Intra-African Trade Lacks Cohesiveness

AOP talks to Frank Monkam, Origination and Principal Investments in West Africa for Gunvor Group, about trends in the oil and gas trading sector and the keys for moving African trade forward. 

In the oil and gas sector, what needs to happen for intra-African trade (especially in petroleum products, oil and gas) to grow?

The operative word here is “cohesiveness”, from a policy-making standpoint and in terms of enforceability of trade policies. We see a lot of times, huge policy disconnects even within the same economic region, where some of the tax laws are very inefficient in terms of getting products from country A to B, which in effect makes it very expensive, and ultimately detrimental to intra-Africa or even intra-regional trade.

Another one obviously is the chatter around new product specifications on the continent. The key in terms of intra-African trade is harmonization among specs from one country to another. In an ideal world, if you have harmony of specs, it would automatically put us in an environment where intra-African trade will be a lot easier. If you know that you have specs that can be supplied to a variety of outlets, it gives you more economies of scale and allows you to move products easier.

Africa as a continent lacks large scale petroleum product storage facilities. Could countries without large depots, and therefore no ability to buy cheap and wait, still take advantage of low oil prices?

I think it is very difficult to assess because there are always theories, but you have to contrast them with reality.

I personally don’t think it is a palpable opportunity here, simply because garnering the political will to go through the process of implementing policies takes time. The time window is just not very realistic, so I don’t see a direct reaction function to that, especially with volatile prices. If we see a sustainable low-price environment over a period of time, then potentially, yes.

What do you see as the trends in oil and gas trading and in energy markets that will dictate the industry narrative for the coming year?

It is very hard to have short-term views. In my book, the shortest time period to depict or forecast any kind of trend would be anywhere from 18-months to two years out, especially in the continent we work in. As far as trends, I think there is going to be a lot more activity in the LPG space. From a macro-economic vantage point, there is a lot more expected growth in that space. Indeed, LPG is a sector where year-on-year growth continues to outpace national GDP growth in many African economies.

Because of the new clean product specs, we are going to have different/new trading flows between countries and things like that, whereas LPG is a space where we are seeing  true organic growth and a lot more market penetration potential. There is demand for LPG that is muffled at the moment, and suppliers with the right logistics market penetration strategy can really access that locked up demand.

Also, as it pertains to the upstream sector, depending on where crude prices go, there is  potential for a kneejerk reaction in activity. I think where crude prices are at the moment from an S&D perspective, and especially positioning based on technical, that is positioning by speculative players – there is some risk for prices to potentially bounce back in a kneejerk fashion should some geopolitical event happen, and there are a few soft spots at the moment to keep an eye on, such as Venezuela and Qatar.

Should something like that happen, not to say it would happen or that I am assigning a strong probability of it occurring, but if it does, we could see renewed appetite for upstream investment, which could be another trend to look out for over the next year or two. Indeed, there still is appetite and cash seeking that exposure, but it might not be the right entry point to do at the moment with prices flirting with the $50-line. But should we see prices move into the $60-range, it would undoubtedly trigger a momentum shift in the sector.

Frank Monkam, Origination & Investments, Gunvor Group

Frank Monkam is in charge of origination and principal investments in West Africa for Gunvor Group, a world’s leading commodities trading house. His experience includes trading in crude oil and cross-barrel markets, as well structured finance and equity investments in the oil and gas sector. Prior to joining Gunvor, he was part of the West Africa origination team at Vitol.