Demand for oil and gas in Africa remains high but low crude prices combined with poor physical infrastructure, inadequate logistical solutions and onerous government regulations have stunted investment in oil- and gasfield development, says SacOil CEO Thabo Kgogo.
He believes industry activity on the continent has slowed, given the low oil price; however, despite a slowdown in activity, African governments and industry role-players continue to seek ways to increase the continent’s oil and gas resources.
“Oil and gas companies should use this time, during the downturn, to be innovative in their strategies and plan for the execution of large-scale projects to prepare and gear up for growth in Africa once the oil price stabilises,” he says.
Professional services firm KPMG’s Oil and Gas sector report 2015 estimates that 57% of Africa’s export earnings are derived from hydrocarbons.
Untapped proven oil reserves on the continent are estimated to be around 8% of the global total and these reserves are projected to increase as the appraisal of new discoveries are concluded.
“The current gas infrastructure is not sufficient to meet the growing gas demand on the African continent and demand will only increase,” says Kgogo.
Advisory firm PwC’s Africa Oil and Gas review highlights that Africa’s gas consumption will increase by 50% over the next 20 years, while global gas consumption is expected to increase by 20%.
Studies are under way in various parts of the continent to determine the environmental impact and economic viability of everything from pipeline construction to port development and even building new roads.
“The proposed African Continental Free Trade Agreement (CFTA) is set to build on earlier Tripartite FTA negotiations, which will create a free trade area among the 26 countries of the East African Community, the Common Market for Eastern and Southern Africa and the Southern African Development Community,” says Kgogo.
He highlights that a challenge faced by most oil and gas companies in Africa is the movement of raw materials and field equipment, which can largely be attributed to factors such as harsh conditions, unforgiving terrain, bureaucratic red tape and a lack of existing infrastructure.
He says the CFTA does not include a direct plan to establish this much-needed infrastructure, but if African businesses want to take full advantage thereof, such infrastructure is required.
“It is hoped that the CFTA will be viewed by the manufacturing and construction sectors as a call to action,” he says.
Kgogo explains that trade agreements have a two-way flow by design, noting that while cross-border trade may initially appear to only flow one way, the benefits to all parties realise over time.
He says South Africa, for example, is looking to procure natural gas from countries like Mozambique, Tanzania and Botswana at the best possible prices and with minimal customs and excise costs and administration, while South African independent power producers (IPPs) would like to supply electricity cross-border to neighbouring countries.
The CFTA is expected to ease the movement of goods across member countries, with Kgogo stating that it could not have come at a more appropriate time for the gas industry.
He notes that, over the next ten years, the industry expects to see a lot of exciting activity with plans for the construction of gas-to-power plants, storage facilities, pipelines and distribution networks to take advantage of the natural gas boom.
“This is good news for the engineering, manufacturing and steel industries. Since the government has opened up to the concept of IPPs, we can expect many plants and storage facilities to be built along the east coast of South Africa,” he states.
The movement of so much gas and associated products also calls for an improved transport network between African countries.
“This should give us the expectation of an abundance of infrastructure projects in the near future,” he concludes.