2015 Sector Report on The Oil and Gas Sector in Africa
Oil and gas is of critical importance to the African economy. In fact, it is estimated that 57% of Africa’s export earnings are derived from hydrocarbons. Within the continent, North and West Africa are host to the most renowned producers; some of the countries in those regions are also among the most dependent on oil and gas revenues in the world. In recent years, East Africa has also emerged as an exciting prospect for international oil companies. The sharp drop in international oil prices since mid-2014 will have varying effects on African economies: a group of about nine countries will be severely negatively affected; many others will however benefit from the drop in oil prices, as it will provide a boost to consumers’ purchasing power and will reduce fuel subsidy costs for those governments that still provide subsidies.
The drop in oil prices will also lead to a decrease in capital spending by energy companies, which could weaken the medium-term prospects for prospective oil and gas producers. This is especially a concern for East Africa, since billions of dollars’ worth of investment will be needed over the next decade to commercialise the region’s hydrocarbon resources. As onshore oil production costs in West Africa are generally low, oil companies are expected to continue to invest significantly in the region.
Africa is one of the foremost net exporters of oil; in fact, only the Middle East’s net exports are greater than that of Africa. The continent accounted for over 11% of global oil production over the past decade, but as incomes are still very weak, oil consumption in most countries is low. As such, Africa’s oil consumption accounts for only 4 of global consumption, leaving a large amount of oil to be exported. In 2013, Africa’s net oil exports declined to 5.2 million bpd, down from an average of almost 6.3 million bpd over the previous five years. This decline in 2013 was mainly due to a sharp drop in Libyan output, although lower production in Nigeria, Algeria and the Sudans also contributed. According to the BP Statistical Review of Energy, Africa’s proven oil reserves have grown by almost 150% since 1980 – increasing from 53.4 billion barrels at that stage to 130.3 billion barrels at the end of 2013. Oil reserves have grown particularly quickly since the mid-1990s as improved political environments have made it more attractive for foreign oil companies to explore. This also resulted in Africa’s share in global reserves rising from 5.9% in 1993 to as high as 8.6% in 2006, although this ratio has declined to 7.7% since then.
Despite the increase in reserves, there is still massive scope for further exploration. According to some estimates, there are at least 100 billion barrels of oil offshore Africa still waiting to be discovered. Africa’s proven oil reserves are concentrated in the four members of the Organisation of the Petroleum Exporting Countries (OPEC). These are Libya (which has 48.5 billion barrels worth of reserves), Nigeria (37.1 billion barrels), Angola (12.7 billion barrels) and Algeria (12.2 billion barrels). In fact, these four countries held 84.8% of Africa’s reserves at the end of 2013. Other countries with notable proven oil resources are Egypt (3.9 billion barrels), South Sudan (3.5 billion barrels) and the franc zone countries of Gabon, Equatorial Guinea, Republic of Congo, and Chad. A number of other countries are however emerging, with some of the most exciting prospects being Ghana, Uganda and Kenya. According to data from the US Energy Information Administration (EIA), 12 African countries had proven oil reserves of more than 500 million barrels at the start of 2014.
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