- Exploration cuts will also contribute to 46% oil production decline by 2030*
- Governments in Sub-Saharan Africa need to revive the industry with attractive fiscal terms
- East Africa's emergence as a major global gas region is the industry's biggest recent success in Sub-Saharan Africa
CAPE TOWN/LONDON - 2 November 2016 – Capital investment in the oil and gas industry in Sub-Saharan Africa has been cut by US$100 billion over the next five years, according to Wood Mackenzie's latest report on upstream activity in the region.
Major oil companies are heavily invested in Sub-Saharan Africa and account for the bulk of cuts.
Femi Oso, senior research manager for Sub-Saharan Africa at Wood Mackenzie, says: "Exploration cuts in the region will also contribute to a longer-term production slump as explorers have shied away from greenfield prospects, in favour of appraising known discoveries. However, the confirmation of the giant Owowo discovery in deepwater Nigeria shows the quality of resources Sub-Saharan Africa still has to offer."
Wood Mackenzie expects a slow recovery for exploration. Operators will benefit from cost deflation and will improve efficiency through streamlining project design.
"Governments in Sub-Saharan Africa need to revive the upstream oil and gas industry by offering attractive fiscal terms rather than look to increase state revenues in the current climate," says Oso.
Key themes of Wood Mackenzie's report on Sub-Saharan Africa include:
- Deepwater has suffered the deepest capex cuts due to its high breakeven price relative to other sectors. Nigeria and Angola have endured the worst of these cuts. As a result, Sub-Saharan African liquids production will decline to 2.6 million barrels a day by 2030, from 4.8 million barrels a day presently.*
- The mergers and acquisitions (M&A) market has slowed down. Buyers and sellers are unable to align on asset values due to oil price volatility.
- Deal activity may see an uptick if prices remain low for longer, as companies opt to divest non-core assets.
- Mozambique, Angola and Nigeria lead in upstream M&A opportunities for players with deep pockets.
- Although exploration is down, it's not out as better-financed explorers take calculated risks.
- Gas dominates recent exploration success, particularly in frontier basins such as the Senegal-Bove in Mauritania and Senegal.
East Africa emerges as a gas region of global importance
The biggest upstream success story in Sub-Saharan Africa is East Africa’s emergence as a gas region of global importance. With over 168 trillion cubic feet of gas found and limited regional demand, East Africa is on track to become a major global LNG supplier and various export projects are awaiting final investment decision.
According to Wood Mackenzie's research, Mozambique and Tanzania gas project economics are resilient and will "transform the global LNG market".
"Mozambique and Tanzania’s LNG projects have remained relatively unscathed by cuts and will be timed to align with global LNG demand growth to achieve a better price," explains Oso. "The projects will appeal to buyers looking to diversify their portfolios and BP has already committed to offtake all volumes from Eni's Coral FLNG," he adds.
"The expected increase in gas production in Sub-Saharan Africa, from 6 billion cubic feet a day (bcfd) currently to 13 bcfd next decade, is very good news for the region."
Onshore LNG plants remain the preferred way to monetise gas, although liquefaction via third-party-owned floating liquefied natural gas (FLNG) vessels is emerging as a simpler and less expensive alternative.
Floating storage regasification units (FSRU) and piped gas supply to the power sector will play an increasingly important role in the longer term as domestic markets develop from their very low base. An FSRU is a floating LNG import terminal.
*Based on Wood Mackenzie's upstream view of known projects in the region that are commercial at our Q4 2016 oil price planning assumption of US$70/bbl.
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