West Africa Energy in 2014
BusinessDay West Africa Energy debuted in January 2014. It recorded immediate acceptance typified by huge response from readers and exclusive partnerships with key industry groups and associations.
2014 on the global terrain was a year filled with industry’s highs and lows; big contract wins, the big exploration finds, dry oil wells, impact of Shale oil boom, newer technologies, dwindling grip of OPEC cartel, ascension of US as dominant global oil player.
Within the African region, 2014 saw Africa’s deepwater attract some attention from oil firms; US imported zero Nigerian crude from August for the first time in decades; huge gas finds and investment continue in East African countries while many Africa countries intensify oil and gas exploration and production.
In case you missed them, here are some of the key headlines from team West Africa Energy for 2014:
Security still a big challenge for Shell
Royal Dutch Shell Plc’s profits for the fourth quarter 2013 may have been hard hit by the security situation in Nigeria. The global oil major has disclosed that its earnings for the quarter are expected to be significantly lower than recent levels of profitability, considering current oil and gas prices and the downstream oil products industry environment.
Shell’s fourth quarter earnings on a current cost of supplies basis are expected to be about $2.9 billion and were impacted by weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes.
Tipping point as oil piracy spreads from Nigeria to Angola
The growing wave of piracy attacks in the Gulf of Guinea, predicted to double in 2013, may have reached a tipping point as it recently spread south towards Angola, Africa’s second-largest oil producer.
Recently, there was a frightening incident in West Africa where a gang of Nigerian pirates reportedly stole a tugboat and sailed south into Angolan waters on January 18, 2014 where they attacked MT Kerala, an oil products tanker a few miles off the coast of Luanda, the capital of Angola.
The spate of attacks is surging as countries in West Africa are rapidly developing their oil and gas infrastructure to capitalise on existing assets and exploit new offshore discoveries. West African piracy has in recent years spread from the coasts of Nigeria to the shorelines of many of the 11 West African countries such as Gabon, Cameroun, Togo and Benin that border the Gulf.
Extreme oil shock could wipe out Nigeria’s excess crude account
Bank of America Merrill Lynch in its latest report said extreme oil shock could wipe out Nigeria’s excess crude account. However, the bank’s experts expect Brent to average $105 per barrel in 2014. The possible return of output from Libya and Iran could send oil down to $95 per barrel, but with limited OPEC spare capacity, the report does not anticipate brent to fall sustainably below $90 per barrel.
The excess crude account holds the oil earnings accruing to Nigeria over and above their assumed price of crude, which has been set at a conservative $77.5 for 2014. A moderate oil shock is manageable but an extreme and sustained shock could wipe out the excess crude account entirely and cause severe deterioration in key economic indicators. According to Bank of America Merrill Lynch, a 10 percent decline in the average oil price is a manageable shock for Nigeria as GDP growth would fall to 5.3 percent versus 7 percent base case.
Ghana prompts establishment of a regional gas company
Ghana is prompting the establishment of a regional gas company to help deal with issues associated with the supply of natural gas, LPG, regasification units in the sub region. Other member countries of this project include Nigeria, Côte d’Ivoire, and Equatorial Guinea.
Emmanuel Armah-Kofi Buah, Ghana’s minister of Energy and Petroleum and Adama Toungara, Ivorian Minister of Mines, Petroleum & Energy pledged their countries’ commitment to work assiduously to ensure the success of the project. Power outages in the West African sub-region has been traced largely shortage of gas supply for most of the gas-fired generating plants.
Uncertainty over renewal of licences put IOCs in a jam
…hampers new investment
The endless struggle by international oil companies (IOCs) to have their onshore and shallow-water licences renewed by the federal government since 2008 has continued to put a damper on new investment in onshore and shallow-water assets by the majors.
The IOCs, who still view Nigeria as a source of longer-term growth, have increasingly shifted the bulk of their investment offshore, partly due to the uncertainty over onshore and shallow-water licence renewals since 2008.
Since 2008, some 20 mining licences, which had expired, have only been renewed yearly on an ad-hoc basis. Licences (or concessions) entitle the holder to explore for hydrocarbons and exploit any commercial discoveries.
Licencing rounds to drive E & P activities in Africa this year
Angola, Africa’s second top oil producer after Nigeria, seeks to diversify oil operations with onshore licensing round as its offshore production accounts for 98 percent of its current total output.
In January, the Angolan government announced its intention to open a licensing round for 10 onshore blocks in the Kwanza and Lower Congo basins, which is seen as an attempt to diversify its oil output base and improve local retention of value created in the oil industry.
Gabon licensed 13 oil blocks to 11 oil companies in November, while Congo and Cameroon in January announced licensing rounds for another 14 blocks. The award of the blocks in Gabon follows renewed interest in the Gulf of Guinea, targeting the pre-salt layer, which has yielded several discoveries this year. The discoveries have raised hopes that Gabon’s offshore region could also boost total oil reserves above the current estimates of 2 billion barrels.
Progress on Mozambique’s LNG piles more pressure on Nigeria
As Mozambique inches closer to its ambition of becoming a leader in the global liquefied natural gas (LNG) industry, the East African country looks set to upending Nigeria’s share of the high-demand Asian markets as it makes inroads into the region.
