Expect the unexpected from Sudan and South Sudan
Stability in South Sudan could raise production much higher than was agreed with Opec
For a small-scale oil producer, South Sudan could do a lot of damage to Opec's efforts to curtail supply. Neither South Sudan nor its northern neighbour Sudan, is a member of the group-although before the former gained independence in 2011 the unified country applied to join. Now they get their chance, in spirit anyway. As part of the deal with Opec, Sudan agreed to a 4,000-barrels-a-day reduction and South Sudan to cut 8,000 b/d.
Complicating the situation is the fractious relationship between the neighbours, and South Sudan's impoverished economy. It depends on oil-a source of revenue heavily reduced by factional ethnic violence, which has caused most production to be shut in, reducing exports sharply. The government claims output is currently more than 160,000 b/d, but that could be a significant overestimation.
South Sudan is now talking about boosting production, claiming it wants to add another 200,000 b/d during 2017. By its own reckoning, this would lift output to 360,000 b/d-a level last attained before the outbreak of hostilities between rival groups in 2013.
8,000 b/d - the cut South Sudan agreed to
Some 50,000 b/d of that increase is due to come back onstream from Unity State before the middle of the year, according to the government. At least one government official says the 8,000 b/d Opec cut would be made once the country had achieved this production rise. So if South Sudan meets both its production goals and its pledge to Opec, it could add more than 190,000 b/d to global supply in 2017, or at least 42,000 b/d in the first half. That's an odd kind of cut.
More unrest, the choppy performance of predominantly Asian oil firms operating in the country and the haziness of the data mean Juba will struggle to meet its production objectives. Its reliance on Sudan to provide the export route for the oil is another bottleneck.
But Sudan itself needs its neighbour to produce as much as possible (it takes a hefty transit fee on each barrel)-and its economy depends on its own oil output. Khartoum says this amounts to 250,000 b/d at present. A US decision-backed by Donald Trump-to partially lift a 20-year trade embargo on Khartoum in response to the country's cooperation in fighting Islamic State and other local terror groups promises to make oil exports easier.
PE verdict: The Sudans' participation in the deal is shaky and some stability in South Sudan would bring much more oil than Juba pledged to cut
Cut now, add later
As a central diplomatic broker in the Opec deal, Algeria will certainly meet its quota. Removing the pledged 50,000 barrels a day is not a great loss for a country that is battling just to sustain output levels anyway.
Indeed, energy minister Noureddine Boutarfa-whose stewardship of the September Opec deal in Algiers brought huge domestic kudos-said in January that his country would cut production by 60,000 b/d by the end of the month and may trim by another 5,000 b/d later. Algeria produced around 1.1 million b/d during 2016, according to Opec-a figure that has changed little in the past two years.
But the cuts, Algeria hopes, are just the precursor to longer-term expansion of oil exports. State energy producer Sonatrach said in December that the country wanted to increase both oil and gas production by 20% over the next four years. It's not clear how realistic this is-one Sonatrach official admitted it would be done with as little investment as possible.
Such boldly stated aspirations are designed to give the impression that Sonatrach's operational plans are back on track following a rocky period for the company, whose revenues have taken a hit on lower oil prices, while management changes and a lack of clear policy have undermined foreign investment.
Algeria does hold considerable potential for fresh discoveries, if partners can be persuaded to explore. Around two-thirds of the country remains either underexplored or unexplored, mainly in the north and offshore, says Sonatrach. Areas where oil production-and infrastructure-already exist perhaps offer the best prospects, notably the Hassi Messaoud, Illizi, and Berkine basins.
Sonatrach says it will drill 290 wells in 2017, of which 100 would be for exploration. That compares with 253 wells drilled in 2016. It said the Berkine basin would be central to bringing fresh oil production onstream, as part of a short-term push to increase output capacity, and it also intends to boost production from existing wells in Hassi Messaoud.
PE verdict: Outside the Gulf, Algeria's commitment to the deal is the most secure
This article is part of a report series on Opec. Next article: Capacity up, supply down in Angola