OIL & GAS

A Bet­ter-Bal­anced Oil & Gas Hub

Africa Outlook - - Contents -

Stan­dard Bank analy­ses Africa’s on­go­ing love af­fair with oil & gas

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 & gas sec­tor.

The in­creased costs of oil & gas pro­duc­tion and ben­e­fi­ci­a­tion are see­ing global en­ergy ma­jors build pro­duc­tion and re­fin­ing ca­pa­bil­ity closer to new sources of oil & 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 & gas de­vel­op­ments on the con­ti­nent, close to to­mor­row’s fastest-grow­ing con­sumer mar­kets”, says Dele Kuti, Global Head of Oil & Gas for Stan­dard Bank Group.

“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 chain within the African economies in which these re­sources are found,” ex­plains Kuti.

Change has been rapid and wide­spread across Africa’s oil & 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 & gas gi­ants like Nige­ria and An­gola are added to the mix, “Africa emerges as the globe’s next big oil & gas en­ergy play”, says Kuti. This view ac­cords with the longterm en­ergy pro­jec­tions (to 2040) that each of BP, ExxonMo­bil and Shell (for LNG) have is­sued in Q1 of 2018.

Fu­ture oil & gas ca­pac­ity

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

Tech­nol­ogy, cap­i­tal and mar­ket dy­nam­ics fo­cus at­ten­tion on the world’s last en­ergy frontier, and Nige­ria will be one of the lead­ing ex­po­nents de­spite its over-reliance on the sec­tor in the past Writer: Matthew Staff

broader eco­nomic de­vel­op­ment po­ten­tial - pre­sented by Africa’s rapidly emerg­ing oil & gas in­dus­try”, says

Kuti. “Along­side our long­stand­ing part­ner­ship with the 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 & gas frontier,” he adds.

Although ini­tial cap­i­tal in­vest­ments into this sec­tor will ac­crue to non­do­mes­tic 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 & 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 & gas ca­pac­ity and syn­er­gies,” ex­plains Kuti.

Vast oil & gas po­ten­tial

That said, in the short-term, lo­cal African 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 time­frames.

In the mean­time, as the oil ma­jors re­po­si­tion to de­velop new oil & 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, mean that, “in Africa the oil & 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 & gas pro­jects (since peaks in 2014) means that Africa’s in­dus­try 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 into Africa’s vast oil & 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 & gas fu­ture,” Kuti con­cludes.

“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”

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