Angola’s support to global market stability and energy cooperation is significant, and gives confidence to operators and future investors seeking to do business in Africa
The OPEC-Angola discussions that took place last week is a major pillar of the strong dialogue and cooperation between OPEC and African producing nations. The Chamber (EnergyChamber.org) welcomes these discussions and encourages more collaboration as Angola and others will benefit from market stability.
Such a dialogue is key for compliance with the OPEC global production cuts deal of April, to which all of OPEC’s African member countries have agreed to. Angola’s support to global market stability and energy cooperation is significant, and gives confidence to operators and future investors seeking to do business in Africa.
“In December 2018, OPEC Secretary General Mohammed Sanusi Barkindo made a historic visit to Angola and committed to working with its leadership to improve the industry and strengthen its relationship with OPEC. The OPEC-Africa dialogue has brought this relationship to a new level. African voices are heard and advocated for within the industry’s most influential institution, ensuring that the continent’s interests are represented,” stated NJ Ayuk, Executive Chairman at the African Energy Chamber.
“The Government of Angola, and the country’s Ministry of Mineral Resources and Petroleum have always been strong participants in the global energy dialogue between Africa and institutions such as OPEC. Angola has public officials committed to making energy work for Africans, and to fighting energy poverty in Angola. Such move makes our industry better for Africans and for investors,” declared Sergio Pugliese, President of the African Energy Chamber in Angola.
Under the leadership of His Excellency President João Lourenço and his Minister of Minister of Mineral Resources and Petroleum H.E. Diamantino Azevedo, Angola has embarked on a set of bold and market-driven reforms for over two years now. The country is becoming increasingly competitive for regional and international investors and has sent strong signals of its openness to investments, commitment to local content development and determination to fight corruption
The OPEC-Nigeria Bilateral Meeting that took place last week has sent yet another signal of the strong dialogue and cooperation between OPEC and Africa’s biggest producing country.
Such a dialogue is key for compliance with the OPEC global production cuts deal of April, to which all of OPEC’s African member countries have agreed to. Nigeria’s support to global market stability and energy cooperation is significant and gives confidence to operators and future investors seeking to do business in West Africa.
“African producers and service companies are the hardest hit when there is volatility in the market. H.E. Mohammed Sanusi Barkindo and Dr. Ayed S. Al-Qahtani leading these discussions sends a strong message that collaboration and sticking to the principles of a stable market is good for Nigeria, its producers and the economy at large,” stated NJ Ayuk, Executive Chairman at the African Energy Chamber.
“We continue to support the Government of Nigeria, and the country’s Ministry of Petroleum Resources in their effort to improve the environment for investment and getting the industry to rebound post-Covid-19. We believe they are right in making this a priority and we welcome the bold initiatives by Nigeria’s leadership,” he added.
Nigeria’s ongoing Marginal Fields Bidding Round was launched in earlier this year and has already been met with significant success, reportedly attracting hundreds of bidders. The round is expected to result in a new wave of local content development in Nigeria, a country already widely regarded as the most successful example of local content and capacity building across the continent.
Crude oil prices are expected to average $66 a barrel in 2019 and $65 a barrel in 2020, a downward revision from the October forecast due to the weaker-than-expected global growth outlook and greater-than-anticipated U.S. production, the World Bank said.
Metal prices are expected to continue a recovery in 2019 that follows a sharp drop in the second half of 2018, the World Bank said in its AprilCommodity Markets Outlook. The recovery has been spurred by stabilization of activity in China after weakness around the turn of the year, as well as various supply shortfalls.
“It has become clear that the commodity price cycle has come to an end, which is causing strains for exporters but may offer opportunities for importers,”saidCeyla Pazarbasioglu, World Bank Equitable Growth, Finance & Institutions Vice President. “Exporters may have to adapt to slower gains in commodity revenues with economic diversification, while importers could take advantage of lower commodity prices for increased investment.”
Agriculture prices are projected to fall 2.6 percent this year but rebound in 2020 due to lower crop production and higher costs for energy and fertilizers. An escalation of trade tensions would likely push prices lower, but higher-than-expected energy costs could lift prices more than expected.
“The outlook for commodity prices is sensitive to policy-related risks, especially for oil,”saidAyhan Kose, Director of the World Bank’s Prospects Group. “The outlook for oil could be swayed by a range of policy outcomes, including whether the Organization of the Petroleum Exporting Countries (OPEC) and partners extend production cuts, the impact of the removal of waivers to the U.S. sanctions on Iran, and looming changes in marine fuel emissions regulations.”
