Bright Future for Africa’s Oil and Gas Sector

Forecasts indicate 2018 will be a year of improvement across the board, starting with a boost in production.

Sub-Saharan Africa is expected to increase crude production by about 323,000 barrels of oil per day in 2018, largely due to ramping-up of production and new fields coming online in Nigeria, Cote d’Ivoire, Republic of Congo and Ghana, according to Ecobank. Overall, Sub-Saharan Africa is expected to produce about 5.7 million bopd in 2018, up from an estimated 5.47 million bopd in 2017, according to Ecobank.

Still, many mature oil and gas producers in the region have stalled.

“Production has either been flat or declining in Equatorial Guinea, Republic of Congo and Gabon, owing to field maturity and technical challenges on some of the fields. This trend is also evident among the smaller producers, such as Chad, Ghana, Niger and the DRC,” according to the Ecobank forecast. Many of these countries, such as Equatorial Guinea and Gabon, are aggressively seeking new investors to launch exploration campaigns. Notably, both Equatorial Guinea and Gabon joined the Organization of the Petroleum Exporting Countries in the last two years.

Gas production is expected to increase in 2018, according to the forecast, rising to 7.4 mmscfd in 2018 from an estimated 7.1 mmscfd in 2017.

“Gas production has become a major focus for oil companies in response to strong investment in gas-to-power projects across the region,” the report says. “Although gas output in small producers like Cameroon and Ghana has increased, these countries face infrastructural constraints that prevent them ramping up gas output significantly. They will require additional investment in gas processing and transporting infrastructure if they are to increase output significantly.”

Governments across the continent are increasing efforts to secure gas supply and expand gas infrastructure in order to boost domestic power generation and diversify their revenues away from crude oil, and key countries such as Mozambique and Equatorial Guinea have game-changing upstream gas projects moving ahead.

The year could also see more focus on downstream, gas and refining infrastructure, as governments try to decrease dependence on refined products and imports. In Nigeria, for example, the Nigerian National Petroleum Corporation has been multiplying signals that it is committed to the development of a robust trans-regional gas pipeline network across West Africa and beyond. In MRCH 2017, it re-affirmed its commitment to the $12bn Trans-Sahara Gas Pipeline linking Nigeria to Algeria and declared in August 2017 its intention to extend the West Africa Gas Pipeline from Ghana to Cote d’Ivoire.

Several refinery and downstream infrastructure projects that were announced or kicked off in recent years are expected to move forward in 2018 and beyond.

Upstream projects to watch in 2018

  • Total’s ultra-deep Egina offshore project in Nigeria is set to start in 2018 and is expected to be completed within its $16bn budget. The project is set to add a whopping 200,000 bopd to the country’s daily oil output.
  • BP’s Tortue Project offshore Mauritania and Senegal is another project to follow as it is set to open a new frontier within Africa’s hydrocarbons industry. BP decided in December 2017 to invest $936 million in the gas project, and although gas production is not expected before 2021, the project’s size and estimated reserves at 15 trillion cubic feet make it worth following.
  • Total’s Vridi LNG terminal in Cote d’Ivoire is set to start in 2018. The project includes a FSRU and an evacuation pipeline to existing and planned gas-to-power plants in Abidjan and regional markets.

Downstream projects to watch in 2018

  • Cameroon is finalizing the first phase of the expansion of its 2.1 million tpa state owned refinery, Societe Nationale De Raffinage (SONARA). The refinery commenced an expansion plan in 2016 to increase its capacity to 3.5 million tpa and upgrade it to be able to process heavier crudes.
  • U.S.-based Fairfax is planning a $4bn, 120,000bpd refinery in Awash, Ethiopia.
  • Uganda is moving ahead with plans for a refinery to process crude from the Lake Albert Development, selecting in August 2017 a consortium of GE, Saipem and Yaatra to build and operate the US $4 billion, 60,000bpd Albertine Graben refinery.
  • The Kenya Pipeline Company (KPC) is reportedly planning to turn the Kisumu county into a regional hub for petroleum products following the commencement of a jetty on the shores of Lake Victoria. KPC is targeting turning the jetty into a 1 billion litre/annum exporting channel upon completion, reaching 3 billion litre/annum by 2028. The project will allow the company to assess new markets via Uganda and Tanzania, because they are also bordered by Lake Victoria.
  • In Angola, following a green light in March 2017, Russia’s Rail Standard Service and Fortland Consulting Company are set to build a $12bn, 400,000bpd refinery in Namibe. Construction is now ongoing following the laying of the foundation stone in July 2017. Meanwhile, talks are underway to re-assess the stalled $5.6bn, 200,000 bpd Lobito refinery where construction works stopped in August 2016.
  •  Nigeria is probably the most ambitious market when it comes to downstream infrastructure modernization and expansion. The country’s biggest conglomerate, Dangote Group, is planning a $11bn, 650,000bpd refinery, to be complete in 2019. The refinery will meet regional petroleum products demand. Another private local player, Petrolex Oil & Gas, is planning a $3.6bn, 250,000bpd refinery to be completed by 2021 in the state of Ogun.
  • On its side, state-owned NNPC is planning a $2 billion modernization and expansion of its refineries, and the government assigned in August 2017 local companies LRR group and JALEMBA to construct new refineries in Port Harcourt and Warri under a new co-location model. The new refineries are to be established to share key infrastructure such as power, pipelines and storage facilities with already existing refineries. The LRR group aims to build a 117,000bpd refinery near the existing Warri refinery while JALEMBA is targeting a 100,000bpd refinery close to the Port Hacourt refinery.
  • Nigerian states are also moving forward in the planning of their own refineries. In October 2017, the Bayelsa State signed an MoU with Rehoboth Refinery for the construction of a 60,000bpd refinery within 18 months. In January 2018, a similar MoU was signed the state of Edo with a Chinese consortium for the construction of a 5,500bpd modular refinery within 12 months.

Projects Nearing FID:

  • NewAge LNG and its Chinese partners are expected to take a final investment decision on their 1.2 million tpa FLNG venture in Congo-Brazzaville in 2018. The Jersey-headquartered, London-based company is also planning another such LNG project of about 1 million tpa to monetize the Etinde field in Cameroon, with FID also expected in 2018.
  • FID is expected in 2018 for the Fortuna FLNG, Africa’s first deepwater floating liquefaction facility in Equatorial Guinea. The country selected oil trader Gunvor as the off-taker in August 2017. The Fortuna FLNG facility, for which the umbrella agreement was signed in May 2017 by Ophir Energy with the Equatorial Guinean government, OneLNG and GEPetrol, will have a 2.2 million tpa production capacity.
  • A final agreement between Tanzania and oil majors for the construction of a $30bn LNG plant in Lindi is expected in 2018. In mid-April 2017, a consortium of international oil companies submitted a draft heads of terms agreement to the Tanzanian government for the proposed LNG plant and export terminal in Lindi on the south-eastern coast. The draft was prepared by ExxonMobil, Norway’s Statoil, Singapore’s Pavilion Energy, the UK’s BG Group and London-based Ophir Energy.
  • Already Africa’s biggest gas producer, Nigeria is expected make FID in 2018 on a seventh LNG train to bring up Nigeria LNG’s production capacity from 22 million tpa to 30 million tpa.
Join the conversation on Capital Raising and the Gas Industry at the AOP Investor Forum in London, May 10, 2018