Prospects for Sub-Saharan Africa as oil, gas projects set to come on stream by 2025

About 43 crude oil and natural gas projects set to come on stream in Sub-Saharan Africa by 2025, with a potential to adding 1.1 million barrels of oil per day (bpd) to global crude production, and 7.7 billion cubic feet per day to global gas production, raising hopes the regions energy gap will narrow.

According to a published research by GlobalData, a leading provider of data and analysis for consumer, technology and healthcare business, 31 of these projects are crude based while 12 are from natural gas.

The consulting firm’s latest report states that Nigeria will lead the region in terms of number of planned projects, with 11 of these, followed by Angola with eight.

“The region will experience investment delays across a wide scope of projects. However, developments will continue to come online in the mid-term, including fields which started development prior to the downturn in prices and those which demonstrate break evens at or below today’s current oil prices,” said Joseph Gatdula, GlobalData’s Senior Upstream Analyst.

This finding corroborates the International Energy Agency’s Africa Energy Outlook for 2016 which reports that almost 30 percent of global oil and gas discoveries made over the last five years have been in sub-Saharan Africa, reflecting growing global appetite for African resources.

GlobalData research states that Tullow Oil plc and Total S.A. will lead Sub-Sahara Africa in terms of operatorship with five planned projects each. Of the 10 projects the two companies are expected to operate, nine are crude and one is natural gas, with Chevron Corporation occupying third place in terms of development with its three planned projects.

In regards to capital expenditure (CAPEX), around $153.5 billion is expected to be spent between 2016 and 2025, with Mozambique leading the region with a CAPEX of $70.4 billion. Almost all of the fund will be spent on the Rovuma Area 1 Complex and Rovuma Area 4 Complex projects.

Jonathan Markham, GlobalData’s Upstream Analyst, said: “Progress on the liquefied natural gas (LNG) projects in Mozambique has slowed over the last few years due to financing issues and regulatory uncertainty. The operators are expected to start with relatively small scale developments, such as Eni’s 3.4 million metric tonnes per annum (mmtpa) floating liquefied natural gas (FLNG) solution.

“Reduced investment is likely to lead to a slower build-up of the projects than initially planned, only reaching an estimated combined capacity of 30 mmtpa by 2025. A final investment decision (FID) for the FLNG development is expected in 2016, while approval for the onshore facilities is likely to be delayed until 2017 and LNG exports from Mozambique are projected to start at the end 2021,” he said.

Among companies in the Sub-Saharan region, Eni SpA will have the highest CAPEX spending, with $21.3 billion on key planned projects over the next 10 years.

The report states that there is still potential for further investments as major undeveloped discoveries in the Sub-Saharan region include Zabazaba-Etan and Nsiko, both located in the Niger Delta Basin are yet untapped.

“Although Nigeria is expected to add over 510,000 bpd of additional oil production capacity by 2025, the likelihood of this happening is dependent on fiscal certainty and relative peace in the Niger Delta region. Almost half of the expected additional capacity still lacks an FID, with the field operators expected to make a decision by 2020. This will be greatly influenced by prevailing market conditions and security around the planned projects,” said Young Okunna, GlobalData’s Upstream Analyst.

Path to achieving investment security

World Bank data shows that the Sub-Saharan Africa region decelerated significantly in the first quarter of 2016. GDP expanded 1.8 percent on an annual basis, which marked a noticeable deceleration over the 3.0 percent increase observed in the final quarter of last year. The sharp deceleration in the first quarter came on the back of a slowdown in Nigeria as GDP contracted by 0.4 percent in the first quarter and is currently in a recession. Elsewhere in the region, adverse weather conditions in South Africa took a toll on production in the mining and quarrying sector, thus causing the economy to contract in Q1. Generally, inflation in the region edged up from 12.4 percent in May to 12.9 percent in June.

However analysts say the bane of timely FID remains investment uncertainties and slump in crude oil prices. The IEA outlook reiterated that Nigeria is the richest resource centre of the oil sector, but regulatory uncertainty, militant activity and oil theft in the Niger Delta are deterring investment and production, so much so that Angola has overtaken Nigeria as the region’s largest producer of crude oil.

The value of the estimated 150 thousand barrels lost to oil theft each day – amounting to more than $5 billion per year – would be sufficient to fund universal access to electricity for all Nigerians by 2030. A host of smaller producers such as South Sudan, Niger, Ghana, Uganda and Kenya see rising output; but, by the late 2020s, production in most countries, with the exception of Nigeria, is in decline.

Additions and upgrades to refining capacity mean that more of the region’s crude supply is processed locally. With regional production falling back from above 6 million barrels per day (mb/d) in 2020 to 5.3 mb/d in 2040, but demand for oil products doubling to 4 mb/d – an upward trend amplified in some countries by subsidised prices, the result is to squeeze the region’s net contribution to the global oil balance.

The report highlights key actions in the energy sector that can unleash more rapid economic and social development in sub-Saharan Africa including a more integrated energy system that allows for more efficient use of resources.

It also calls for a reduction in the risks facing investors by removing regulatory bottlenecks that impede investments. Also, fiscal discipline that will allow better management of resources and revenues, adopting robust and transparent processes that allow for more effective use of oil and gas revenues, especially in reversing deficiencies in essential infrastructure.

ISAAC ANYAOGU