The outlook for oil and gas in Africa with the African Energy Chamber

The African Energy Chamber’s annual report warns of challenging times ahead and says a rethink of offshore licencing procedures and environmental standards are needed if the sector is to survive. Verner Ayukegba, senior vice president of the Chamber, discusses why the industry must take a ‘now or never’ approach to reform.

Decarbonisation and the shale gas revolution were already creating challenges for the African offshore oil and gas industry. Then the Covid-19 pandemic hit, plunging the sector into extraordinary circumstances.

According to the African Energy Chamber, pre-pandemic planned capital expenditure in 2020-2021 had been $90bn but has since fallen to just $60bn. Given the changing context, in its report, the Chamber says that the sector must adapt or risk not reaching its full potential.

Verner Ayukegba (VA): Presently, it’s an extremely tough market, with several factors making it harder. The global pandemic has significantly reduced demand for oil and gas; projects have been stopped to secure cash flows and investments are not being made, which is particularly difficult for offshore exploration.

Nigeria’s and Angola’s rig count has reduced notably. What we’re seeing is a maintaining of the status quo, as people hope to revisit their plans by the end of the year.

When this happens, we expect there will be more focus on projects that already have existing discoveries and existing infrastructure. We’ve seen this particularly in Angola, where Total and other majors are looking at mid-size to smaller-size new work. That’s the theme through 2020, and probably also 2021.

HV: The report notes that global contexts force African petroleum producers to adapt or become uncompetitive, what should they do?

VA: Oil and gas operates in a global space – Africa is competing with Mexico and the Middle East and more – and investors are now taking a second, third, fourth look at projects before they dive in. This means if we do still have uncertainties in places, like in Nigeria, especially for offshore due to the Petroleum Industry Bill, which has not yet passed into law, then there will be difficulties.We’re saying they [governments] need to act quickly and even negotiate on a one-to-one basis, rather than have traditional licencing rounds, which have not necessarily yielded results in recent years.

In an oil environment of over $100 a barrel, international oil companies are willing to run around signing on bonuses and paying all sorts. However, that is no longer the case, so they need to try and adapt to attract people, by pushing increased data access, and making sure companies can gather more data and reach the next step of exploration. This is what needs to happen to shorten the cycle from prospects to first oil.

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