African oil and gas: driving sustainable growth
Africa is on an upward growth curve, and investors are optimistic about the potential for growth in the oil and gas sector.
Resources generally, and oil and gas specifically, have played an important role in this growth. African countries continue to increase their production of oil and/or gas. Revenues from higher prices and the investment that new discoveries are attracting have made a key contribution to growth and developmental initiatives.
Reserves and production: As of the end of 2013, according to the Oil & Gas Journal, proved African oil and natural gas reserves are estimated to be almost 228 billion barrels of oil-equivalent (boe). Total reserves are up sharply from the 2012 total of 213 billion boe, due largely to revisions in proved gas reserves.
Exploration and drilling activity. African drilling activity accounts for a relatively small portion of the global industry total — typically ranging between 4–7% of the global total. However, beginning in late-1999 drilling activity has increased fairly steadily, except for the brief, but sharp downturn following the collapse of oil and gas prices in late-2008. As of the end of 2013, Baker Hughes reported 138 active rotary rigs in Africa, out of a global total of 3478 rigs. Rig activity in Africa is dominated by land drilling, but in recent years, offshore activity has notably increased, particularly off West Africa.
Other oil and gas activity. Accompanying the sustained growth in the upstream segment of the African oil and gas industry is strong growth in the associated midstream and downstream ‘infrastructure’ parts of the business — terminals, storage capacity and, most critically, pipelines and refineries. New pipeline capacity may be necessary particularly where new production is “land-locked” such as in the case of Chad, South Sudan and Uganda.
African oil and gas proved reserves (1990–2013)
Source: US Department of Energy, US Energy Information Administration and Oil & Gas Journal
Locations of growth
The majority of reserves and production remain concentrated in six countries — Nigeria, Libya, Algeria, Angola (oil), Sudan (oil) and Egypt (gas). However, there have been ever-increasing discoveries of new oil and gas (for example, in Ghana, Tanzania, Mozambique and Uganda) and prospected fields in many countries (including Sierra Leone, Mali and Kenya).
Yet significant challenges remain, particularly in terms of infrastructure development and political stability/transparency.
Some have noted that in many parts of the continent, governments are getting tougher on the industry. This might include imposing local content restrictions, pressuring companies to accelerate development and threatening to withdraw licenses if there is insufficient activity, attempting to collect capital gains taxes for farm-outs, denying/reducing tax rebates and/or levying higher import duties, and imposing tighter environmental terms. But all-in-all, the challenges seem to be outweighed by the potential rewards.
How can we help?
EY Africa has a presence in 36 African countries and provides support in the remaining African continent. In addition, we can provide support from our London Africa desk and Paris African Center. Our network throughout the region helps demonstrate that we are responsive to the needs of our clients, stimulating trade and enhancing business relationships.