Africa: Prospects for Africa's Oil and Gas Sector

25 May 2018

Bank Anthony Okoroafor highlights the exciting prospects for the oil and gas sector in Africa as well as the challenges and opportunities for regional collaboration

Africa has huge resource base, 128 billion barrels or 7.5% of world proven oil reserve, 503.3 Tcf (86.8 billion BoE) or 7.6% of world's proven gas reserves and 26 billion barrels (Libya 5th globally) of shale oil. Algeria (3rd globally) holds 707 Tcf or 121.9 billion BoE shale gas potential. It is estimated that Africa oil & gas will increase by 74% by 2050. We need to collaborate, learn, and establish common economic interest. If common economic interest is not created, we are wasting our time. Electricity to Africa should be the starting point of development. Without access to electricity correlates with poverty.

How Can We Build African Content?

The type of regional collaboration needed is that that will create wealth and value in our region. The oil & Gas industry needs to become an enabler for Africa economic growth and not just a revenue earner. An economy is powered by adequate electricity & petroleum products. We need to build enough entrepreneurial capacity in Africa. Africa needs about a 100 Dangotes and Tony Elumelus. Our priority should be to eliminate poverty while preserving our environment. Africa is under explored with a huge hydrocarbon potential and a readily available market. The continent has the opportunity to use its oil and gas reserves to boost its economic and social development. The future prospects look brighter than before. Investors have changed their perception of Africa as a risky jurisdiction to a jurisdiction of enormous opportunities. With the enablers in place, the oil & gas industry will finally become a source for Africa economic growth and not just a revenue earner. Regional collaboration requires government and industry working together because of the complex issues involved.

Hard Facts

- Oil & Gas in Africa has not alleviated poverty

- Common economic interest not seen

- key economic opportunities that will drive collaboration not identified yet

- 620 million people in SSA living without access to electricity

- Lack of infrastructure and connectivity to connect the population

- Logistics is not easy

- Key government agencies are not connecting

- Practitioners in the industry are not connecting

- Common Fiscal Policy & Regulation - custom duties & Tax not in place

- Interstate Commerce not in the picture yet

- We do not know much about oil industry in other countries

- Ecowas and AU not challenged to be a platform for regional collaboration

- Most cars will run on electric by 2030

- Legislature in Europe for cars to run on electric

- Technology not domiciled in Africa. As long as we continue to purchase technology from outside, it is still going to be difficult.

- No academic collaboration within Africa around critical research topics.

- In the 45 years of regional collaboration in W/Africa, neither gas nor power flows through West Africa.

- LNG exports from Nigeria, Algeria, Egypt and Equatorial Guinea were 1.61 Tcf, 13.1% of global in 2016

- Refining capacity as % of global 2.6% or 2.1 million bbl/day

- LNG operating capacity in 2016 51% Rest of world 82%

- Gas pipeline exports were 45.6bcm and consumption 13.3 Bcf per day

- Africa accounts for 25% of Europe's total imports, 20% of china's total imports and 20% of US total imports (oil & Gas).

How Much Market We Can Create by Connecting Africa

- If we just use gas, we have to provide electricity to 620 million people in Africa, and process our crude to supply fuel in Africa, things will definitely change. If we articulate clearly what the opportunities represent in the creation of wealth in Africa.

- Enough consumption of resources in Africa will drive the economy

- This will result in promoting value/wealth in the region

Challenges Inhibiting Growth

- Fragmented regulatory and business contexts in the 54 countries in Africa create a hurdle for regional development. Member countries need a deepened regional economic integration by collaborating on market integration, infrastructure and industrial development.

- Uncertainty in Regulatory and fiscal frameworks. PIB in Nigeria is lagging in the national assembly since 2008.

- Upstream regulation in South Africa remains uncertain. Tanzania passed two laws in July 2017 allowing the government to forcibly renegotiate contracts, among others.

- Bunkering and infrastructural deficit - Pipeline oil theft and militancy have stalled oil and gas investments in certain countries. Low refining capacity and the consequences of importing refined crude at additional costs.

Way Forward

- Strong Regulations: Harmonising Regional Regulations and fiscal Policies. Regulations should have regional content in mind so as to encourage collaboration. African governments must address the regulatory and fiscal conditions in order to attract investment and reignite the development.

- Economic, governance and security reforms are paramount for the continent

- Deeper regional Integration - Regional Integration broadens markets and will attract investments in Africa's petroleum sector which will improve quality of life for Africans and also bring returns to the investors

- Infrastructure Investment - Strategic investment in refineries

Increase in Domestic Petroleum Utilisation

- Securitising finance for investments in regional infrastructure

- Security - Efficient security measures to prevent bunkering and oil theft implemented. Build alternative export lines and develop stronger community relationships

- Collaborate on Data gathering

- Trans-border labour mobility for skills and technology transfer

- Development of regional oil and gas infrastructure for processing, transportation and storage of upstream, midstream and downstream to support competitiveness in the global market and benefit from economies of scale.

- Galvanise formal partnerships

- Create social entrepreneurship framework as a catalyst for increased collaboration in Africa

- Challenge Ecowas and AU to be a platform for regional economic corporation

- Institutional Engagement - Expand collaboration effort of government and private sector.

- Use our population as a strategic advantage

- Change from revenue/rent economies to economic enablers economy

- Create Key economic opportunities that will drive collaboration.

- Knowledge becomes more reasonable when we interact more, move conferences around countries in Africa

- Create entrepreneurial drive in Africa

- Establish a minimum ethical standard that the industry can adapt

- Effective integration of regional governments and extractive companies could transform Africa's economies and the lives of its citizens.

- 540 million people in resource driven countries could be lifted out of poverty by effective development and use of reserves: more than what china did in the past 20 years.

- Okoroafor is Chairman, Petroleum Technology Association of Nigeria (PETAN)

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