citing their higher production costs.

In Nigeria, for instance, production is forecast to fall by 35% without offshore field investments. Across Africa, Rystad estimates delayed spending could mean 200,000 barrels per day (bpd) drop in expected output by 2025.

"The discipline that's going to be introduced will be a shock to the system," said Alex Vines, head of the Africa Programme at British think-tank Chatham House.

"This is really different terrain, and these are very vulnerable economies," Vines added.

The pain is even more acute in Venezuela, a founding member of OPEC, which is also dealing with U.S. sanctions, hyperinflation and exports limited by the loss of U.S. refinery buyers.

Now Venezuela and others also face tougher competition from larger nations that are elbowing smaller sellers out of incredibly competitive spot trade.

They cannot match the agile, aggressive marketing that saw Saudi Arabia slash its selling prices almost immediately after the collapse of the OPEC+ deal.

By comparison, Nigeria took nearly two weeks to make record cuts to its official selling prices.

The country is also struggling to sell its oil, which is rich in the gasoline and jet fuel that the world is not using as a result of the coronavirus pandemic.

Venezuela's flagship Merey 16 crude has been selling at just $8 per barrel due to a combination of falling demand and U.S. sanctions, while Ecuador's Napo and Oriente heavy crudes have remained below $15 per barrel.

While Angola's production has fallen from close to 2 million barrels per day (bpd) a decade ago to 1.4 million bpd, it had been in the midst of reforms which were meant to boost output.

And Equatorial Guinea is trying to auction new licenses and find a replacement for ExxonMobil, which wants to leave.

CASH CRUNCH

The sudden cash crunch is also hindering the ability of these oil producers to manage growing coronavirus outbreaks. A group of African finance ministers has called for a $100 billion stimulus package to help deal with the pandemic.

President Nicolas Maduro said this month that Venezuela is selling its oil below production costs, though he did not announce any action to offset the revenue loss.

Ecuador's Vice President Otto Sonnenholzner, meanwhile, said his country is struggling as it faces a $325-million payment this month as part of a debt repurchase deal.

Health systems across these OPEC producers are already chronically underfunded and living conditions dangerously cramped, while the oil crunch also casts doubt on whether nations can craft rescue packages or pay soldiers and police to enforce lockdowns or combat unrest.

In Venezuela, water supply problems led some hospital staff to use paint buckets as improvised toilets, and shortages mean workers re-use medical gloves.

Nigeria, which cut nearly $5 billion from its budget, said it needs 120 billion naira ($333.33 million) to fight the coronavirus outbreak.

Algeria, whose public debt rose to 45% of gross domestic product at the end of last year from 26% in 2017, plans 30% public spending cuts and has directed state energy firm Sonatrach to halve planned investment to $7 billion.

(Graphic: African Oil Producer Debt to GDP Ratios link: https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-OIL-OPEC-BUDGETS/0H001R8JWCJQ/eikon.png)

Angola said it will experience its fifth year of recession in 2020, plans to slash its budget, but protect health and food spending, while debt-ridden Congo Republic has been trying to renegotiate $1.7 billion of oil-backed loans.

($1 = 360.0000 naira)

(Additional reporting by Lamine Chikhi in Algiers, Dmitry Zhdannikov, Ahmad Ghaddar and Karin Strohecker in London, Marianna Parraga in Mexico City and Alexandra Valencia in Quito; Editing by Alexander Smith)

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