Outlook for Africa’s oil and gas industry is positive: PwC report

Chris BredenhannThe outlook for Africa’s oil and gas industry is positive amid difficult operating and economic headwinds, according to PricewaterhouseCoopers (PwC) report

PwC’s annual Africa Oil and Gas Review was released at the 25th Africa Oil Week conference 2018 in Cape Town on Tuesday, 6 November.

Tough economic and external conditions have placed pressure on oil and gas companies to be more cost-effective and efficient. Companies have adopted to a low-cost environment, which promises to be even more beneficial given the current recovering oil price. These are some of the highlights from the report.

Chris Bredenhann, PwC Africa Oil and Gas advisory leader, said, “Africa’s oil and gas companies have weathered the downturns and capitalised on the upswings focussing their efforts on new ways of working, reducing costs and utilising new technology.”

As the oil price is steadily rising towards pre-collapse levels, the outlook for the industry is hopeful.

“It is, however, important for companies to avoid falling into the cost inflation trap that could eat into the profitability gains that should follow from the rising oil price. Keeping up capital discipline and further improving productivity will yield sustained results for the industry,” Bredenhann added.

PwC’s Africa Oil and Gas Review, 2018 analyses what has happened in the last 12 months in the oil and gas industry within the major and emerging markets.

At the end of 2017, Africa is reported to have 487.8 tcf of proven gas reserves, 7.1 per cent of global proven reserves, only marginal changes to the prior year.

Africa’s share of global oil production has slightly increased by 0.3 per cent since last year to 8.7 per cent standing at 8.1 mn bbl/d. The main contributors continue to be Nigeria, Angola, Algeria and Egypt.

Libya also increased its production by 102.9 per cent in 2017, placing it as the fourth-largest oil producer in Africa with an 11 per cent share moving Egypt into the fifth position.

Regulatory developments in Africa
Regulatory uncertainty continues to be a major barrier to the development of the oil and gas industry in Africa. There are some positive developments that demonstrate that governments are reacting to the new environment. In South Africa, the proposed Amendment Bill to the Mineral and Petroleum Resources Development Act (MPRDA) may be withdrawn, and there are plans to split oil and gas from mining formulating separate legislation.

Growth and development
The outlook for the oil and gas industry is looking more optimistic with the Brent oil price having broken through the US$80 mark at the time of compiling the report. The current oil price recovery reflects a tight supply and demand balance, as well as an indication that there will be a global supply crunch in the early 2020s. Exploration spends in Africa and globally is starting to pick up as well. It is safe to assume that this trend will continue if the current higher price environment is sustained

Digital disruption in Africa
There have been a number of developments in digital transformation in the oil and gas industry in Africa. A number of new technologies have been deployed by the industry across the value chain. Some examples include the use of drones to inspect remote facilities thereby reducing safety and health risks; the use of robots to undertake monitoring and safety checks, which also reduces the safety risks for human operators; and the use of virtual reality to simulate the drilling of wells remarkably reducing drilling costs.

Looking to the future
The increase in population and the demand for freight transport will also see an increased demand for liquid fuels. Many African countries are ‘thinking refineries’ at various scales. Countries that are considering new refineries or upgrades include Angola, Equatorial Guinea, Uganda, Nigeria, Republic of Congo, Ghana, São Tomé & Príncipe, and Zambia. Given projected population growth and refined fuels consumption, an estimated additional 3.4 bbl/d of refined fuels will be needed to meet Africa’s needs by 2030.

The role of National Oil Companies (NOCs)
Almost 30 of Africa’s NOCs are involved at various points of the value chain and at different levels of maturity. The analysis delves deeper into the NOC landscape to provide a perspective on the future that NOCs could face. It has identified four potential scenarios along two axes: the level of regulatory stability and the level of diversification within a country’s economy.

“It is critical that the sector retains its capital discipline and adopts digital technologies if the hard-earned wins in cost savings are to be retained. Progress in addressing corruption and improving corporate governance will also need to be maintained. Moreover, in the longer term, the energy transition will continue to impact the sector’s dynamics with implications for oil demand,” Bredenhann concluded.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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