After a drop in late 2018, oil prices have risen steadily since the start of the year, as OPEC and partners have cut production, and output has declined in Venezuela and Iran. U.S. shale production is expected to remain robust after surging in 2018. Energy prices overall – which also include natural gas and coal ‒ are expected to average 5.4 percent lower in 2019 than in 2018.
A special focus section shows that when countries intervene to dampen the effect of food price fluctuations on their citizens, the collective intervention of many countries can produce the opposite of the intended effect and amplify movements in world prices – to the detriment of the most vulnerable populations.
This year will be key for the advancement of new exploration and production development projects from West to East Africa
After a year of rebound and recovery, Africa’s old and new hydrocarbons markets have an opportunity to further entrench the continent’s position as the world’s hottest oil and gas frontier in 2019. However, the new year also brings a new set of dynamics and challenges set to influence the future of the industry, from presidential elections to megaprojects developments, amidst intensifying international competition.
New African frontiers opening up
Independents are leading the way in exploring and opening up new frontiers across Africa. This year will be key for the advancement of new exploration and production development projects from West to East Africa. Developments to watch notably include Senegal’s SNE field development, where FEED works are ongoing and a final investment decision (FID) is expected by Woodside Energy and Cairn Energy this year; Niger’s Amdigh oilfield development, where Savannah Petroleum’s $5m early production scheme is set to start anytime soon; and the opening up of Kenya’s South Lokichar Basin by Tullow Oil, where FID is also expected before year end amidst rising tensions with the Turkana local community.
A year to confirm Africa as a global exploration hotspot
Ongoing bidding rounds in key existing and new African hydrocarbons markets will tell if Africa further confirms its position as the world’s new exploration hotspot and manages to attract necessary investment in its oil and gas acreages.
Amongst well-established African producers, OPEC members Gabon and Congo-Brazzaville each have ongoing bidding rounds. Gabon’s 12th shallow and deep-water licensing round is set to close in April 2019 and Congo-Brazzaville’s License round phase II in June 2019. With both countries struggling to implement their new Hydrocarbons Codes, the success of these rounds will tell if investors have been convinced by policy reforms developed over the past two years.
Two bigger African producers and also OPEC members, Nigeria and Angola, are set to launch landmark and out-of-the-ordinary bidding rounds this year. Nigeria will auction its gas flare sites under the Nigerian Gas Flare Commercialisation Programme, likely to happen after the February general election, and Angola will hold its Marginal Fields Bidding Round, result of a new May 2018 policy enacted by President Lourenço, and to be launched at the Africa Oil & Power conference in Luanda in June 2019. With the Nigerian Petroleum Industry Bill yet to be signed and the ink still fresh on Angola’s new policy regime, both rounds will also be key in assessing investors’ interest for both countries’ business environments.
Also attracting interest is the newest and arguably one of the upcoming entrants – Ghana – holding its 1st formal licensing round set to close in May 2019 which has reportedly got the attention of 16 oil companies, including majors ExxonMobil, BP, Total and ENI. As a hopeful new East African offshore frontier, Madagascar is also putting 44 concessions on offer until May 2019, none of which has ever been tendered or explored before. For a country without any major oil discovery to date, the ongoing license round is a wager test.
Africa’s struggling FLNG industry
After the start of commercial operations at Golar LNG’s Hilli Episeyo FLNG vessel in Cameroon in June 2018, hopes were high that Equatorial Guinea would soon move forward with its own Fortuna FLNG project, set to be Africa’s first deep-water FLNG development. While Fortuna was to be game changing for the gas industry of Equatorial Guinea and the rest of the continent, the development of the $2bn project has stalled due to a lack of financing. And the clock has been ticking since. The lack of progress on this plan has been so slow that operator Ophir Energy has been denied the extension of its license to operate block R (as of January this year), which contains the giant Fortuna gas discovery. While Equatorial Guinea’s FLNG aspirations look more uncertain than ever, 2019 will tell if the country can find the right partners to put the project back on Africa’s FLNG map.
Meanwhile, new entrants in Africa’s hydrocarbons stage are making remarkable advances towards the development of their own FLNG industry. On December 21st last year, BP finally announced its FID for phase 1 of the cross-border Greater Tortue Ahmeyim development between Senegal and Mauritania, which involves the installation of a 2.5MTPA FLNG facility. It became the third African FLNG project to reach FID after Cameroon’s 2.4MTPA Hilli Episeyo and Mozambique’s 3.4MTPA Coral South FLNG.
