Oil and Gas boom in Africa.
If it is Africa, numbers – like oil and gas – are not static. So Africa accounts for nearly 7% of world oil production? But if is so yesterday, if you go by the new money on the Sahara. Soon, sub-Saharan Africa could be chalking up double digits powered by an extraordinary hydrocarbons revolution. If you are a business traveler on a whistle-stop tour of the oil and gas hotspots, your itinerary will fly you through Nigeria, Angola, the Gulf of Guinea, the new energy ports of East Africa, Tanzania, Mozambique, Somalia and probably many more.
Looking at it differently, turn off the gas tap and the scenario gets as slippery as oil for the other sectors who will face the heat in the form of declining interest in investments, at least in the near to middle term. True, FDI inflows in infrastructure could skyrocket to an estimated bn over the next decade, but to put it in perspective, all this is going to exploration and drilling equipment, pipelines, dredging and construction of deep-water ports, liquefied natural gas (LPG) plants and offshore floating platforms. And oh, the greenbacks going into LNG plants in Mozambique alone is projected to be three to four times the country’s annual GDP.
Figure out why Africa is hot. Nigeria is set to add up 12 new offshore fields with at least one billion barrels each in reserves once the Petroleum Industries Bill becomes law. China shops for its crude oil from Angola and Sudan to the extent of two-thirds of its overall imports from Africa. The sands of the Sahara are changing colors. Yesterday’s money begetting mineral rich resources – iron ore and copper – have given way to oil and gas.
You can call it Africa Version 2.0. Experts suggest that Angola’s “gigantic” sub-salt reserves not only rival Brazil’s, but unlike Brazil these reserves are found both onshore and offshore. Gabon is also emerging as a new player on the global oil and gas front, with considerable sub-salt potential. Interestingly, the timing of Africa’s oil and gas finds could not have been better. The energy markets are now more dynamic and shifting to newer demand regions. The revolution in shale gas arising from cutting edge practices in horizontal drilling and hydraulic fracturing (fracking as it is called) has lent momentum to the shift in the markets. If the US has the first mover advantage having morphed from being an importer to a potential exporter of natural gas, the discoveries off the coast of Mozambique and Tanzania are expected to be quick on the draw to meet the burgeoning demand for oil and gas in East Asia.
What has intrigued – and maybe worried – foreign experts a notch is that China has replaced the US as a major importer of oil from Africa. But truth is Uncle Sam is no more shopping for Nigeria’s crude from the Gulf Coast refineries because he now has shale oil from his own backyard in North Dakota.
For good measure, China’s three state-owned companies operating in Africa (CNPC, CNOOC and Sinopec) ask no special favors, and also collaborate with western companies such as Ireland’s Tullow Oil and France’s Total.
Apart from the big boys, even new entrants and mid-level players like Anadarko, Tullow Oil, Cobalt International and Ophir Energy are investing heavily in new natural gas reserves offshore East Africa and new oil finds in Ghana, Uganda, Sierra Leone and northern Kenya.
But the big players have the technological edge in deep water which boasts of maximum potential for development. And it’s a good thing too since the oil and gas fields can as soon turn into killer fields in the hands of lesser worthies. Ask Ghana what happened after it blocked Exxon from buying into its Jubilee field in 2009, and instead favored Tullow Oil. Tullow Oil’s first foray into deep water production led to design failures and production stoppages. The last straw was the devastating explosion and spillover at BP’s Deepwater Horizon rig which painted the US gulf coast black and blue, with horrendous consequences.
With opportunity come challenges across the stratosphere – diplomatic, environmental, political, democratic, and governance-related. Specifically, the determination of hydrocarbon rights across poorly demarcated maritime boundaries which will green light the way for joint development zones and a fruitful culmination of a proposed pipeline in East Africa linking Southern Sudan, Uganda and northern Kenya to Mombasa or the new port of Lamu.
The political challenge is to see that the gains from the oil boom are seen to percolate to the ordinary African. Nigeria’s problems in the smooth passage of its Petroleum Industries Bill and the clamor for stringent tax laws to plug loopholes that allow tax avoidance through transfer pricing and non-payment of capital gains are a case in point.
Corruption is of course inevitable when business is rolling in billions, but the heydays of the infamous Omar Bongo and Sani Abacha who stashed away their dirty billions in Swiss banks is now history (well almost at any rate and till the next whistle blower muddies the slate). Anti-bribery sanctions such as US’s Foreign Corrupt Practices Act (FCPA) have already pressed on the gas hard with five of the 10 highest FCPA settlements to date slapping fines of over bn on companies guilty of paying bribes to win or retain business in the African oil and gas sector. The African establishment has pitched in with its own Extractive Industries Transparency Initiative to clamp down on graft.
In the final analysis, the boom in the oil and gas is for real. Will this African Safari take the Continent to new heights or not depends on the government. Game on. And it’s Advantage Africa for now.