Africa expected to pass North America as the third largest producer of oil by 2011 – PwC
17-09-2010 14:16:10 | by: Administrator | hits: 58776 | Tags:

PricewaterhouseCoopers’ (PwC) survey, ‘Energy & Utilities: The Africa Oil & Gas Survey 2010’, shows that the African Oil & Gas energy sector was not immune to the global recession and the uncertain oil price which has resulted in cancellation and deferral of projects, layoffs, cost cutting measures and a general re-evaluation of many companies’ strategies. The industry has however experienced a certain degree of economic balance in Africa, as most African economies continue to buck global trends by achieving modest GDP growth.

Chris Bredenhann, Energy Southern African Leader – PwC says, “International oil consumption decreased approximately 2% in 2009, yet in Africa it remained steady and is expected grow globally and in African regions by around 2% in 2010. This means that strategy and long range planning are going to play an important role as oil and gas companies must control costs to bolster growth.”

Africa is rich in untapped natural oil and gas reserves. With recent finds in Uganda and Ghana, the continent is certain to experience a flurry of exploration activity. Africa is expected to pass North America in 2011 and become the third largest producing area after the Middle East and Central/Eastern Europe.

However, there are constraints to growth that must be carefully considered. Regulatory concerns are one of the biggest challenges facing respondents to the Energy & Utilities survey. Examples of regulatory constraints in Africa include;
• The Proposed Petroleum Industry Bill in Nigeria.
• Environmental policy changes such as proposals on zero gas flaring in many countries.
• The dispute between the government of Uganda and Heritage Oil related to the tax implications of a $1.5 billion deal between Heritage Oil and Tullow Oil
• Government’s commitment to cleaner fuels and reducing emissions in South Africa; and
• 'Fledging’ Oil & Gas economies in Uganda and Ghana formulating new policies.

Many participants in the industry have adopted a wait and see approach, but some commentators have a more optimistic view and see these regulatory developments as a genuine attempt by African governments to ensure a fairer deal for access to their assets.

Other constraints to growth include the traditional African limitations of poor infrastructure and corruption, attracting and retaining key talent and high set-up costs.

In the downstream segment of the market in Africa we saw BP, Chevron and Royal Dutch Shell announced exits from the smaller markets in Africa. These assets are being obtained by competitors and new entrants to this segment, leading to a change in the traditional competitive landscape,” continues Bredenhann.

Globally, the refining market is in the doldrums with Europe, US and Japan experiencing an over supply. A drop in refining margins, availability of cheaper alternatives, bio fuels taking some market share from petroleum products, and improved fuel efficiency in passenger vehicles have all contributed to the strain in the refining market. Some refineries in the above markets have been put up for sale or mothballed.

In stark contrast the Middle East, Asia (excluding Japan), Africa, Russia and Turkey have proposed increased refining capacity. Many African countries see increased refining capacity as essential to their own national interests as it allows for a greater security of supply as well as a mechanism to reduce foreign exchange outflows.

Bredenhann concludes, “At PwC we’re closely watching industry developments, analysing the changes from the perspectives on how it will impact our clients and how best we can assist companies to prepare and manage these changes. The energy and enthusiasm surrounding Oil & Gas in Africa is almost palpable at the many industry events and in our conversations with clients across the continent.”

This article was originally posted on Sustainable Development Africa Platform