Funding Africa’s Oil and Gas Megaprojects

Financing is there for Africa’s major projects — but it isn’t always easy to find. Meet the financial institutions behind the next wave of megaprojects at AOP 2018.

Africa is a home to giants — boasting some of the world’s top oil and gas discoveries and a wealth of investment opportunities in power generation from oil and gas.

“One of the big things that is coming through — and this is something that is being talked about AOP — is the development of mega projects, where you have multi-billion-dollar projects that represent a high percent of the country’s GDP, and in many cases are in new resource countries,” said Paul Eardley-Taylor, Oil & Gas Coverage, Southern Africa for Standard Bank.

But getting these major projects off the ground, both petroleum and infrastructure projects alike, requires substantial investment. Africa’s oil industry alone will require $1.6 trillion in cumulative infrastructure investment between 2013 and 2035, with a further $721 billion needed for gas infrastructure over the same period.

The collapse of the oil price beginning in 2014 certainly didn’t help, with CAPEX down globally and especially in Africa. Capital investment in West Africa fell 60 percent from $50 billion in 2014 to just $20 billion per year this year, for example.

At the same time, global competition has perhaps never been more intense. Development of shale in the United States has not only robbed Africa as a key import partner, but also has the United States competing as an exporter on the international stage.

“Countries generically have to be able to compete with the US position in the competitiveness of their individual projects. Beyond that, you also have additional jurisdictions entering the market that weren’t previously there, like Guyana,” said Eardley-Taylor.

Several mega projects throughout Africa have stumbled in this environment. Equatorial Guinea’s Fortuna FLNG has neared FID several times in the last several years, but has yet to cross that line. The project faced its newest obstacle in May, when Schlumberger withdrew from its OneLNG joint venture with Golar and the project altogether.

“Golar said despite an agreed development plan and extensive efforts in the last 12 months by OneLNG and Ophir management, it has not been possible to finalize an attractive debt financing package,” according to a Reuters report.

A new strategy for the project has not been announced, and several other LNG projects are also awaiting FID, including NewAGE LNG’s 1.2 million tpa FLNG venture in Congo-Brazaville; a seventh LNG train in Nigeria that would bring the country’s LNG production capacity from 22 million tpa to 30 million tpa; and Tanzania’s $30 billion LNG plant at Lindi.

 

The Deals that Count

Africa’s economy is on a fast track to recovery, with real GDP growth for the entire Sub-Saharan Africa region projected to increase to 3.4 percent for both 2018 and 2019, up from just 1.6 percent in 2016.

Overall, the continent is a hotspot for upcoming deals in the energy sector, with key projects slated for development in the coming years, including Mozambique’s Coral FLNG, Fortuna FLNG in Equatorial Guinea, Baltim SW project in Egypt, Assa North/Ohaji South in Nigeria, Kudu gas-to-power in Namibia, Anadarko’s Area 1 project in Mozambique, NLNG’s Train 7 in Nigeria, and BP/Kosmos’ Tortue LNG project offshore Senegal.

Click to download the AOP Deal Map

In total, an estimated $194 billion will be spent on 93 planned oil and gas projects between 2018 and 2025. Combined, the projects represent production rates of over 13.4 billion barrels of oil and 184 trillion cubic feet of gas.

As these deals and others move forward, Africa Oil & Power will host several of the continent’s top financiers in Cape Town from Sept. 5-7, 2018.

Standard Bank, Africa’s biggest lender by assets, is also the largest commercial lender in the projected. Paul Eardley-Taylor, Oil & Gas Coverage for Southern Africa for Standard Bank, will be speaking on The Outlook for Mega Projects panel.

Kofi Adomakoh from Afreximbank, Africa’s export-import bank and a key player in infrastructure and energy projects, will sit on the Closing Deals panel, along with the International Project Finance Association and Nedbank’s Mike Peo; the African Infrastructure Investment Managers’ Ashwin West, the Development Bank of South Africa’s Mohan Vivekanandan and Bambili Group’s Nyonga Fofang.

Nedbank, one of the largest banks in South Africa, will participate on the Gas to Power panel. Investec Bank, an international specialist banking and asset management group, will be present on the Renewables in the Energy Mix panel. The Japan Bank for International Cooperation and Fieldstone Africa will participate on the Privatized Power panel.

Despite the competition, the wealth of potential in Africa means the funds for key projects will be there, and the OPEC-led stabilization of the oil prices has improved prospects for new projects, from the upstream to the downstream. Projects throughout Africa are again moving forward, with an estimated $194 billion planned on 93 oil and gas projects between 2018 and 2025, according to a new report by GlobalData.

Mozambique’s Coral FLNG project, for example, reached FID in June 2017, with Standard Bank the largest commercial lender in the project.

“It is important for each individual project and each individual country to develop its own energy strategy as to how it can compete in the next ten years. If that is done, we have every confidence that the individual African projects under discussion at AOP can take their respective FIDs and commence operation as soon as possible. Really, that is what is needed for the good of Africa as a whole and Africa’s continued economic development,” Eardley-Taylor added.

Powering Ahead

The investment needed in Africa’s power sector is similarly daunting, with $33 billion to $63 billion needed annually through 2040, and international competition is equally as fierce, with Africa in general posing several issues for potential investors.

At the crux of the problem for Africa is the financial viability of the off taker — with tariffs often kept well below what is needed to cover costs, making the African power sector less appealing to investors, especially when government guarantees cannot be provided.

“In order to fund a project, financiers generally require a stable offtaker contracted on a take-or-pay basis in order to be comfortable with the forecast revenues. Smaller, off-grid projects usually rely on groups of individuals or smaller businesses in a community as consumers of the power, with varying levels of credit-worthiness, which is unpredictable,” said Andre Wepener, Head of Power and Infrastructure Finance at Investec Bank.

“One proposed solution is for such projects to be funded initially through a combination of grant funding or DFI’s, and look for commercial lenders to refinance the funding once the project has a track record and reliable payment history from consumers,” he added.

Africa Oil & Power will host several of the continent’s top financiers in Cape Town from Sept. 5-7, 2018, including Afreximbank, Standard Bank, Nedbank, the Development Bank of South Africa, Investec Bank, the Japan Bank for International Cooperation, Fieldstone Africa, the International Project Finance Association, African Infrastructure Investment Managers and Bambili Group. Register here for AOP 2018.