Catalysts: Human development and Global Politics

The theme of Africa Oil & Power, Catalysts for Change, encompasses the major changes that African governments and firms are undergoing in 2017, and the significant developments in the oil, gas, power and finance industries in response to the oil and gas price down-cycle. We asked the leading voices in the African oil, gas and power business to give us their views on the drivers for change and the challenges to established practices in the energy industry.

 

Simphiwe Mehlomakulu
Executive Chairman 
Reatile Group

 

The catalysts that are needed to stimulate the change required for Africa is education and people development. People development implies that employment and industrial development is the key to change. The huge numbers of unemployed are both a waste of a very valuable resource, and a drain on any economy, and is also a major contributor to crime and instability within the African continent. These are long-term changes, but every journey begins with the first step.

Any major price changes in crude pricing would have a detrimental effect on most of Africa, and would lead to economic stagnation or recession. An alternative is the use of the abundant natural gas currently available on the world markets. But the biggest catalyst for the oil and power industry in South Africa, not only next year but for at least the next five years, will be the demand for power generation capacity as the South African economy recovers. The older coal powered stations are reaching the end of their economic life and need alternative replacement. Coal is inefficient and is a major pollution factor. Nuclear power is expensive, and will take many years to install sufficient capacity in South Africa. The alternative is gas-to-power where power stations can be constructed at relatively short notice (compared with nuclear and modern coal stations). LNG is freely available at the moment, and can be imported via FSRUs. Gas speeds up the construction process as well as reducing capital costs.

 

 

Shawn Robert Duthie
Analyst
Africa Risk Consulting & ARC Briefing

While there is a popular view that the new US president will be inward looking and ignore African countries, the election of Donald Trump is a major event which will shape the oil sector in Africa in 2017. The US is the major trade partner of the continent’s two largest oil producers, Nigeria and Angola, so despite a reported shift to the East, the relationship with the US is still very important. Trump’s foreign policy regarding Africa is as of yet unclear, but we can expect the oil sector to feature prominently considering the new secretary of state, Rex Tillerson, previously served as CEO of ExxonMobil. While Africa’s oil-rich states can expect a US president who is pro-petroleum, Trump’s decisions to revive the Keystone oil pipeline or reverse the US offshore drilling moratorium in an attempt to keep the US self-sufficient will place downward pressure on oil prices, which will be detrimental to some African economies.

This will be detrimental as the oil sector requires stability to thrive in Africa, but this is less likely with a decrease in the price of oil. Africa’s oil-rich states are facing major changes in 2017. Angola will hold elections in August, in which they are likely to elect a new president if Presidnet José Eduardo Dos Santos keeps his word and steps aside. The transition of power will occur alongside rapidly increasing government debt (estimated at 73.6 percent of GDP in 2017) and a free-falling local currency, both due to a sputtering economy extremely reliant on the export of crude petroleum. In Nigeria, low oil prices have also eroded government reserves and prompted spending cuts. Both Moody’s and Standard Bank are forecasting GDP growth for Nigeria in 2017 of around 2.5 percent, but this depends on the country producing 2.2 million barrels per day. President Muhammadu Buhari has been in protracted negotiations with the Niger Delta Avengers, a militant group in the Niger Delta that has bombed oil wells resulting in decreased oil production. These negotiations have stalled, which may lead to further attacks that risk drastically cutting oil production numbers.

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