North Africa Could Help Forge New Strategy For Gas In Sub-Saharan Africa

Investment in the exploration and production of oil and gas has dropped precipitously since oil prices began to fall in 2014, and North Africa could be providing the near-term strategy for sub-Saharan Africa. Upstream oil and gas operations identify deposits, drill wells and recover raw materials from underground. The upstream sector of the oil and gas industry includes all the steps involved from preliminary exploration through extraction. North Africa is a microcosm of that global change. Upstream investment is expected to be down more than $30 billion for 2016 and 2017 combined. Yet ongoing projects, recent discoveries and investment in gas projects will push the upstream investment in North Africa to record levels by 2019. Understanding gas in North Africa Gas has always been valuable to North African economies, but it entered a new phase of recognition in 2015 when spending on gas projects surpassed spending on oil projects for the first time. The capital expenditure for gas projects in 2019 is expected to be more than double that of oil and will push production of gas and natural gas liquids (NGLs) to more than 3.4 million barrels a day by 2024, according to global energy consultancy Wood Mackenzie. The growth in spending is being fueled (no pun intended) by a growing need to address declining supply. Multi billion-dollar developments in Egypt, such as Eni’s Zohr and British Petroleum’s West Nile Delta projects, account for over $23 billion, or 30 percent of total capital expenditure in Middle East North Africa over the next five years. The corresponding bump in gas production is less robust at 7 percent, versus the 24 percent increase in capex spend. The shift to gas is not a short-term reaction to low oil prices. The greater volumes of gas discovered versus oil in the last decade explains the story. Since 2006, oil discoveries have amounted to a new 3.7 billion barrels of oil, compared to 5.6 billion (or 32 trillion cubic feet) of gas. This does not include the 4 billion barrel Zohr discovery that clearly changes the energy discussion in region. The lesson for gas in sub-Saharan Africa Capex spend Sub-Saharan Africa does not need a lesson on cutting capital expenditure. Analysts suggest that the capex cut through 2019 is between 35 percent and 45 percent. Angola and Nigeria will likely see more than 50 percent in capex cuts. Many projects are not commercial in this price environment. Some projects accordingly have been redesigned, deferred or downgraded. The greatest cuts will come with oil deepwater projects. Consider the four biggest combined cuts in Angola and Nigeria. The Block 31 SE project and the Block 16 Chissonga project in Angola will account for a near 20 billion cut in capex spend through 2020 while the Bosi project and the Etan &Zabazaba in project Angola will account for a near 21 billion cut in capex

spend. The four projects combined are bigger than the next eight biggest cuts, of which only one is not in Nigeria or Angola. Looking to gas Major explorations have led to huge discoveries of offshore gas in Mozambique and Tanzania with investors looking to the lucrative prospects in the 2020s. Current prices rightfully concern investors in the short term as gas projects in Mozambique and Tanzania require significant capital investment. Still the resources are imperative to the development plan of both countries and accordingly will press on in the near term. Italian oil and gas company Eni is expected to spend more than $15 billion to monetize gas in Mozambique in the near term. The greater question for gas is how it will play out in oil countries, specifically Nigeria. Nigeria is home to massive gas reserves. Its reserve profile should make it competitive with Algeria. Yet capital investment and public focus need an energy injection from the Nigerian government. The infrastructure is conspicuously inadequate, not simply for exploration and transmission but also for converting gas to power generation. Prices also remain an issue which makes commercialization a big question. The Power Holding Company of Nigeria (PHCN), as a major off-taker of gas in the country, struggled to pay for gas at market prices in the past few years. Little data suggest this will change for independent off-takers. Changing perspective Natural gas is most abundant in Nigeria, Mozambique and Tanzania with significant resources in other countries, including Angola and Cameroon. It is acceptable and affordable as a standalone energy source. But key policy and economic enablers must be implemented to change the outlook in subSaharan Africa. Let North Africa be an example of how gas can be lucrative when operators can see opportunity and make it a focus. The serendipitous discoveries of gas in Nigeria are bewildering to many investors. Discovering gas while searching for oil is like finding gold outside your door when you need cash. The question is how you turn the gold into cash. That part is not as serendipitous and requires a little effort.

 by Kurt Davis Jr, AFKInsider
At https://furtherafrica.com/2016/08/11/north-africa-could-help-forge-newstrategy-for-gas-in-sub-saharan-africa/

