AFRICA is on an upward growth curve. This growth is underpinned by a long-term process of economic and regulatory reform that has occurred across much of the continent since the end of the Cold War — a period in which inflation has been brought under control, foreign debt and budget deficits reduced, state-owned enterprises privatised, regulatory and legal systems strengthened, and many African economies opened up to international trade and investment.
Widespread reform has resulted in an ever-improving business environment, and this, together with other factors, such as the commodities boom and increasing infrastructure investment, has contributed to a doubling of economic output over the past decade.
During this period, a number of African economies have recorded impressive growth rates. For example, according to The Economist, six African economies were among the 10 fastest-growing in the world in the period 2001-10.
Resources generally, and oil and gas specifically, have played an important role in Africa’s growth.
A total of 19 African countries are significant producers of oil and/or gas, and the revenues from higher prices and the investment that new discoveries are attracting have made a key contribution to growth.
While the majority of reserves and production remain concentrated in six countries – Nigeria, Libya, Algeria, Angola (oil), Sudan (oil) and Egypt (gas) – there have been significant new discoveries in Ghana, Tanzania, Mozambique and Uganda, with prospected fields in other countries, including Sierra Leone, Mali and Kenya.
At the end of 2010, African oil and natural gas reserves were estimated to range 200-210billion barrels oil equivalent (boe), with the Oil & Gas Journal providing a slightly higher estimate than the US Department of Energy (DOE).
Reserves are currently dominated by Nigeria, Algeria and Libya, which collectively account for more than 77% of the region’s total proved reserves.
After declining slightly in 2009, African oil & gas production is estimated to have increased to about 13million boe per day in 2010, with conventional oil production reaching about 9million b/d.
Production is highly concentrated for both oil and natural gas, with the five largest producers accounting for more than 80% of the region’s oil production and more than 90% of the region’s gas production.
Regional prospects
NORTH AFRICA:
Current political uncertainty in North Africa may have significant implications for the region’s oil & gas industry, particularly in two of the “old lions”, Algeria and Libya, where industry revenues dominate the countries’ economies.
Up until recently, the sub region had seen a general reduction in political risk and an increase in investment in the oil & gas industry, particularly on the gas side. Until the political situation settles, operations are likely to be constrained and/or disrupted and new investment postponed.
The sub region’s industry has broadly remained open to the international oil companies (IOCs), particularly the European “majors”, as well as to the specialised independents, both large and small. Investment is usually through production sharing agreements (PSAs) with the state oil companies.
WEST AFRICA:
Dominated by one of the old lions (Nigeria) and one of the new lions (Angola), West African activity has taken off in the last decade, driven particularly by advances in offshore technology. Angola became the newest member of the Organisation of the Petroleum Exporting Countries (OPEC) in January 2007, and has become one of Africa’s leading producers, threatening to overtake the long-time leading producer, Nigeria.
With the prominence of the deepwater in the sub region’s industry, it is dominated by the super-majors, typically working under joint venture (JV) arrangements or through consortia. Nevertheless, there is also growing participation of national oil companies (NOCs) from outside the region (eg Petrobras and Sinopec) and by mid-sized and smaller independents. Local content laws are further increasing participation from smaller regional firms.
Other players include the Congo, which is still one of Africa’s largest producers, but whose oil production is in decline and potential gas development is limited by a lack of infrastructure.
That could change, however, if the World Bank’s proposed African Gas Initiative, which focuses on gas reserves in Angola, Cameroon, Congo, Gabon and Cote d’Ivoire, goes forward.
The Congo is also thought to have some deepwater offshore potential. Central Africa’s other major player, Chad, has seen some recent success, led by ExxonMobil and China’s CNPC, but suffers from a somewhat challenging geology that makes development costly.
The sub region also includes a number of smaller producers whose industry is generally in decline due to mature fields (eg Gabon and Cameroon), and some whose oil & gas industry is in its ascendancy, with a few recent big successes that may bode well for the future.
Notably, Equatorial Guinea hopes to leverage the Marathon-led discoveries and developments into rapid economic growth, while the Anadarko/Tullow success in Ghana’s Jubilee area will transform the country’s oil & gas industry. These successes are also thought to bode well for neighbouring developments in the West African/ Atlantic Transform Margin in offshore Sierra Leone, Cote d’Ivoire and potentially Liberia.
SOUTH AND EAST AFRICA:
The rapid growth of one of Africa’s new lions, the Sudan, has been driven primarily by Asian state-owned investors, notably CNPC, Petronas and ONGC, who quickly filled the void when Western investment dried up because of political/reputational risk and international sanctions.
Now one of Africa’s leading producers, the country is, however, faced with the secession of the southern portion of the country and the inevitably controversial management of the oil & gas resources. The sub region is also home to what could be a game-changer for the African oil & gas industry: the “newest lion cubs” – the deepwater gas prospects off Tanzania and Mozambique.
Led by Anadarko and some of the smaller regional specialists, including Tullow, Maurel & Prom, and some of the larger IOCs, recent discoveries, notably the Windjammer prospect, have confirmed the Rovuma Basin as a promising gas province.
Looking forward
Not surprisingly, investors are optimistic about the potential for growth in the African oil & gas sector.
While there are risks in Africa, as there are elsewhere – some fragile regimes, some weak legal systems, some inefficient and ineffective institutions and some potential for civil unrest – the rewards are commensurately high.
Economic growth, expanding populations, and the building of efficient and effective political and social institutions will all have positive implications for energy consumption in the region. It is important to note that many African economies are resource and/ or commodity dependent, and therefore oil and natural gas development will continue to play a vital role in these countries and in the region as a whole.
Kevin Weston is a partner with Ernst & Young.
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