African oil in a squeeze amid price glut
Africa should not be underestimated as an oil and gas destination, accounting for almost half of the latest biggest oil and gas finds – nine of 20 in 2015 and eight of 20 in 2016 so far, PricewaterhouseCoopers says.
It’s latest Africa Oil & Gas Review 2016 says oil and gas companies have acclimatised to a persistent, low-price environment and a low-carbon energy world. While costs have reduced significantly, the report says companies should review long-term strategies instead of focusing on changing energy trends and global supply levels.
“There is a big build-up of crude oil, while there is also a great deal of oversupply on the Liquefied Natural Gas side,” said PWC’s oil and gas leader Chris Bredenhann, adding that oil-dependent countries like Nigeria had perpetuated the low-cost environment by producing loss-making barrels of oil just to generate cash. “There are companies that need the cash flow and countries that need to balance their budgets, and are thus increasing production even at a lower margin,” he says.
The report is optimistic about the oil price, with respondents on average expect- ing it to reach $52 per barrel by the end of 2016, $60 by the end of 2017, and $69 by the end of 2018. But evidence points to the current situation being the new normal.
Until the global economy picks up, prices are likely to stay lower. Bredenhann suggests it’s up to companies to find innovative ways of cutting costs even further.
“There is probably even more room for cost reduction through the use of digital transformation, innovation, and collaboration.”