The African Oil & Gas Industry Explained

The initial investments sparked by the discovery of oil on Ghana’s coastline in 2007, plus finds in Uganda, Kenya, Mozambique and Tanzania, have been dashed in recent times. The low cost of oil has slowed the previously seen, enthusiastic rush to invest. It’s no surprise, investment has faded, with oil prices plummeting to more than half the initial value. From a lofty $100 per barrel, the current price of oil is $45.70, as stated by http://oil-price.net.

Can Africa’s Governments Turn Things Around?

Recently improved political stability, successful oil and gas explorations, inclusion of local companies and industry workers, provide a foundation for positive, long-term, economic development.

Africa’s oil and gas sector now competes for investment dollars with other sectors, such as the growing consumer market and technology sector. This results in the sector lacking capital at a time when, ironically, investment capital has never been so readily available. This competition is forcing African governments to be as investor-friendly as possible.

Today, governments, policy makers, leaders and influencers understand how important it is for projects to go ahead as soon as possible. As a result, African governments are more likely to introduce investment-friendly policies, regulations and incentives. All of which could boost the growth potential of the oil and gas sector, creating a more collaborative, and investment-friendly landscape.

It is clear that once this slump in oil prices recovers, the real winners will be those countries that were successful in attracting overseas investment. The losers will be the countries sticking to the old rules of the $100-a-barrel-world.

In an interview about private equity opportunities, Chris Sim, director of investment banking at Investec, said

“Africa is important. Some private equity companies have seen some big successes in the oilfield service sector,” he says, “so there is still a willingness to invest further.”

PriceWaterhouseCoopers Africa in the report titled "From fragile to agile Africa oil & gas review" noted that from a proven oil reserve totaling 129.2 billion barrels, Africa produced 8.2 million barrels of crude oil per day (bbl/d) in 2014. Over 76 percent of this production came from Nigeria, Algeria, Egypt and Angola in 2014.

As of the end of 2014, Africa has proven natural gas reserves of just fewer than 500 trillion cubic feet (Tcf) with 90 percent of the continent's annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.

"This is a slight drop in reserves compared to 2013, and production also decreased slightly over the period. Consequently, the continent still has nearly 70 years of natural gas production available given current production rates." it said.

For the world, the report said,

"Global discoveries of new oil and gas reserves dropped to their lowest level in at least two decades in 2014, if shale oil and gas reserves in North America are excluded. In 2013, nine of the largest 20 discoveries were in Africa, whereas in 2014 this had risen to 11".

The PwC report noted that the worldwide slowdown appears to be less alarming in Africa, than in the rest of the world. This annual decline is the first, while the global number and size of discoveries has decreased for four years running.

Oil & Gas in Africa, What You Should Know

The history of oil in Africa spans several decades, and Africa’s proven oil reserves have continued to grow. In addition, it is estimated that billions of barrels are offshore, waiting to be discovered. In turn, Africa’s gas reserves continue to grow, with regular new discoveries pointing to significant upward potential.

The emergence of a wealthier middle class on the continent, will surely see the potential for oil and gas, to grow significantly over the next 20 years. More than half of the top global discoveries in the oil and gas sector in 2013, were made in Africa. Hundreds of companies are currently exploring deposits there, with millions of barrels of crude oil produced daily. Great news for Africa, but is the story more about gas than oil?

Image source: Bolloré

Is Africa Potentially a Major Exporter of Oil?

The potential for further oil and gas finds in Africa, remain exceedingly positive. If prospects are as favourable as projected, Africa can be a major oil exporter for decades to come.

For years, Africa has been seen as a diverse way, to be less dependent on oil from the Middle East. Massive demands from India and China, have created growth in economies, radically changing Africa’s economic landscape and export profile.

It is expected that Africa’soil exports to China will increase, as China is expected to become the world’s largest importer of oil by 2020. There is no doubt that Africa is a growing source of oil to world markets.

Overall, Africa’s oil reserves and production, are expected to increase over the medium to the long-term time period. The region has world class potential, onshore and off-shore, in terms of its reserves, unexplored territories and the obvious potential in the Red Sea.

However, there are challenges. Refining capacity on the continent, remains limited. Resulting in the need to export crude oil, then importing it as refined oil. The refining industry itself has issues, which include, poor upkeep, theft, and other operational problems.

Many African countries have gas reserves, and exploration for them continues on the continent. Recent, substantial finds, have lifted the prospects of these countries becoming major exporters of LNG. Here is a list of the 10 Highest Oil Producing African Countries.

North Africa remains the continent’s leading region for natural gas production. With most of the current gas reserves being found when searching for oil. Many African countries create incentives for energy companies to explore for gas, in an effort to ‘decouple’ from oil in terms of investment.

Is there Still Potential for Oil & Gas in Africa?

Under Explored

Well, Africa still very much remains underexplored by oil and gas companies. The cautious approach is mainly due to the challenges of corruption, lack of infrastructure and regulation. However, if you look carefully, you can see the industry responding positively to more scrutiny.

Inexpensive, but Long Term

It can be inexpensive finding oil and gas in Africa but developing it needs a long-term commitment. With the onset of better regulatory and business environments, Africa is sure to attract investment needed to unlock their natural resources, which in turn generate revenue and change economic landscapes.