Anadarko Petroleum, the primary operator of Mozambique’s Rovuma Offshore Area 1, which is estimated to hold more than 65 trillion cubic feet of natural gas, said it had sold two-thirds of the capacity of its planned Mozambique LNG project to Asian customers and hopes to have the rest sold soon.
To develop massive LNG projects, financiers often require customers to be lined up well in advance. Analysts believe that the Mozambique’s proximity to Asia is likely to stand it in good stead for LNG exports as it presents a veritable alternative for Asian buyers.
Over $300 million illegal payment from Nigeria ease out Afren bosses
Afren has shown its chief executive, chief operating officer and two associate directors the door after an independent review confirmed all had received illegal payments from a Nigerian oil company. The scandal certainly raised concerns over Afren’s internal controls, and the search is now on for a new management team. 11 employees, both past and present, were found to have benefited from payments from Nigeria’s Oriental Energy Resources, including CEO Osman Shahenshah, COO Shahid Ullah and associate directors Iain Wright and Galib Virani.
In exchange for multi-million dollar funding, Oriental paid 15 percent of the agreed net cash flows from its Ebok project into Ntiti Limited, a special purpose vehicle owned and/or controlled by CEO Shahenshah and COO Ullah. From the $45 million paid in for 2013, “extraordinary” bonuses were paid to themselves and other members of staff they didn’t want to lose, the statement said. The CEO and COO paid themselves $17.1 million in bonuses that year. The Afren board is not thought to have known about the arrangement.
OPEC hard stance: the morning after
The hard stance of OPEC not to curb crude oil output in the face of plummeting prices comes off as a grand experiment morning after the decision.
At its meeting on November 27, 2014 in Vienna, OPEC said it will not cut the official production target of 30 million barrels a day, about a third of which comes from Saudi Arabia, and that is putting more negative pressure on the price of crude which has dropped below $70. Oil traders in London sent WTI futures on the ICE down below $68 a barrel that same day. Brent crude dipped to just over $71 a barrel. These are four-and-a-half year lows.
Plunging oil markets already have begun to pressure governments that rely on higher prices to finance their budgets, fuel subsidies to citizens and expand drilling. Nigeria increased interest rates for the first time in three years on November 26 and devalued its currency. The government is planning to cut spending by 6 percent in 2015. Venezuela’s oil income has fallen by 35 percent, President Nicolas Maduro said.
Oil price war: Saudis take fight to US turf
Saudi Arabia has launched a third-wave attack in its oil price war this time targeting the US shale oil producer. OPEC’s largest oil producer had just announced that they were cutting oil prices for customers in the United States. The idea is to squeeze margins on US shale production to where it is not profitable to produce.
It has been a treble hit of arsenals from Saudis. First they cut prices, then they refused to cut production, and now they cut prices again. Saudi Aramco, the state owned oil company, showed no sign of retreat and cut its price on its Arab light to a record low $2.00 discount to the local benchmark for customers in Asia and prices for all grades of crude to US refineries.
Power privatization – one year after
History was made on November 1, 2013 when government handed over the privatised power generating and distributing companies to their private investors. It has been mostly successful given the completion of the Gencos and Discos privatisation, the award of TCN management contract to Manitoba Hydro International and the commencement of the privatisation of the NIPP power plants.
The privatization process brought in over 331 Expression of Interest (EoIs) from local and international investors and raised about US$2.9 billion for the Federal Government of Nigeria.
Additionally, several key milestones were achieved within the last one year period, including the settlement of staff liabilities, the secured World Bank Partial Risk Guarantee (PRG) of US$700 million and African Development Bank (AfDB) PRG of US$182 million. The CBN has also taken a proactive approach to managing the burgeoning sector with the creation of the N300 billion power and aviation fund and the establishment of the N200 billion Power Sector Intervention Fund.
New legislation to prop Mozambique’s LNG to displace Nigeria, others
Mozambique’s ambition to displace Nigeria and other LNG producers in Africa like Algeria, Egypt and Equatorial Guinea is taking shape. Mozambique’s hopes to be the world’s third largest liquefied natural gas (LNG) exporter after Australia and Qatar by the end of this decade.
The country is pushing for the passage, before year-end, of legislation governing two major projects in the Rovuma Basin. The legislation will provide the legal, governmental and contractual framework for the LNG projects in Mozambique’s offshore blocks Area 1 and Area 4 – operated by Anadarko Petroleum and Eni respectively.
Once the law is passed, Mozambique will be able to develop and produce gas with support from these international oil companies (IOC) to export LNG to energy deficient consumers, particularly in Asia.
9 marginal fields accounted for 12. 43 million barrels in 8 months
The Nigerian National Petroleum Corporation’s (NNPC) monthly petroleum information reveals that the nine marginal fields produced 12. 43 million barrels of crude oil in the first eight months of 2014 which is about 2 percent of Nigeria’s total industry output.
As of today, marginal field oil output has grown by 88 percent. The Nigerian government introduced the Marginal Field program in 2001 with the objective of opening up the upstream sector of the industry to wider indigenous participation, with a view to creating a robust industry that will positively impact the capacity of indigenous exploration and production companies to contribute to Nigeria’s oil production reserves.
Nine of the 24 fields awarded in 2013 are currently producing, with over 40 new wells drilled by the awardees representing a four-fold increase, according to Department of Petroleum Resources (DPR).
Frank Uzuegbunam