New prospecting, drilling and refining technologies combined with increased global energy consumption supported by Africa’s increasingly positive demographic and legislative environments are breathing new life – and significant investment – into Africa’s growing oil and gas sector.
The increased costs of oil and gas production and beneficiation are seeing global energy majors build production and refining capability closer to new sources of oil and gas and fast-growing markets. Since many of these new finds are in Africa’s fast-growing emerging and frontier markets, Africa’s rapidly growing consumer and infrastructural opportunities, “adds to the rationale for locating new oil and gas developments on the continent – close to tomorrows’ fastest-growing consumer markets,” says Dele Kuti, Standard Bank Group Global Head of Oil and Gas.
“It makes economic sense for oil majors and leading independents, comprised of a group of the world’s largest oil companies, to pursue opportunities across the oil & gas value within the African economies in which these resources are found,” explains Kuti.
Change has been rapid and widespread in Africa’s oil and gas landscape. Until recently, for example, Kenya and many other African countries were solely oil importers and had no gas reserves of substance. However, a host of new finds (gradually entering into production) across Ghana, Kenya, Mozambique, Senegal, Mauritania, Tanzania and Uganda, have significantly boosted sub-Saharan Africa’s (SSA) traditional upstream players.
Exploration is also continuing in a number of other prospects. This has transformed the continent’s energy outlook – as well as its relevance to global energy markets, especially in East Asia.
When traditional oil and gas giants like Nigeria and Angola are added to the mix, “Africa emerges as the globes’ next big oil and gas energy play,” says Kuti.
This view accords with the long-term energy projections (to 2040) that each of BP, ExxonMobil and Shell (for LNG) have issued in First Quarter 2018.
Standard Bank Group’s presence and transactional capability in most of such markets means that, “we are well placed to identify the client opportunities – as well as the broader economic development potential – presented by Africa’s rapidly emerging oil and gas industry,” says Kuti.
Alongside our long-standing partnership with Industrial & Commercial Bank of China, “we present a powerful partnership proposition to both local and global energy players eager to participate in the development of the world’s last oil and gas frontier,” he adds.
Although initial capital investments into this sector will accrue to non-domestic manufacturers, the impact thereof will lead to developments of new domestic sectors and new supplier networks.
The successful development of these projects will boost fiscal revenues, enhance national capital formation and positively impact the balance of payments. The respective oil discoveries in Uganda and the gas discoveries in Mozambique have consequently led to further developments such as a potential refinery in Uganda and a fertiliser plant in Mozambique, to name a few.
Similarly, as with the example of cellular technology, Africa has the potential to benefit from a number of industry technological developments, for example, Floating LNG (FLNG), Floating Storage and Regasification Units (FSRUs) and modular product storage.
“Taking them together, one begins to understand the full potential of the investment and development synergies likely to arise as more oil majors bring investment and expertise to building Africa’s future oil and gas capacity and synergies,” explains Kuti.
That said, in the short term, local Africa players are likely to emerge gradually in the upstream space as the costs of projects are relatively high and prices subdued. They also, typically, have very long time frames.
In the meantime, as the oil majors re-position to develop new oil and gas projects in Africa, opportunities will emerge for local participation in Africa’s downstream sector. Existing examples of indigenous players in South Africa, Kenya and Nigeria will in time be supplemented by other players.
As the continent’s population increases, coupled with growing employment and incomes, “we expect to see a rapid increase in domestic demand for refined products as, for example, more people own cars, and increased economic activity leads to increased transportation,” says Kuti.
Over time, and supported by the right legislation, this is likely to see Africa’s emerging downstream operators acquire the capital and expertise to become tomorrow’s upstream investors and developers as new African oil majors are born.
Uniquely in Africa, neither oil nor gas are sunset industries. Africa’s huge energy deficit, coupled with its continuing exploration discoveries, means that, “in Africa the oil and gas market is likely to grow – in tandem with renewables – for at least the next 20 years,” says Kuti.
For now, however, the declining cost of oil and gas projects (since peaks in 2014) means that Africa’s oil and gas landscape presents a substantial capital opportunity to a world achieving, rarely, synchronised global growth.
We believe that leveraging this opportunity, “requires the expertise of an African bank literate in the legislative, business and transactional realities of the continent, coupled with extensive international networks” says Kuti.
Beyond raising capital, the capability to execute across the whole value chain is, in fact, often the biggest challenge for local businesses and global majors alike when seeking to tap Africa’s vast oil and gas potential.
“This is exactly where Standard Bank Group’s presence in 20 markets and our 155-year history of growing African businesses and navigating the continent for clients makes us relevant to supporting and sustaining Africa’s tremendous oil and gas future,” says concludes Kuti.