The outlook for Africa’s oil and gas industry is positive, despite tough economic conditions and far fewer discoveries over the past year, PwC’s yearly 'Africa Oil & Gas Review' shows.
The review indicates how the industry has responded in the wake of the recovery of the oil price to close to pre-collapse levels. The price had plummeted to $28/bl in 2013 before making its way up to its current level above $80/bl.
“Africa’s oil and gas companies have weathered the downturns and capitalised on the upswings, focusing their efforts on new ways of working, reducing costs and using new technology,” says PwC Africa Oil & Gas Advisory leader Chris Bredenhann.
The review says companies have taken to restructuring their portfolios with a focus on established regions, less exploration, higher value plays with low break-even costs, and projects with shorter lead times and lower risk. The industry has also renewed its focus on delivering projects on time and on budget.
Discoveries have taken a heavy knock. “New finds are much smaller and leaner than they were in previous years,” Bredenhann told a media briefing at Africa Oil Week, in Cape Town, on Tuesday. “Discoveries are not as prolific as they have been in the past. It’s a direct reflection of the reduction in expenditure of the oil and gas industry following the 2013 price decline.”
Bredenhann said the last time the industry had seen a 100% reserve replacement ratio was in 2006. Deepwater oil has been given preference over gas, and oilfields offering the highest rates of return are attracting investment. There is also a preference for brownfield over greenfield developments.
PwC’s yearly 'Africa Oil and Gas Review' analyses what has happened in the past 12 months in the oil and gas industry within major and emerging markets, drawing on extensive canvassing of the expert opinions of industry leaders across the value chain.
At the end of 2017, Africa was reported to have 487.8-trillion cubic feet of proven gas reserves, making up 7.1% of global proven reserves. It recorded a marginal change compared with the previous year. Africa’s share of global oil production has increased slightly to 8.7%, reaching 8.1-million barrels a day. The main contributors continue to be Nigeria, Angola, Algeria and Egypt.
Libya increased its production by 103% in 2017, coming in as the fourth-largest oil producer in Africa, with an 11% share, edging Egypt into fifth position.
“The current oil price recovery reflects a tight supply and demand balance, as well as an indication that we are heading towards a potential supply crunch in the early 2020s”, warns the review. “A period of oversupply is being replaced by over-demand. We’re seeing other geopolitical features playing out.”
Unexpected outages in Venezuela and sanctions in Iran have led to a 2.8-million barrel a day cut in supply.
“The question is with long lead times, are we going to be able to keep the market supplied?” questions Bredenhann. Concerns have been raised about a potential supply crunch in the mid-2020s.
Nevertheless, despite the obstacles, the opportunities are huge. Africa is the world’s fastest-growing economic region, with a growing population and energy demand forecast to increase by 60% to 28 000-trillion Btu by 2030.
The review says hydrocarbons are expected to continue to play a major role in the energy mix that will satisfy Africa’s growing energy needs. Major gas resources on the continent, including in Mozambique, Nigeria, Angola, Tanzania, Senegal and Mauritania, could augment the key position of gas as an energy source for Africans, says the review.
“In the low-carbon context, gas also plays the role of a transition fuel before a wider switch to renewables, a development that is likely to take longer in Africa than other continents.”
The review raises regulatory uncertainty as a major barrier to the development of the oil and gas industry in Africa. The report also delves deeply into the role of national oil companies, presents potential scenarios they could face and suggests how to design strategies to avoid pitfalls.