Catalysts: Gas Complements Renewables; Macro-Economic Stability Drives Africa
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 in the energy industry.
South Africa National Energy Association
I see the implementation of renewable energy technologies like solar and wind in combination with gas as the catalysts for change in Africa.
The cost of power from renewable energy sources is dropping, and renewables also give environmental benefits. Renewables can also provide very localized solutions and can be reasonably small-scale, which means you can scale the investment.
But with renewables, you have the intermittency problem, and that is where the role of gas comes in. It provides a good balance for renewables, as it is also a relatively clean energy. And if you look at the recent discoveries of hydrocarbons in Africa, it tends to be in the gas sector. I think these two technology groups working together really will be the big catalysts for change in Africa.
Origination and Principal Investments in West Africa
I think in the upcoming year, one of the key catalysts will be macro-economic stability, because I think that although the political element is always critical in Africa in driving different sectors, I believe that inflection point is behind us now for the most part, with some of the major election periods having passed.
The focus now is macro-economic stability, which will depend on where commodity prices go, and not just oil but also soft commodifies. I think that will drive stability of the business environment next year. The IMF has been very active recently in pushing governments to be aware of that, and they are putting measures in place to soften the impact of low oil prices. Although, it remains to be seen, it is likely to be one of the drivers going forward from next year.
If we see crude stabilizing in the mid-$50s by the end of the year, we should see an improved stability in local economies and also increased confidence from international investors. With oil prices where they are now, a lot of people view the industry as borderline ailing. If you get into a deal, and then all of a sudden, we get into another downdraft in prices, it can plunge the entire continent into a fresh economic crisis. However, should we stabilize by the end of the year, I think the market will embrace the price buffer and feel more sanguine.
Oilgram News at Platts
With political instability, security concerns, and regulatory uncertainty continuing to hamper investment in most of Africa’s key oil and gas producers, governments need to move faster to mitigate as much of this risk under their control to spur more activity from foreign investors.
Producers such as Nigeria, Libya and South Sudan could see an improvement in upstream fortunes with further political and security progress while a number of African countries have already made progress on sweetening fiscal and concession terms to attract private sector investment at the exploration stage. For local and foreign companies with the risk appetite, the chance of securing new, low–cost resources amid the current price downturn is a key opportunity for the continent.