Africa Oil and Gas Opportunities

On November 5th, 2011, posted in: News by

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The International Energy Agency (IEA) had projected that about $17 trillion new investments would be needed between now and 2025 in the emerging and developing economies, out of which $8 trillion is expected to be in Africa.

To a newcomer to the Africa oil & gas sector, the figures above could be daunting, but in real terms, 19 African countries are currently among significant contributors to the global oil and gas market. New African oil producers such as Ghana are on their way to join the global league of oil & gas exporters.

False Start:

Some past African leaders signed 50 years exploration contracts with international oil companies not considering the long-term economic implications for their countries. These self-styled African leaders favourably preferred getting kickbacks of a few cents per barrel of oil sold by international oil companies; more rewarding than developing infrastructures with the oil proceeds. That is why some oil-producing African countries are still struggling with infrastructure deficit in the very sector that generated most revenue for their economies.

New Direction

According to the McKinsey Global Institute 2010 report, African oil and gas have become important components of the world’s hydrocarbon supply-demand balance. By 2015, 13 percent of global oil production will take place in Africa, compared with nine percent in 1998 — a five percent compound annual growth rate (CAGR). African oil projects have attracted substantial investment thanks to their cost competitiveness compared to those in other regions.

In recent years, new kinds of competitors have entered and grown in Africa, once the domain of the large international oil companies. Smaller independent oil companies (such as Addax, Heritage Oil, and Tullow Oil) have made successful finds in emerging basins. National oil companies from outside Africa, including China (CNPC, CNOOC, Sinopec), Malaysia (Petronas), and Russia (Gazprom) have also aggressively invested in the continent, linking broader infrastructure investments and government-to-government relationships with access to resources.

Business/Investment opportunities:

In the last few decades, Africa’s hydrocarbon industry witnessed a renaissance with major new producing countries. These developments have thrown up tremendous opportunities for investment in the areas of exploration, production, refining and infrastructure in the oil and gas sector

Opportunities in the gas sector include:

  • Engineering design and related services
  • Fabrication and construction
  • Pipe mills, pipe laying and support activities
  • Equipment leasing; civil works
  • Logistics and haulage
  • Financial services
  • Hospitality services and legal services

Opportunities in the oil Sector include:

  • Petroleum engineering services
  • Upstream, midstream, downstream and ancillary projects
  • Greenfield projects
  • Multilateral & bilateral financing
  • Co-funding of studies and research projects
  • Equity positions in oil projects
  • Strategic stocking facilities
  • Joint-ownership participation in oil projects among others

Challenges:

One key challenge ahead of new entrants in Africa’s hydrocarbon industry is to build sustainable enterprises and local capabilities beyond the scope of an individual project or investment.

According to the McKinsey Global Institute, Africa’s oil producers face the same challenges confronting other petroleum rich countries in the world. One of them is maintaining political momentum for the economic reforms necessary to spur more private business development in the sector.

This post was initially published on the Dynamic Export website.

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