April 19, 2018/Ecobank Research
Middle Africa’s Oil & Gas Sector
Africa is a relatively small producer of hydrocarbons for the world market, accounting for an estimated 9% of world oil output and less than 6% of gas production in 2016. African oil production fell marginally in 2016, from an estimated 9mn barrels per day (b/d) in 2015 to around 8.6mn b/d, owing to lower output from Nigeria, Gabon, Equatorial Guinea and South Sudan which more than offset the ramp-up in output in other African countries. Output rose to an estimated 9.1mn bpd in 2017 following the return of Nigeria’s Forcados pipeline to full production and higher output in Libya.
Sub-Saharan Africa (SSA) hosts two of Africa’s largest producers, Nigeria and Angola, who dominate output in the sub-region. SSA produced an estimated 5mn b/d in 2016, down from 5.5mn bpd in 2015, largely owing to output disruptions in Nigeria, which cut production by over 250,000 bpd; field maturity and lack of investment also drove a decline in Equatorial Guinea and Gabon. However, Ecobank Research estimates production recovered to 5.5mn bpd in 2017 and is on track to reach 5.7mn bpd in 2018.
SSA’s gas production has been boosted significantly by rising demand for power following the completion of several gas-fired power plants in Nigeria, Ghana, Gabon and Côte d’Ivoire. With more production expected to come on stream over the medium term in countries such as Mozambique, Tanzania, Cameroon and Angola, the outlook for gas production is largely positive in 2017/18. The return to operation of Angola LNG in 2016 has boosted the region’s gas exports.
Asia remains the leading importer of African oil and gas. China and India have emerged as the largest importers of African oil since 2013, together accounting for a third of Africa’s crude oil exports in 2016. In contrast US imports of African crude have slumped since 2010, falling to 10.6% of the total in 2016, reflecting the growth of US shale oil and gas production. The EU remains a key destination for Africa’s oil exports (accounting for most the balance), with Spain, Italy, France, the Netherlands and the UK counting among Africa’s top ten oil export markets. This trade relationship will become increasingly important as competition intensifies between the major oil producers for market share in Asia.
Sub-Saharan Africa produced an estimated 5mn b/d of crude oil in 2016, dominated by Nigeria and Angola. Output is estimated to rise in 2017 to an average of 5.5mn bpd, boosted by the recovery in Nigeria’s crude oil and new fields coming on stream in Ghana, Angola and Côte d’Ivoire. The return of the Forcados Terminal in the Niger Delta, which was disrupted by militant attacks in 2016, has boosted Nigeria’s output to 2.1mn bpd in 2017 (including field condensate and natural gas liquids).
Ghana’s oil output has been boosted by three factors. First, the recovery in output at the Jubilee field from an average of 60,000 bpd in 2016 to 90,000 bpd in 2017. Second, the expected rise in output from the TEN field from 35,000 bpd in 2017 to 50,000 bpd in 2018. And third, the start of production on the new Sankofa field in July 2016 which will add 15,000 bpd to the country’s output. Together these three fields are expected boost Ghana’s crude production to 190,000 bpd by end-2018. Cameroon’s oil output was flat at 90,000 b/d in 2016 but could fall 2017 owing to the drop in investment in the country’s oil sector.
The outlook for the region’s other significant oil producers is more negative. Production has either been flat or declining in Equatorial Guinea, Republic of Congo and Gabon, owing to field maturity and technical challenges on some of the fields. This trend is also evident among the smaller producers, such as Chad, Ghana, Niger and the DRC. The exception is Côte d’Ivoire, where output has risen to 45,000 bpd following the start-up of a new field on offshore block CI-27, adding an estimated 1,100 b/d, with the potential to add a further 3,000-4,000 b/d. Despite recent weakness, the short to medium term outlook for these producers is positive.
New fields coming on-stream and production ramp-up on existing fields in Nigeria, Côte d’Ivoire, Republic of Congo and Ghana are set to boost oil output by an estimated 323,000 b/d in 2018. However, this increase will be countered by the decline in Cameroon, Equatorial Guinea and Gabon, where the outlook is negative owing to delays in new projects following the decline in world oil prices.
Overall, the outlook for Sub-Saharan Africa’s oil industry over the short to medium remains positive. Following ExxonMobil’s drilling of a well in Liberia in Q4 2016, more companies have conducted drilling offshore, notably in Senegal, Mauritania and Côte d’Ivoire.
Appraisals in offshore Côte d’Ivoire, Guinea, Senegal and Mauritania have led to more discoveries of oil and gas reserves. This has boosted Senegal’s offshore reserves to an estimated 500mn barrels of oil. These discoveries have attracted oil majors BP and Total to take stakes offshore and invest in exploration activity. In East Africa more exploration and appraisal efforts are ongoing in Kenya and Ethiopia. Considerable Chinese interest in Ethiopia and South Sudan are expected to drive exploration and appraisal activity in 2017-18.