North Africa Could Help Forge New Strategy For Gas In Sub-Saharan Africa

Investment in the exploration and production of oil and gas has dropped precipitously since oil prices began to fall in 2014, and North Africa could be providing the near-term strategy for sub-Saharan Africa. Upstream oil and gas operations identify deposits, drill wells and recover raw materials from underground. The upstream sector of the oil and gas industry includes all the steps involved from preliminary exploration through extraction. North Africa is a microcosm of that global change. Upstream investment is expected to be down more than $30 billion for 2016 and 2017 combined. Yet ongoing projects, recent discoveries and investment in gas projects will push the upstream investment in North Africa to record levels by 2019. Understanding gas in North Africa Gas has always been valuable to North African economies, but it entered a new phase of recognition in 2015 when spending on gas projects surpassed spending on oil projects for the first time. The capital expenditure for gas projects in 2019 is expected to be more than double that of oil and will push production of gas and natural gas liquids (NGLs) to more than 3.4 million barrels a day by 2024, according to global energy consultancy Wood Mackenzie. The growth in spending is being fueled (no pun intended) by a growing need to address declining supply. Multi billion-dollar developments in Egypt, such as Eni’s Zohr and British Petroleum’s West Nile Delta projects, account for over $23 billion, or 30 percent of total capital expenditure in Middle East North Africa over the next five years. The corresponding bump in gas production is less robust at 7 percent, versus the 24 percent increase in capex spend. The shift to gas is not a short-term reaction to low oil prices. The greater volumes of gas discovered versus oil in the last decade explains the story. Since 2006, oil discoveries have amounted to a new 3.7 billion barrels of oil, compared to 5.6 billion (or 32 trillion cubic feet) of gas. This does not include the 4 billion barrel Zohr discovery that clearly changes the energy discussion in region. The lesson for gas in sub-Saharan Africa Capex spend Sub-Saharan Africa does not need a lesson on cutting capital expenditure. Analysts suggest that the capex cut through 2019 is between 35 percent and 45 percent. Angola and Nigeria will likely see more than 50 percent in capex cuts. Many projects are not commercial in this price environment. Some projects accordingly have been redesigned, deferred or downgraded. The greatest cuts will come with oil deepwater projects. Consider the four biggest combined cuts in Angola and Nigeria. The Block 31 SE project and the Block 16 Chissonga project in Angola will account for a near 20 billion cut in capex spend through 2020 while the Bosi project and the Etan &Zabazaba in project Angola will account for a near 21 billion cut in capex

spend. The four projects combined are bigger than the next eight biggest cuts, of which only one is not in Nigeria or Angola. Looking to gas Major explorations have led to huge discoveries of offshore gas in Mozambique and Tanzania with investors looking to the lucrative prospects in the 2020s. Current prices rightfully concern investors in the short term as gas projects in Mozambique and Tanzania require significant capital investment. Still the resources are imperative to the development plan of both countries and accordingly will press on in the near term. Italian oil and gas company Eni is expected to spend more than $15 billion to monetize gas in Mozambique in the near term. The greater question for gas is how it will play out in oil countries, specifically Nigeria. Nigeria is home to massive gas reserves. Its reserve profile should make it competitive with Algeria. Yet capital investment and public focus need an energy injection from the Nigerian government. The infrastructure is conspicuously inadequate, not simply for exploration and transmission but also for converting gas to power generation. Prices also remain an issue which makes commercialization a big question. The Power Holding Company of Nigeria (PHCN), as a major off-taker of gas in the country, struggled to pay for gas at market prices in the past few years. Little data suggest this will change for independent off-takers. Changing perspective Natural gas is most abundant in Nigeria, Mozambique and Tanzania with significant resources in other countries, including Angola and Cameroon. It is acceptable and affordable as a standalone energy source. But key policy and economic enablers must be implemented to change the outlook in subSaharan Africa. Let North Africa be an example of how gas can be lucrative when operators can see opportunity and make it a focus. The serendipitous discoveries of gas in Nigeria are bewildering to many investors. Discovering gas while searching for oil is like finding gold outside your door when you need cash. The question is how you turn the gold into cash. That part is not as serendipitous and requires a little effort.

 by Kurt Davis Jr, AFKInsider
At https://furtherafrica.com/2016/08/11/north-africa-could-help-forge-newstrategy-for-gas-in-sub-saharan-africa/

