Lower oil prices could slow African regulatory reform
Delays in the development of potential oil and gas projects, owing to the sharp downturn in oil and gas prices, could potentially lead to a cutback in reforms and regulatory processes and result in the urgency to create an attractive investment destination for oil and gas players diminishing.
KPMG Kenya oil and gas director Mark Essex says that, with the decline in oil prices, early-stage oil and gas projects in sub-Saharan Africa would likely be deferred, with firms selling off their noncore assets and reducing their equity stakes in assets to focus on a smaller number of field developments and invest in near-term production assets.
However, host countries’ resolve to cement strong fiscal, regulatory and institutional reforms for the energy sector could wane on the back of the slowdown in the commercialisation of projects, particularly as they lose control of the pace of development that had “awakened high expectations in governments and communities” during the exploration boom.
“There is a risk that everyone will now sit back with regard to putting regulatory and institutional frameworks in place. Investment by the industry has largely driven and motivated reforms, such as setting up and staffing industry regulators to give timely project approvals to allow them to take bankable projects to the final investment decision stage,” Essex said.
He urges host governments to continue making regulatory and legislative reforms, deal with cost constraints and ensure a more amenable environment to maintain the interest of investors or entice new energy players, thereby ensuring that the investment environment is “even more attractive” than their peers when the project economics improve.
“All the preconditions for significant investments in infrastructure need to be in place as and when exploration and development expenditure does return,” he concludes.
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