The current global oil and gas market is in a state of flux, with price volatility, demand fluctuations and thin liquidity causing unprecedented impacts on the entire energy value chain. At the same time, a number of producing markets in Africa are emerging thanks to resilient exploration campaigns and the increasing participation of the private sector.
Thus, the need to improve stability and ensure markets are not only well-functioning but strengthened has never been more important. In this regard, the African Energy Chamber (AEC) commends HRH Prince Abdulaziz bin Salman, Minister of Energy of Saudi Arabia, for his recent statement on the need to prioritize market stability.
In order to make energy poverty history by 2030 in Africa, the continent’s burgeoning oil and gas market needs to be strengthened, and the Organization of Petroleum Exporting Countries and its allies (OPEC+) have the means to do just that.
According to HRH Prince Abdulaziz bin Salman, the state of play of the global oil and gas market features a significant disconnect between the paper market and the physical market, “with the paper oil market falling into a self-perpetuating vicious circle of very think liquidity and extreme volatility, undermining the market’s essential function of efficient price discovery and making the cost of hedging and managing risks for physical users prohibitive. This has a negative impact on the smooth and efficient operation of oil markets, energy commodities and other commodities, creating new types of risks and insecurities.”
However, HRH Prince Abdulaziz bin Salman offers a solution whereby OPEC+ member countries leverage their “commitment, flexibility and means within the existing mechanisms of the Declaration of Cooperation to deal with such challenges and provide guidance including cutting production at any time and in different forms as has been clearly and repeatedly demonstrated in 2020 and 2021.” In doing so, OPEC+ will ensure stability in the market and that new risks faced by suppliers, consumers and the private sector are mitigated.
“Soon we will start working on a new agreement beyond 2022 which will build on our previous experiences, achievements and successes. We are determined to make the new agreement more effective than before. Witnessing this recent, harmful volatility disturbing the basic functions of the market and undermining the stability of oil markets will only strengthen our resolve,” HRH Prince Abdulaziz bin Salman notes.
“A stable oil and gas market translates into strong participation and success across the private sector. In Africa, where the private sector is beginning to play an increasingly more important role in energy-related developments, stability in the global market will be key for ensuring efficient operations and unwavering growth. In this regard the AEC strongly supports HRH Prince Abdulaziz bin Salman in his pursuit of market stability, employing member countries to leverage their positions and usher in a new era of stability worldwide,” states NJ Ayuk, Executive Chairman of the AEC.
He added, “Market stability will benefit the private sector and consumers, enabling the African continent to drive long-term socioeconomic growth and industrialization and make energy poverty history by 2030.”
Stabilizing oil and gas markets will represent a key topic that will be discussed by energy experts, African and global producers as well as executives from the public and private sector at the continent’s biggest energy event, African Energy Week (AEW).
With the 2022 edition taking place from October 18-21, 2022, in Cape Town, discussions will largely centre on improving stability, reducing volatility and making energy poverty history on the back of oil and gas. Key points of discussions include increasing private sector participation; industrializing Africa using oil and gas; promoting an Africa-curated strategy for the energy transition; and creating strong, competitive and global markets in Africa.
A stable oil and gas market translates into strong participation and success across the private sector
With a suite of OPEC member countries joining the conference as official delegations, partners and sponsors, the discussion on the role OPEC+ plays in stabilizing global markets will be expanded on. For Africa, the conference represents the ideal platform to explore the challenges and opportunities across the energy market, as AEW 2022 promotes Africa’s position on global energy matters. Meanwhile, for OPEC+, networking and forum opportunities offered at AEW 2022 serve to only enhance dialogue on oil and gas market trends. Therefore, in the 2022 context, AEW 2022 seeks to address the disconnect between paper and physical markets, strengthening the global sector for years to come.
As thin liquidity and extreme volatility undermine the market’s core function while introducing new risks for the value chain, employing tactics to ensure market stability and reduce volatility is key, now more than ever. As the OPEC President for 2023, Equatorial Guinea fully supports HRH Prince Abdulaziz in his pursuit of stability, as do other producing countries in Africa.
Currently, the state of the global oil and gas market can be described as more of a disconnect between the paper and physical, with a lack of sufficient liquidity resulting in paper markets being unable to effectively reflect the realities of physical markets.
HRH Prince Abdulaziz bin Salman offers a clear explanation, emphasizing that “in a way, the market is in a state of schizophrenia, and this is creating a type of yo-yo market, sending erroneous signals at times when greater visibility and clarity and well-functioning markets are needed more than ever to allow market participants to efficiently hedge and manage the huge risks and uncertainties they face.”
Essentially, this disconnect has significantly impacted market operations, a trend which has only been amplified with the “unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes and sanctions.” As such, the need to address this disconnect and usher in a new era of market stability and growth is of uttermost importance, and OPEC+ represents the solution.
“Over the last two years, OPEC+ has made clear its role in stabilizing and strengthening global oil and gas markets, and in 2022, this will only continue. As HRH Prince Abdulaziz bin Salman stated, OPEC+ have the means to create stability, whether this is through production cuts or any other method. As an OPEC member and the 2023 organization President, Equatorial Guinea fully supports OPEC+ and the methods it employs to ensure stability,” stated H.E. Gabriel Mbaga Obiang Lima, Minister of Mines and Hydrocarbons of Equatorial Guinea.
He added that “Producing markets in Africa have and will continue to support the calls for market stability and the reduction in volatility. For Africa, ushering in stability will not only be key for mature and emerging oil and gas markets but will reduce risks for market participants, allowing them to efficiently hedge and manage uncertainties. As many countries in Africa begin their journeys towards becoming producers, ensuring well-functioning markets will be key.”
As HRH Prince Abdulaziz bin Salman states, “witnessing this recent harmful volatility disturbs the basic functions of the market and undermines the stability of oil markets will only strengthen our resolve.”