North Africa Could Help Forge New Strategy For Gas In Sub-Saharan Africa

Investment in the exploration and production of oil and gas has dropped precipitously since oil prices began to fall in 2014, and North Africa could be providing the near-term strategy for sub-Saharan Africa. Upstream oil and gas operations identify deposits, drill wells and recover raw materials from underground. The upstream sector of the oil and gas industry includes all the steps involved from preliminary exploration through extraction. North Africa is a microcosm of that global change. Upstream investment is expected to be down more than $30 billion for 2016 and 2017 combined. Yet ongoing projects, recent discoveries and investment in gas projects will push the upstream investment in North Africa to record levels by 2019. Understanding gas in North Africa Gas has always been valuable to North African economies, but it entered a new phase of recognition in 2015 when spending on gas projects surpassed spending on oil projects for the first time. The capital expenditure for gas projects in 2019 is expected to be more than double that of oil and will push production of gas and natural gas liquids (NGLs) to more than 3.4 million barrels a day by 2024, according to global energy consultancy Wood Mackenzie. The growth in spending is being fueled (no pun intended) by a growing need to address declining supply. Multi billion-dollar developments in Egypt, such as Eni’s Zohr and British Petroleum’s West Nile Delta projects, account for over $23 billion, or 30 percent of total capital expenditure in Middle East North Africa over the next five years. The corresponding bump in gas production is less robust at 7 percent, versus the 24 percent increase in capex spend. The shift to gas is not a short-term reaction to low oil prices. The greater volumes of gas discovered versus oil in the last decade explains the story. Since 2006, oil discoveries have amounted to a new 3.7 billion barrels of oil, compared to 5.6 billion (or 32 trillion cubic feet) of gas. This does not include the 4 billion barrel Zohr discovery that clearly changes the energy discussion in region. The lesson for gas in sub-Saharan Africa Capex spend Sub-Saharan Africa does not need a lesson on cutting capital expenditure. Analysts suggest that the capex cut through 2019 is between 35 percent and 45 percent. Angola and Nigeria will likely see more than 50 percent in capex cuts. Many projects are not commercial in this price environment. Some projects accordingly have been redesigned, deferred or downgraded. The greatest cuts will come with oil deepwater projects. Consider the four biggest combined cuts in Angola and Nigeria. The Block 31 SE project and the Block 16 Chissonga project in Angola will account for a near 20 billion cut in capex spend through 2020 while the Bosi project and the Etan &Zabazaba in project Angola will account for a near 21 billion cut in capex

spend. The four projects combined are bigger than the next eight biggest cuts, of which only one is not in Nigeria or Angola. Looking to gas Major explorations have led to huge discoveries of offshore gas in Mozambique and Tanzania with investors looking to the lucrative prospects in the 2020s. Current prices rightfully concern investors in the short term as gas projects in Mozambique and Tanzania require significant capital investment. Still the resources are imperative to the development plan of both countries and accordingly will press on in the near term. Italian oil and gas company Eni is expected to spend more than $15 billion to monetize gas in Mozambique in the near term. The greater question for gas is how it will play out in oil countries, specifically Nigeria. Nigeria is home to massive gas reserves. Its reserve profile should make it competitive with Algeria. Yet capital investment and public focus need an energy injection from the Nigerian government. The infrastructure is conspicuously inadequate, not simply for exploration and transmission but also for converting gas to power generation. Prices also remain an issue which makes commercialization a big question. The Power Holding Company of Nigeria (PHCN), as a major off-taker of gas in the country, struggled to pay for gas at market prices in the past few years. Little data suggest this will change for independent off-takers. Changing perspective Natural gas is most abundant in Nigeria, Mozambique and Tanzania with significant resources in other countries, including Angola and Cameroon. It is acceptable and affordable as a standalone energy source. But key policy and economic enablers must be implemented to change the outlook in subSaharan Africa. Let North Africa be an example of how gas can be lucrative when operators can see opportunity and make it a focus. The serendipitous discoveries of gas in Nigeria are bewildering to many investors. Discovering gas while searching for oil is like finding gold outside your door when you need cash. The question is how you turn the gold into cash. That part is not as serendipitous and requires a little effort.

 by Kurt Davis Jr, AFKInsider
At https://furtherafrica.com/2016/08/11/north-africa-could-help-forge-newstrategy-for-gas-in-sub-saharan-africa/