Mega projects on the move
Africa’s come back on the global oil and gas map is not only due to the vast natural resources found in its soil and waters, but also to the continent being home to mega energy projects set to transform the future of the industry.
On the upstream side, the recent inter-governmental cooperation agreement between Senegal and Mauritania, and BP’s FID on its cross-border Greater Tortue Ahmeyim development, bodes well for the future of West Africa’s hydrocarbons industry. The project aims at extracting the 15Tcf of gas estimated to be held in the Tortue gas field, located at a depth of 2,850 metres. However, the ability of both Senegal and Mauritania to work out their differences to ensure a more sustainable development of their offshore reserves and facilities around the MSGBC Basin is a factor to watch out for.
African mega gas projects are not the sole property of the continent’s West coast, with Mozambique moving forward with two landmark projects putting the Southern African nation on the global LNG map. Following the launch of the Coral South FLNG project by ENI in June 2017, a FID is now expected in the coming months for the Anardarko-led Mozambique LNG project, an onshore LNG development initially consisting of two LNG trains totaling 12.88MTPA to export the gas extracted from the offshore Area 1, estimated to contain a whooping 75Tcf.
Sub-Saharan Africa’s biggest petroleum producers, Nigeria, is also moving forward with massive oil development projects in 2019. Last year already saw the launch of Total’s $3.3bn Egina FPSO in Nigeria, where production officially started in the first days of 2019 and is set to peak at 200,000 bopd. FID is now expected on Shell’s Bonga Southwest offshore field in Nigeria early this year, a multi billion-dollars development whose production is expected to reach 180,000 bopd.
International contenders and pretenders
As Africa strengthens its position at the centre of global transformations, it is increasingly becoming the playground for international actors willing to benefit from the continent’s vast resources.
While China has asserted its position of a contender in the continent, will new continental dynamics lead the Asian giant to change its investment strategy or portfolio? With Russia’s intentions on the continent becoming clearer and clearer, will the first Russia-Africa Summit this year translate into more concrete Russian deals across the continent? At the same time, will the US’ “Prosper Africa” initiative launched in December 2018 be able to counter both rising international competition and declining US influence on the continent?
A complex energy diplomacy dilemma for OPEC in Africa
With a majority of its members made up of African nations since the joining of the Republic of Congo in June 2018, OPEC’s evolving relationship with the continent as it strives to manage the global supply glut will be requiring skillful diplomatic ingenuity.
On one side, Africa’s biggest producers and OPEC members Algeria, Libya, Nigeria, Angola and Congo-Brazzaville, are striving to boost their domestic output, which makes it harder and harder for the Organisation to negotiate its production cuts.
On the other side, the continent is also home to a flurry of upcoming petroleum producers like Senegal, Kenya or Uganda, or old players making a comeback like South Sudan, some of them part of OPEC’s Declaration of Cooperation, whose upcoming or increasing output adds another layer of complexity to the formulation of OPEC’s global oil prices management strategy.
An increasing African output from OPEC and non-OPEC member countries only complicates OPEC’s maneuver capabilities and increases its dilemma of both providing a stable pricing environment conducive to investments, while avoiding a worsening of the supply glut that would push prices further down.
Africa’s biggest petroleum producers casts their ballots
Amongst the series of elections happening in the continent this year, from Senegal to Mozambique, none will be more important for the African oil sector than that of Nigeria this February. The Nigerian presidential election is set to shape the future of the industry, not only because Nigeria is Africa’s biggest oil & gas producer, but because what happens in Nigeria impacts the rest of the subcontinent one way or the other. While both Muhammadu Buhari, seeking re-election, and his ally turned rival Atiku Abubakar have committed to the signing of the Nigerian Petroleum Industry Bill, the ability of the future President to get his office in order and get the bill passed quickly will heavily influence investments within Nigeria’s hydrocarbons sector for years to come.
North, Algeria and Libya are also entering an election year, with the 2019 Libyan general election set for the first half of the year, and Algeria’s for April. Both countries are on a transformation path. Libyan authorities plan to more than double the country’s output to 2.1 million bopd by 2021, providing politics doesn’t tamper hydrocarbons governance and the work of the National Oil Company. With Muammar Gaddafi’s son Saif al-Islam Gaddafi set to stand for election and the country still divided between West and East, maintaining the stability required by investors will prove challenging.
