A COLLEAGUE in the oil and gas business often says the only thing that is certain about the oil price is that it will go up — or down.
The potential effect of falling oil prices — about 25% in just a few months — on Africa’s otherwise rosy oil and gas future was a key topic of conversation at last week’s Africa Oil Week event in Cape Town, a gathering of every big name in global oil, gas and related services.
The annual event highlighted the superb opportunities offered by the continent, not only in entrenched markets such as Nigeria, Equatorial Guinea and Angola, but also in Gabon’s deep-water terrain and the newer frontiers of East Africa, SA, Namibia and Egypt.
Even states such as Sierra Leone and Liberia, the Ebola epidemic notwithstanding, are attracting global oil companies hoping to uncover the lucrative finds that nearby Ghana has revealed.
With the oil price hovering at about $80 a barrel, it is time to be brave — or crazy, one executive said.
Given myriad detailed presentations last week showing exploration and production projects across Africa, it seems oil companies are being both brave and crazy, spurred on by the huge potential reserves of oil and, increasingly, gas.
Six of the top 10 oil and gas discoveries last year were in Africa. Billions of dollars of investment in new exploration and production are earmarked for the next five to 10 years.
Chevron, for example, has $40bn earmarked for capital expenditure, much of it destined for Africa. Italy’s Eni plans to spend $28bn on African development. BP, with 13 of its 50 projects in Africa, is to spend $20bn in Angola alone by the end of the decade.
Shell has nine projects in Africa, out of a total of 40 at present. And there are plenty more.
Despite the optimism about Africa’s resources, the oil price decline cast a shadow over the event. If it drops much further, marginal exploration and infrastructure projects are likely to be shelved while companies ride out the cycle.
The fall in the oil price has also raised issues about the fiscal terms being offered by African governments.
Many have negotiated increasingly onerous contracts with oil and gas producers that include growing local content obligations and even industrialisation provisions. When oil prices are high, such things are less of an issue. The issue of local content was a thread through last week’s event.
Despite evidence of significant corporate social responsibility spending by companies, the question was raised how much of this was aligned to national development programmes and whether governments were properly balancing the priorities of long-term growth and attracting investors.
Looking at how to create "shared value" seems to be where the discussion should be headed, focusing on broad-based economic development rather than on ambitious beneficiation projects or building new schools and clinics.
There are many complex issues at play in the high-stakes game of oil and gas in Africa. But there is little doubt the prognosis is positive, regardless of new headwinds.
To paraphrase an African proverb: no matter the strength of the wind, the river will never flow backwards.
• Games is CEO of African business advisory, Africa @ Work
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