North Africa Could Help Forge New Strategy For Gas In Sub-Saharan Africa

Investment in the exploration and production of oil and gas has dropped precipitously since oil prices began to fall in 2014, and North Africa could be providing the near-term strategy for sub-Saharan Africa. Upstream oil and gas operations identify deposits, drill wells and recover raw materials from underground. The upstream sector of the oil and gas industry includes all the steps involved from preliminary exploration through extraction. North Africa is a microcosm of that global change. Upstream investment is expected to be down more than $30 billion for 2016 and 2017 combined. Yet ongoing projects, recent discoveries and investment in gas projects will push the upstream investment in North Africa to record levels by 2019. Understanding gas in North Africa Gas has always been valuable to North African economies, but it entered a new phase of recognition in 2015 when spending on gas projects surpassed spending on oil projects for the first time. The capital expenditure for gas projects in 2019 is expected to be more than double that of oil and will push production of gas and natural gas liquids (NGLs) to more than 3.4 million barrels a day by 2024, according to global energy consultancy Wood Mackenzie. The growth in spending is being fueled (no pun intended) by a growing need to address declining supply. Multi billion-dollar developments in Egypt, such as Eni’s Zohr and British Petroleum’s West Nile Delta projects, account for over $23 billion, or 30 percent of total capital expenditure in Middle East North Africa over the next five years. The corresponding bump in gas production is less robust at 7 percent, versus the 24 percent increase in capex spend. The shift to gas is not a short-term reaction to low oil prices. The greater volumes of gas discovered versus oil in the last decade explains the story. Since 2006, oil discoveries have amounted to a new 3.7 billion barrels of oil, compared to 5.6 billion (or 32 trillion cubic feet) of gas. This does not include the 4 billion barrel Zohr discovery that clearly changes the energy discussion in region. The lesson for gas in sub-Saharan Africa Capex spend Sub-Saharan Africa does not need a lesson on cutting capital expenditure. Analysts suggest that the capex cut through 2019 is between 35 percent and 45 percent. Angola and Nigeria will likely see more than 50 percent in capex cuts. Many projects are not commercial in this price environment. Some projects accordingly have been redesigned, deferred or downgraded. The greatest cuts will come with oil deepwater projects. Consider the four biggest combined cuts in Angola and Nigeria. The Block 31 SE project and the Block 16 Chissonga project in Angola will account for a near 20 billion cut in capex spend through 2020 while the Bosi project and the Etan &Zabazaba in project Angola will account for a near 21 billion cut in capex

spend. The four projects combined are bigger than the next eight biggest cuts, of which only one is not in Nigeria or Angola. Looking to gas Major explorations have led to huge discoveries of offshore gas in Mozambique and Tanzania with investors looking to the lucrative prospects in the 2020s. Current prices rightfully concern investors in the short term as gas projects in Mozambique and Tanzania require significant capital investment. Still the resources are imperative to the development plan of both countries and accordingly will press on in the near term. Italian oil and gas company Eni is expected to spend more than $15 billion to monetize gas in Mozambique in the near term. The greater question for gas is how it will play out in oil countries, specifically Nigeria. Nigeria is home to massive gas reserves. Its reserve profile should make it competitive with Algeria. Yet capital investment and public focus need an energy injection from the Nigerian government. The infrastructure is conspicuously inadequate, not simply for exploration and transmission but also for converting gas to power generation. Prices also remain an issue which makes commercialization a big question. The Power Holding Company of Nigeria (PHCN), as a major off-taker of gas in the country, struggled to pay for gas at market prices in the past few years. Little data suggest this will change for independent off-takers. Changing perspective Natural gas is most abundant in Nigeria, Mozambique and Tanzania with significant resources in other countries, including Angola and Cameroon. It is acceptable and affordable as a standalone energy source. But key policy and economic enablers must be implemented to change the outlook in subSaharan Africa. Let North Africa be an example of how gas can be lucrative when operators can see opportunity and make it a focus. The serendipitous discoveries of gas in Nigeria are bewildering to many investors. Discovering gas while searching for oil is like finding gold outside your door when you need cash. The question is how you turn the gold into cash. That part is not as serendipitous and requires a little effort.

 by Kurt Davis Jr, AFKInsider
At https://furtherafrica.com/2016/08/11/north-africa-could-help-forge-newstrategy-for-gas-in-sub-saharan-africa/