In Algeria, where a wave of reform is shaking the entire hydrocarbons sector, elections are expected to maintain a relative status-quo, at least politically speaking. The country’s national oil company, Sonatrach, has launched an ambitious transformation strategy that will see it investing $56bn over the next four years and internationalizing its operations across major global energy markets. 2019 could even see the state-owned giant and Africa’s biggest company further expand south of the Sahara.
Angola’s steady road to reforms
Since taking office in the summer of 2017, Angolan President João Lourenço has been implementing a bullish reformist agenda which is drastically transforming the governance of the country’s oil & gas sector. Angola is reforming fast, but will market forces allow changes to happen at that pace and yield the results that the government is looking for?
While international investors seem to think so, with Total and BP signing major agreements to boost their Angolan operations over the past few months, 2019 will tell if the international oil industry is being convinced of Angola’s return as a competitive African frontier or not.
To showcase the work being done by Sonangol and the Angolan government to generate more investment in the country’s oil & gas industry, Angola is backing up an international conference being organized by Africa Oil & Power in Luanda on June 4-6, 2019, where it will be launching the Angolan Marginal Field Bidding Round. This will be the first official investment roadshow organized in Angola under the current administration, and one that is set to unveil a new set of reforms and investment commitments.
South Sudan’s march to peace
The major progression in South Sudan, and one on which the entire economy relies, is that of the peace accords. The Sudanese and South Sudanese authorities have time and again demonstrated their commitment to the peace process, which has remained peaceful for the most part. However, will peace deals translate into investment promises and money being invested into the South Sudanese economy this year? Some signals point to that direction, with South Africa’s Central Energy Fund committing $1bn to South Sudan late last year, but markets are still skeptics and observers will remain pragmatics and wait to see how the peaceful transition is managed and how oil production resumes before making any concrete moves.
A year to improve market access for East African producers
With Uganda set to join the club of African petroleum producers by the early 2020s, efforts are on the way to develop adequate infrastructure for the evacuation of oil that will be produced from the Lake Albert Basin. The project seemed to be positively moving forward when Uganda and Tanzania exchanged the inter-governmental agreement for the 1,443km East African Crude Oil Pipeline in May 2017. However, the partners in the pipeline’s construction, French major Total, China’s CNOOC and Tullow Oil, are yet to make a final investment decision on the project. Meanwhile, the Host Government Agreements are to be signed this January, but delays in concluding the pipeline’s financial deal have already pushed back Uganda’s oil production ambitions from 2020 to 2021. The pipeline is crucial for the further integration of the East African community and to set a positive record of joint planning, financing and implementation of landmark energy projects in the region.
The Republic of the Congo has suffered dearly during the oil collapse; and Congolese President Denis Nguesso has pledged that the country would no longer be sitting on the side lines — suffering the effects of global decision-making in the oil industry without a voice. In an official communiqué announcing the bid for OPEC membership, he stated that he wished to “place our country in the rank of the world’s leaders.”
Congolese President Denis Nguesso
In January, officials from the Republic of Congo announced the country’s application for membership of the Organization of Petroleum Exporting Countries (OPEC). This is no small move. After years of challenges with the collapse in the price of oil, the Republic of Congo is emerging from this period with a renewed agenda, focused on becoming an active voice in the global stage, rather than a silent victim of international oil price swings.
For Congo, OPEC membership means greater access to information, partnerships, contacts and a voice at the decision-making table. But, perhaps more than ever, it is OPEC that is to benefit from the rise in African political voices, particularly that of Congo.
At nearly 2 billion barrels of crude oil of proven reserves in a vastly underexplored territory, Congo represents a sleeping giant amidst African oil producers. An improved business climate has brought profound benefits to the country’s oil industry. New developments by French oil company Total in Congolese territory are set to expand the country’s oil output from 280,000 barrels per day to 350,000 in 2018.
An enhanced sector outlook coupled with new discoveries and strong leadership by younger and more capable leaders is rapidly attracting the interest of investors across the world. The election of Thérésa Goma to the position of director general of hydrocarbons in March is an example of a change in mentality, as is the ascendance of Jean Marc Tchicaya to the position of hydrocarbons minister — a younger and more dynamic figure than any of his predecessors.
Brazzaville is the host city of the headquarters of the African Petroleum Producers Organization, a club that has been gaining renewed relevance in recent years as African leaders search for intra-African cooperation on matters of energy. Further, Congo has also been expanding its bilateral relationships with the likes of Angola, Nigeria and Equatorial Guinea, moving towards a new policy of gas utilization.
