How is the Covid-19 pandemic impacting investment in large-scale oil and gas developments in sub-Saharan Africa? Ian Lewis sees tough times ahead
Getting upstream oil and gas projects off the ground in sub-Saharan Africa was challenging before the Covid-19 pandemic. Now the operating environment is even tougher, as the industry contends with labour restrictions, disrupted supply chains and the long-term impact on revenues and investment of the collapse in global demand for energy products.
International oil companies that previously regarded the acquisition of new hydrocarbons reserves as a primary indicator of their corporate health are now touting the benefits of prudent investment in their existing oil and gas assets and diversification away from riskier upstream activities. That means all but the most attractive, low-cost African acreage will be a hard sell to international investors.
This is not good news for either Africa’s would-be entrants to the oil sector promoting frontier acreage, such as Somalia, or for established exporters seeking to shore up dwindling output – and revenues – from existing production through investment in more marginal fields and satellite developments.
The region’s largest oil exporters, Nigeria and Angola, fall into the latter category. Nigeria’s central bank reported in August that the value of the country’s crude oil exports fell to $9.48bn in the first quarter 2020, as the pandemic gathered momentum – a 20% drop compared with the previous quarter. The price of Nigeria’s Bonny light crude was over $65/barrel last December but below $15/barrel by April.
Fitch Ratings downgraded Angola to CCC in early September. It cited the fall in global oil prices, which it says has exacerbated key vulnerabilities in the Angolan economy, leading to lower external receipts and a sustained weakening of the countrys currency, the kwanza, which has resulted in increasing debt servicing costs and downward pressure on fiscal and external buffers. Recovery in sight?
However, the picture is not one of unmitigated gloom for African upstream. If a resurgence of coronavirus infections can be averted, the worst impacts of the pandemic on the industry could be behind it.
Global oil prices have recovered from their lows, with Brent crude trading at almost $40 in early September, up from lows of $20 in mid-April, indicating demand recovery that could bolster investment.
It will still be a tough task. Most of the African oil and gas projects for which final investment decisions were originally planned for 2020 require an oil price of $40 […]