key drivers and challenges of oil and gas industry development in africa

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Key Drivers and Challenges of Oil

and Gas Industry Development in

Africa __________________________________________________________________________________

www.s-scg.com | [email protected]

SSCG Market Brief

At SSCG, we support our clients to do business in Africa and navigate market challenges, de-risk operations, increase their capabilities to enhance efficiency. We provide focused managerial perspectives and analytics to help our clients understand their markets and consumers, enhance decision making, performance and growth .

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Industry Landscape __________________________________________________________________________________ Africa is home to some of the world’s fastest-growing economies, many of them buoyed by new oil and gas finds, including Mozambique, Tanzania, Kenya, Uganda and Ghana. The region is also home to what could be game-changer reserves for the industry. Even though global petroleum commodity price is presently projected to moderate in 2014 from last year, is expected to remain more than 75% higher than in 2013. As a result, Africa’s key oil producing countries are expected to continue to list amongst the fastest expanding on the continent. Africa currently supplies about 12% of the world’s oil and boasts significant untapped reserves estimated at 8% of the world’s proven reserves. The region boasts with a long list of oil producing countries. According to the World Bank, International Energy Agency (IEA) and Organization of the Petroleum Exporting Countries (OPEC) from 2010, 16 of the 54 countries in Africa are petroleum exporters, namely Nigeria, Angola, Libya, Algeria, Sudan, South Sudan, Equatorial Guinea, Congo (Brazzaville), Gabon, Chad, Egypt, Tunisia, Cameroon, Ivory Coast, Democratic Republic of Congo (DRC) and Mauritania. Africa’s oil history stretches over a period of several decades. Presently, there are more than 500 oil companies participating in African hydrocarbons exploration, production and development. According to Africa Development Bank (AfDB), Africa’s proven oil reserves have grown by nearly 120% in the past 30 years, from 57 billion barrels in 1980 to 132 billion barrels of proven oil reserves in 2013. This trend is anticipated to continue largely due to additional finding and revisions in proven hydrocarbons reserves. Oil reserves account for about 56% of the region’s total reserves, but gas reserves are growing far faster. It is estimated that at least another 100 billion barrels are offshore, only waiting to be discovered. In turn, Africa’s proven reserves of natural gas have grown from 210 trillion cubic feet (tcf) in 1980 to 509 tcf in 2013, representing growth of over 140%. Furthermore, recent additional discoveries of sizable natural gas reserves in Tanzania and Mozambique point to significant upward potential for these figures. The sector is experiencing significant growth, with Eastern Africa emerging as significant oil and gas frontier as a result of the large petroleum finds. However, political unrest in North Africa, insecurity and oil bunkering in Nigeria, and civil war in South Sudan have resulted in production loss of more than a million barrels per day (bbl/d).




SSCG Energy, Oil & Gas We help energy, Oil and Gas sector stakeholders and clients navigate through the changing business environment, manage risks and optimize performance in Africa. We provide innovative and cutting-edge energy consultancy and enterprise solutions to petroleum, E&P, mining and energy organisations in developing markets. Our strategy ensures that we create value in the energy industry, improve our clients distinctive capabilities and play to our strengths while working across the value chains. We are committed to growth in the activities of finding and managing minerals, energy, oil and gas resources in Africa. By aligning our market experience, commercial, political and environmental insights, we provide energy industry solutions ranging from: > Sustainability and environmental management > Economic planning > Projects management > Operation and risks management > Corporate Social Responsibility (CSR) > Managing local content laws and compliance > Managing Production Sharing Agreement (PSA) and (PSCs) > Understanding local content laws and fiscal policies At SSCG, we draw upon our global and local knowledge, market and industry insights to help organisations enhance their operation capabilities, manage risks, strengthen controls, grasp opportunities and achieve full potential particularly across multiple countries in Africa

