Africa’s oil and gas industry holds the potential for further growth mainly driven by an increase in investor appetite and a rebound in prices, according to PricewaterhouseCoopers’ (PwC) annual Africa oil and gas review 2019
According to the report, new oil and gas find off the coast of Africa have led to an increase in investment in infrastructure, technological advances, updates in regulation and improved governance, as well as the development of new skills.
The global energy market is in an exciting phase of transition and disruption. Breakthrough technologies are unlocking significant new reserves, processing, transportation and downstream uses that were previously unviable, unknown or inaccessible.
Decarbonisation driven by the environmental sustainability agenda is shifting the energy mix at an accelerating pace, which is particularly evident across North America, Asia and Europe. This seems likely to position gas ahead of coal by 2030 to become the world’s number two fuel.
Andries Rossouw, PwC Africa energy utilities and resources leader, said, “Renewed optimism has returned to Africa’s oil and gas industry on the back of a rebound in prices and increased investor interest. The African oil and gas industry has been through some difficult and challenging years in the wake of the oil price crash. However, the industry has restructured itself and is more competitively placed in terms of efficiency and operational performance.”
“The outlook for the industry continues to improve with oil and gas companies targeting cautious growth in areas less vulnerable to external volatility while maintaining their cost and operational margins,” Rossouw added.
PwC’s Africa oil and gas review, 2019 analyses what has happened in the last 12 months in the oil and gas industry within the major and emerging African markets.
Gas and LNG supply and demand
Globally, natural gas will continue to see growth and is expected to overtake coal by 2030 to become the world’s second-leading fuel. Natural gas accounts for just under a quarter of global energy demand, of which 9.6 per cent was supplied as LNG in 2018. The number and type of LNG market participants have dramatically increased as lower prices make imports more affordable.
The increasing regulatory drive to decarbonise is also expected to reduce the share of coal in the global energy mix and drive demand for natural gas.
Nigeria’s oil and gas sector
Nigeria is one of the oldest oil-producing countries in Africa. Oil was first discovered in Nigeria in 1956 and production began in 1958. The oil price boom of the 1970s spelt good fortune for the country transforming it from an agrarian economy to an oil-dependent economy. Since then, the Nigerian petroleum industry has evolved and this evolution provides useful lessons for other countries with oil and gas to learn including mid and downstream segments development, regulatory complexity and uncertainty and contractual frameworks.
Focus on Mozambique
The natural gas discoveries in Mozambique since 2010 have the potential to transform the country into one of the world’s largest LNG exporters. However, the 2014–2015 slump in energy prices caused several energy giants to delay projects and this gave rise to concerns that Mozambique’s LNG developments could be held back.
LNG will drive growth in Mozambique’s economy. Maximising the benefits from LNG will provide direct income to the government, employees, suppliers and shareholders of the megaprojects. Of equal if not higher importance, is the significant developmental potential through the associated infrastructure, industrialisation, socio-economic and capability uplift at country level.
However, expectations about the extent to which the oil and gas industry will contribute to the development of Mozambique’s citizens may be unrealistic and not consider the country’s growing revenue needs; the current low base from which the economy is developing; and that projects will overlap, creating pressure on current resources.
Looking to the future
The African oil and gas sector is moving from a cycle of stagnation in exploration, capital expenditure spend and production between 2014 and 2018 in the wake of the oil price crash, to a more dynamic growth phase. During the downturn, the industry restructured itself for improved efficiency and performance and is fitter for this new future. Oil and gas companies are better placed now to take advantage of shifting geopolitics and trade patterns, new resource finds, a transitioning and decarbonising global energy mix, technological improvements, maturing regulatory environments and improved governance in some countries.
James Mackay, PwC director capital projects and infrastructure, commented, “It is critical, however, that the sector retains and builds on its strategic portfolio management, enterprise risk management, capital project delivery, capital sourcing and allocation discipline, market and customer insights and relationships and adopts new technologies and innovations to improve performance if the hard-fought wins in cost savings are to be retained. Progress in addressing corruption and improving corporate governance will also need to be urgently addressed.”