The entrance of Congo as an active voice in OPEC can bring a much stronger foothold for the Vienna-based organization in the African oil circle, and reinforce its capability to coordinate production cuts and joint-strategies across the continent when necessary. For OPEC, this means greater representation, greater control over the world’s output, and in the end, greater power.
For Congo, the country will sit side-by-side with key oil giants, like Saudi Arabia and Venezuela; as well as Gabon, Angola, Nigeria and Equatorial Guinea, further reinforcing the strength of African voices amongst the cartel. It will be able to learn and contribute to policy and decision-making, and it will be ever more prepared to deal with the volatility of crude prices.
Congo’s bid for integration within the cartel also comes at a paramount moment for African foreign policy, as dependence in commodity prices and shifts in the international order have made ever more apparent the need for regional and intra-continental cooperation. African leaders are finally waking up to the fact that their international stand will not depend on the bilateral agreements they can reach with the likes of the US or China, but on their ability to cooperate and seek continent-wide agendas that can benefit Africa as a whole.
A united African voice
Let’s take a moment to look at Equatorial Guinea, and what this small nation has achieved in recent months with a change in foreign affairs strategy, with due credit given to the leadership of Gabriel Obiang Lima, Minister of Mines, Industry and Energy. Since it joined the OPEC in May 2017, Equatorial Guinea gained a de facto seat at the international negotiating table. Suddenly, a nation that produces around 130,000 barrels of crude per day (which is less than 2% of Saudi Arabia’s output), is given a say on international production cuts, price-managing strategies and access to a plethora of contacts and close partnerships that would otherwise be beyond its reach. It is no surprise that since then, Mr. Obiang Lima has been much more present in the press, speaking on behalf of his own nation but also as a member of the oil group. His main message is geared towards other Sub-Saharan African oil producers, and it reads: “Join OPEC, make your voice count”.
Through initiatives like LNG2Africa and bilateral partnerships with many African counterparts, Equatorial Guinea has been pushing an African agenda in recent years that is based on the clear understanding that intra-African cooperation can have a profound impact in raising the continent’s profile in the international stage. Mr. Obiang Lima knows that a united African voice can be heard much louder than if he speaks for himself, and that African representation in OPEC can further boost the continent as a whole.
OPEC’s new breath
The successful results of the production cuts by OPEC have shown the cartel is regaining its stand in the international stage, demonstrating flexibility to the new market realities. Certainly, chief figure amongst all in the effort to bring sustainability to the international oil market was Mohammad Barkindo. The Nigerian Secretary General of OPEC spearheaded the landmark December 2016 agreement that saw the oil cartel and 11 non-OPEC members (including Equatorial Guinea at the time) sign on the cut down of 1.8 million barrels of crude oil per day (2% of global output), which has been extended until the end of 2018 and resulted in the progressive rising of crude oil to more sustainable prices that we witness today. When US President Donald Trump attacked OPEC recently for maintaining “artificially high prices”, his comments were met by a strong stand from Mr. Barkindo: “The Declaration of Cooperation entered into by 24 producing countries in December 2016 and implemented faithfully since 2017 has not only arrested the decline but rescued the oil industry from imminent collapse.” His statement is hard to argue with.
However, OPEC cannot sit idle on its own success. The need for coordination with several non-members for any global strategy to work also demonstrates how the organization needs to secure a wider net and solidify its position in order to continue to reach its goals. Its agenda is aligned with that of African nations at a time when these players wish to have more control over the commodities they are so dependent on.
Congo’s move towards membership of OPEC is a major landmark step that should not only be greeted and celebrated by the cartel, but also be followed by other nations across the continent. As the world’s remaining frontier market for oil exploration, Africa is increasingly positioning itself as the linchpin region for the future of the world’s energy industry. African nations cannot afford to not be at the negotiating table when the great decisions about their future are made, neither can OPEC afford to keep them out.
Author Biography – NJ Ayuk (CEO) Centurion Law Firm
NJ Ayuk JD/MBA is a leading energy lawyer and a strong advocate for African entrepreneurs, he is recognised as one of the foremost figures in African business today. A Global Shaper with the World Economic Forum, one of Forbes’ Top 10 Most Influential Men in Africa in 2015, and a well-known dealmaker in the petroleum and power sectors. He is the author of “Big Barrels” Africa Oil and Gas and Its quest to prosperity. He is the founder and CEO of Centurion Law Group and the Africa Energy Chamber of Commerce.