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Growth and

Development __________________________________________________________________________________ Overall, the booming oil and gas industry is seeing greater investments and interest in all regions, including new frontier states such as Namibia, Togo, Liberia and Ethiopia. Enhanced oil recovery and technology advancement in areas where Exploration and Production (E&P) had been diminishing over the last few years have improved output. This includes countries such as Ghana, Congo, Gabon, Côte d’Ivoire and South Sudan. Africa is seeing continued growth, with Eastern Africa emerging as a new source of oil and gas. Significant gas finds in excess of 127Tcf in Mozambique have created the potential for another African super player. With further exploration and development expected in Mozambique, the country could overtake Nigeria and Algeria as the country with the largest gas reserves in Africa. Based on AfDB report, Mozambique is expected to become the second-largest exporter of Liquefied Natural Gas (LNG) by 2025, as the country steps up production from 10 million tonnes per annum (Mtpa) in 2017 to an envisaged 50Mtpa. Access to the lucrative Asian LNG market has significant economic benefits for the region and could act as a catalyst for meaningful economic development. Rapid developments in Ghana and Uganda have demonstrated the possibilities and potential of African oil and gas sector. The Jubilee field was hailed as the fastest ever deep-water development, taking just 24 months from development to production. Africa is considered the last true petroleum frontier with more than 4200 exploration blocks identified. Almost half of these blocks are open, subject to force majeure or in the application phase. More than 80% of the 1300 blocks in North Africa are licensed. On the other hand, it is estimated that only about 30% of 2900 blocks in sub-Saharan Africa are licensed. It is evident that many new opportunities still exist, especially for E&P companies that are willing to take greater risks. There are many key opportunities within the oil and gas industry due to new exploration blocks being opened for competitive bidding. Regional ports are being expanded to support future shipment. Construction of pipelines (both subsea and onshore) are underway. Onshore and offshore E&P infrastructure are being build. LNG facilities and other gas monetisation projects for local use (methanol, fertilisers and urea) have been initiated. Refineries, crude oil storage facilities and plants upgrades mega projects are in process. In addition, development of industry professionals and knowledge base, National Oil Companies (NOCs) and institutions have been made a priority. Recent divestments in Nigeria represent the largest opportunity for indigenous firms with the requisite expertise, supply chains and capital to ascend into the league of major upstream players.




Key Challenges __________________________________________________________________________________ The challenges facing oil and gas companies operating in Africa are diverse and numerous. Oil bunkering in Nigeria cost an estimated 150 000bbl/day. Politicisation of industry activities and projects, uncertainty and delays in instituting new laws, energy policies and regulations into law are stifling growth, development and investment in a number of countries around Africa. Strategic and long-range planning is extremely important in today’s uncertain environment. High operation costs in Africa have obliged companies to tighten budgets, while continuing to weigh up the risks and benefits of new projects, new products and evaluating capital investments. Behind such decisions lie a host of regulatory, safety, environmental and political stability considerations. In many African countries oil and gas policies, local content laws, petroleum bills and Production Sharing Agreements (PSAs) are being reviewed and attempts to increase governments take and local content are being introduced. Governments are increasingly requiring E&P companies to supply gas as an energy feedstock for local power generation, industry and for general consumption, prior to exporting the products. Local beneficiation of hydrocarbon resources is being prioritised to ensure development for the benefit of the local communities. Infrastructure development can potentially take longer lead times before production can commence, as has been demonstrated by the situation in Uganda, while poor upgrade have led to production inefficiency IN Congo and Gabon. Undeniably, these significant growth in Eastern Africa highlight a shortage of oil and gas professionals in the industry. While E&P companies would like to see a relaxation of local content regulations, governments are instead making localisation regulations and policies more stringent. Reflecting operational challenges, increase in risks and new laws in Nigeria resulted in revenue drop and asset divestments by Chevron, Shell, Petrobras and Conoco Phillips. According to AfDB, African oil and gas sector losses large volume of revenue due to transfer pricing and illicit trading of petroleum products. Investments in talent development and skill training are therefore an on-going requirement. In conclusion, the discovery of Shale oil in developed economies such as United States could significantly change the export market and global energy landscape. US target to become self-sufficient with locally-produced oil will disrupt the supply chain for example 33% of Nigeria oil and gas exports go to the US. Thus African petroleum producers need to diversify export to new growing markets such as China and India to mitigate market risk.




Author __________________________________________________________________________________

Eugene Nizeyimana CCO and Managing Director, SSCG Global Services T: + (44) 1865 600850 E: [email protected] Eugene is the Chief Operating Officer at SSCG and Managing Director for Sub-Saharan Consulting Group. An accomplished and astute executive with proven track record in delivering focused results and growth for corporate, with extensive experience advising executives and corporate, executing projects and businesses in Africa. With key expertise and experience in diverse business lines and industries including energy, Oil and Gas E&P businesses. A qualified engineer and economist, has been at the forefront leadership actions, thinking initiatives, operations optimization and strategic growth in various International organisations. Has worked with diverse upstream and downstream businesses helping them to maximize value and growth in Africa. A member of various associations including, MIT Energy Initiative and Mckinsey Global Institute.




key drivers and challenges of oil and gas industry development in africa

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