As oil prices continue to plunge, capital investment budgets in the oil and gas industry in sub-Saharan Africa for the next five years have also been cut by $100-billion, Wood Mackenzie's latest report on upstream activity in the region reveals.

Deepwater suffered the biggest capital expenditure cuts owing to its high breakeven price relative to other sectors, with Nigeria and Angola having endured the worst of these cuts.

As a result, sub-Saharan African liquids production will decline to 2.6-million barrels a day by 2030, from the current 4.8-million barrels a day.

Further, the slump has also resulted in the mergers and acquisitions (M&A) market slowing down, with buyers and sellers unable to align on asset values owing to oil price volatility; however, Mozambique, Angola and Nigeria lead in upstream M&A opportunities for players with deep pockets.

Meanwhile, the report stated that deal activity could experience an uptick if prices remain low for longer, as companies opt to divest noncore assets.

“Although exploration is down, it's not out, as better-financed explorers take calculated risks,” it stated.

Wood Mackenzie sub-Saharan Africa senior research manager Femi Oso said exploration cuts in the region would also contribute to a longer-term production slump as explorers have shied away from greenfield prospects, in favour of appraising known discoveries.

“However, the confirmation of the giant Owowo discovery in deepwater Nigeria shows the quality of resources sub-Saharan Africa still has to offer."

Wood Mackenzie also expects a slow recovery for exploration. Operators will benefit from cost deflation and will improve efficiency through streamlining project design.

"Governments in sub-Saharan Africa need to revive the upstream oil and gas industry by offering attractive fiscal terms rather than look to increase State revenues in the current climate," said Oso.

GAS & EAST AFRICA
The biggest upstream success story in sub-Saharan Africa is East Africa’s emergence as a gas region of global importance. With over 168-trillion cubic feet of gas found and limited regional demand, East Africa is on track to become a major global liquefied natural gas (LNG) supplier and various export projects are awaiting final investment decisions.

According to Wood Mackenzie's research, Mozambique and Tanzania gas project economics are resilient and will "transform the global LNG market".

"Mozambique and Tanzania’s LNG projects have remained relatively unscathed by cuts and will be timed to align with global LNG demand growth to achieve a better price," explained Oso.

He added that these projects would appeal to buyers looking to diversify their portfolios, with oil and gas giant BP having already committed to offtake all volumes from Eni's Coral floating LNG, off the coast of Mozambique.

"The expected increase in gas production in sub-Saharan Africa, from six-billion cubic feet a day currently to 13-billion cubic feet a day next decade, is very good news for the region."

Onshore LNG plants remain the preferred way to monetise gas, although liquefaction through third-party floating LNG vessels is emerging as a simpler and less expensive alternative.

Floating storage regasification units (FSRU) and piped gas supply to the power sector will play an increasingly important role in the longer term as domestic markets develop from a low base. An FSRU is a floating LNG import terminal.