Chris Bredenhann PwC Africa Oil & Gas Advisory Leader. Photo: supplied.
Chris Bredenhann PwC Africa Oil & Gas Advisory Leader. Photo: supplied.

#AfricaOilWeek: Oil price recovery reflects a tight supply and demand balance

By Staff reporter Time of article published Nov 6, 2018

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CAPE TOWN – PricewaterhouseCoopers (PwC) released their annual Africa Oil & Gas Review on Tuesday at the 25th Africa Oil Week conference, 2018 held in Cape Town.

According to the review, The outlook for Africa’s oil and gas industry is positive amid difficult operating and economic headwinds. Tough economic and external conditions have placed pressure on oil and gas companies to be more cost-effective and efficient. 

The PwC stated the companies had adapted to a low-cost environment, which promised to be even more beneficial given the current recovering oil price.

Chris Bredenhann PwC Africa Oil & Gas Advisory Leader said in a statement: “Africa’s oil & gas companies have weathered the downturns and capitalised on the upswings focusing their efforts on new ways of working, reducing costs and utilising new technology”

Companies have taken to restructuring their portfolios with a focus on established regions, less exploration, higher value plays with low break-even-cost, and projects with shorter lead times and lower risk.

As the oil price is steadily rising towards pre-collapse levels, the outlook for the industry is hopeful. 

“It is, however, important for companies to avoid falling into the cost inflation trap that could eat into the profitability gains that should follow from the rising oil price. Keeping up capital discipline and further improving productivity will yield sustained results for the industry,” said Bredenhann.

Despite positive developments, the oil and gas industry still faces numerous and persistent challenges around talent shortages, regulatory uncertainty, political instability, corruption and fraud, and a lack of infrastructure.

Notwithstanding the challenges, Africa does offer plenty of opportunities in the form of unexplored hydrocarbon demand fuelled by population growth, urbanisation and the emergence of a growing middle class.

PwC’s Africa Oil & Gas Review, 2018 analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging markets.

At the end of 2017, Africa is reported to have 487.8 trillion cubic feet of proven gas reserves, 7.1 percent of global proven reserves, only marginal changes to the prior year. Africa’s share of global oil production has slightly increased by 0.3 percent since last year to 8.7 percent standing at 8.1 million barrels per day. 

The main contributors continue to be Nigeria, Angola, Algeria and Egypt. Libya also increased its production by 102.9 percent in 2017, placing it as the fourth-largest oil producer in Africa with an 11 percent share moving Egypt into fifth position.

Regulatory developments in Africa

Regulatory uncertainty continues to be a major barrier to the development of the oil & gas industry in Africa. Overall, there are some positive developments that demonstrate that governments are reacting to the new environment. Despite some notable improvements around regulation, there is still a high level of uncertainty in a number of jurisdictions.

In South Africa, the proposed Amendment Bill to the Mineral and Petroleum Resources Development Act (MPRDA) may be withdrawn, and there are plans to split oil and gas from mining formulating separate legislation.

Growth and development

The outlook for the oil and gas industry is looking more optimistic with the Brent oil price having broken through the US$80 mark at the time of compiling our report. Although there has been a significant increase in the number and size of final investment decisions (FIDs) in 2018, the industry is not what it was. New finds are much smaller and leaner than they were in prior years. Deepwater oil has been given preference over gas, and oil fields offering the highest rates of return are attracting investment. There is also a preference for brownfield over greenfield developments.

The current oil price recovery reflects a tight supply and demand balance, as well as an indication that we are heading towards a potential global supply crunch in the early 2020s. Exploration spend in Africa and globally is starting to pick up as well. It is safe to assume that this trend will continue if the current higher price environment is sustained.

Digital disruption in Africa

There have been a number of developments in digital transformation in the oil and gas industry, not only globally, but also in Africa. A number of new technologies have been deployed by the industry across the value chain.  Digital disruption is here to stay, and African companies must embrace this to reap the rewards.


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