How revenues from oil and gas in Africa can be made to work for ordinary people

Fabio Scala July 19, 2016
 Critics point out that ordinary people have not benefited from oil and gas exploitation in many African states. Billions of dollars in revenue have had little positive impact on the lives of most people in countries like Angola and Nigeria. Local content policies have been expanding across Africa and are currently being drafted in Uganda, Tanzania, Kenya and Mozambique. In a new book, The Petro-Developmental State in Africa, Jesse Salah Ovadia argues that this needn’t be the case and that a different approach focused on local content is possible. This involves regulations that encourage employment and nurture local companies to increase domestic participation in the industry. I asked him whether his proposed approach could be a game changer for economic development in Africa’s oil producing states. What is the petro-developmental state and why does it matter now? The petro-developmental state is a vision of what sub-Saharan countries can achieve through their oil and gas resources. It is tapping non-renewable resources for structural transformation and improving people’s lives in the long term for an eventual transition to post-carbon economies. In a petro-developmental state, local content policies support infant industries. The approach is anchored in oil and gas due to the state’s leverage with this commodity to regulate local participation. These industries can grow and develop comparative advantage over time in areas of economic activity that have non-oil applications and eventually employ large numbers of people and contribute to building a more robust economy. In fact, it’s a vision of state-led industrialisation and job creation anchored in oil that actually diversifies economies away from oil. The value of local content is just as great as the revenues from oil, while the benefits are much more important for long-term development. Is local content the way forward following the oil price shock? The oil price shock has actually deepened my belief that local content is the key to how petroleum resources can be developmental. Oil prices will always be volatile and have provoked economic crises in Angola and Nigeria. That’s one of many reasons a development strategy cannot be based on use of petroleum revenues alone. Even when prices drop, oil production continues. So the opportunities for development through local content remain because the companies producing the oil still require all of the same goods and services from local suppliers. The benefits are much more consistent and they also reduce the reliance on oil over the long term as local companies expand and diversify from the oil sector into the non-oil economy. What are the possible benefits of local content for communities in areas of oil and gas production? There are a number of different things meant when people talk about local content. In Ghana, Kenya and other new oil states in Africa, local content is often understood to direct benefits to communities. I don’t really see it that way, for me it’s about national development through expanded manufacturing and services sectors. There may be some ways communities can participate in the industry in lowerskilled jobs and supplying basic services and this should be encouraged. But other policies are needed by governments to redistribute the revenues and benefits from petroleum and for companies to obtain their social licence to operate by giving back to the communities they work in. How might Africa’s new oil producers approach local content? There are a variety of factors to consider as Africa’s new oil producers set up their approaches to local content. The days of high oil prices are gone and we have to remember that local content involves a cost to both government and the private sector. Governments should start by evaluating the existing levels of education and skills as well as industrial development. These factors, combined with the amount of oil the country has, how hard it is to extract and how long it will last, are important to consider when determining how to promote local content. Setting unrealistic targets for local content will reduce the benefit. Rather than creating hard targets across all oil service activities, it would be better to try to build comparative advantage in selected areas. It is worth sacrificing some oil revenues in order to maximise local content if additional regulation would increase in-country value creation. I worry though that over time as new producers develop their local content policies, they are bowing to pressure to take a less regulatory and more voluntary approach – something I call “soft local content policies”. This doesn’t work because local content is about national development, not creating shared value or win-win outcomes. What is meant by the dual nature of local content? How can it be reconciled with development objectives? Dual nature is the idea that local content can both benefit local elites and have positive developmental effects. But I think it will be a struggle in Angola and Nigeria as well as newer oil producing countries like Uganda, Tanzania, Kenya and Mozambique to have the positive effects outweigh the negative ones. Angola’s recent appointment of Isabel dos Santos, the president’s daughter, as the head of the state’s oil company has a dual nature. Clearly she’s there to ensure her father’s continued access to a key source of rent and patronage. But paradoxically she’s also there to reform and professionalise the company as it struggles to deal with the low oil price environment. I think she was put there for both of these reasons. This demonstrates the dual nature of Angola’s attempt to build a developmental state. Angola’s top-down approach requires significant political reform to be successful because the balance between elite benefit and national development is so one-sided. The lesson for the citizens of Africa’s new oil states is to pay attention, engage on the issues and make their voices heard on questions of petroleum management and oil-backed development. How much of a game changer could local content be for the emergence of a petro-developmental state? I’m often accused of being overly optimistic on this matter, as there is a lack of evidence about the impact of various local content policies. But I believe I’m making a more nuanced argument about a shift in the limits of the possible and a new opportunity for petro-development. Obviously an actually-existing petro-developmental state would be game changing. It’s a vision though that I theorise alongside a less optimistic vision of new forms of elite accumulation and rent-seeking. There is an open question about how successful old and new African oil producers will be in using local content to bring about developmental outcomes in Sub-Saharan Africa.

source: https://furtherafrica.com/2016/07/19/how-revenues-from-oil-and-gas-inafrica-can-be-made-to-work-for-ordinary-people/