Sub-Saharan Africa’s gas production was estimated at 6.3bn cubic feet per day (cfd) in 2016, 10% higher than in 2015, and is expected to rise to 7.1bn cfd in 2017. Nigeria is the region’s largest gas producer, with output of over 2.5tr cubic feet per year, followed by Angola and Mozambique, with 435bn and 175bn, respectively. Republic of Congo, Tanzania, Côte d’Ivoire and Equatorial Guinea are also gas producers, with combined output of 240trn cubic feet per year.
Gas production has become a major focus for oil companies in response to strong investment in gas-to-power projects across the region. Although gas output in small producers like Cameroon and Ghana has increased, these countries face infrastructural constraints that prevent them ramping up gas output significantly. They will require additional investment in gas processing and transporting infrastructure if they are to increase output significantly.
The region’s LNG exports were boosted by the return of production at the Angola LNG plant in 2016, which boosted LNG exports by 7.4% to 26mn tonnes. Africa’s LNG producers accounted for 9% of global LNG exports in 2016 and this likely to rise as Angola LNG gas production ramps up. Cameroon’s floating LNG plant, which was due to start operations in H2 2017, is now expected to start up in 2018/19. This followed the withdrawal of the national oil company, SNH, from the project. In the longer term Sub-Saharan Africa’s share of global LNG supply could nearly double by 2022 when the LNG plants in Equatorial Guinea, Mozambique, Tanzania, Senegal, Ethiopia-Djibouti and Cameroon are completed. Nigeria is also looking to expand its NLNG plant with a seventh train, which would increase its capacity to 30mn tonnes/year.
Sub-Saharan Africa’s gas reserves have grown significantly in recent years, boosted by discoveries offshore in Tanzania and Mozambique which are estimated at 70tr cubic feet (tcf) and 180 tcf, respectively. Overall, Sub-Saharan Africa is estimated to hold over 500 tcf of natural gas reserves. Recent discoveries offshore Senegal and Mauritania could boost the region’s gas reserves further, once appraisals of the finds have been conducted. Discoveries offshore Mozambique during appraisals support USGS estimates that East Africa’s offshore region could hold over 440 tcf of natural gas reserves.
Funding gas projects remains a major challenge in West Africa, owing to the poor commercial terms for domestic gas suppliers. Despite huge demand for power and the presence of huge gas reserves offshore, governments have been hesitant to change electricity tariff regimes. This has prevented higher gas prices for power, slowed progress with gas-to-power projects and stalled the creation of a viable gas market. However, since late 2015 there have been moves to raise electricity tariffs in Zambia, Ghana and Nigeria. These efforts were driven by the devaluation of these countries’ currencies, which drove up the cost of feedstock fuels and gas and gave greater urgency to the need to make tariffs more cost-reflective.
However, since late 2015 there have been moves to raise electricity tariffs in Zambia, Ghana and Nigeria. These efforts were driven by the devaluation of these countries’ currencies, which drove up the cost of feedstock fuels and gas and gave greater urgency to the need to make tariffs more cost-reflective.
Middle Africa consumed an estimated 74mn tonnes of petroleum products in 2016, marginally higher than in 2015. Demand for refined products is forecast to rise by up to 24% by 2020, to 92mn tonnes. This equates to an annual growth rate of 3-4%, three times the increase in global demand forecast by the IEA. Across Middle Africa, diesel and gasoline are the primary fuels used in road transport, with diesel the most consumed product across all key sectors. Nigeria’s huge gasoline demand makes up nearly 55% of regional gasoline demand, supplying the country’s transportation sector and residential electricity generation.
Middle Africa’s total installed refinery capacity stands at 860,000 b/d. However, output of refined products falls well short of demand, and we estimate the region faced a product supply gap of over 685,000 b/d in 2015, underpinning the region’s dependence on imports. Côte d’Ivoire is the largest exporter of refined petroleum products among Middle Africa’s refiners. West, East and Southern Africa (excluding South Africa) import more refined products than they export (and in West Africa’s case, despite significant oil exports).
West Africa is leading investment into refining capacity, with the massive 650,000 b/d refinery project being developed by Dangote. The new plant is expected to be completed in 2019 and could supply West Africa’s entire coastal region, where currently only Côte d’Ivoire, Ghana and Senegal have functioning refineries. Efforts to build new refining capacity elsewhere in Middle Africa have slowed considerably since oil prices declined, as funding has become difficult to secure. Moreover, the slump in foreign currency revenues from crude exports has made it difficult for governments to fund fuel imports, forcing them to curb fuel subsidies.