Africa’s oil and gas outlook 2013 (part 1) – By Rolake Akinkugbe at Ecobank
Africa’ share of global oil and gas production has stood at 10% and 6% respectively over the past 24 months. Ecobank Research estimates that the total production of crude oil in Africa in 2013 is likely to be around 8.9 million barrels per day. Of that amount, sub-Saharan Africa (SSA) will produce around 5.9 million bpd – compared to estimates of 5.5 million bpd in 2012 – and assuming that at least 150,000 bpd of South Sudan’s 350,000 bpd production returns permanently to market. Africa also produced an estimated 230 billion cubic metres of natural gas in 2012, and this is likely to increase to around 250 bcm in 2013, with new supplies from Angola, Mozambique and Tanzania.
Up to 70 oil and gas discoveries have been made in sub-Saharan over the past 5 years, with Uganda, Mozambique and Tanzania, the greatest beneficiaries of these. Despite the new focus on the East Africa region, around 90% of SSA’s crude oil and gas exports will still originate from West Africa and Gulf of Guinea Region in the next decade. However, there will be see a gradual decline in demand from the US for SSA’s crude oil, as growing domestic oil and shale gas production in the US and North America, add to the global supply pool, and decrease energy import levels in North America. In this piece, Ecobank Research takes a broad look at the fundamentals of production, supply and demand in Middle Africa’s oil and gas sector.
China has rapidly emerged as the largest single buyer of the region’s crude, accounting for close to 60% of all Asian imports of crude oil from SSA. While Asia as a whole still lags behind Europe as the largest importer of SSA’s crude, it has been a larger importer than North America for the past 12 months. China’s thirst for SSA’s commodities has seen state backed companies such as the China National Petroleum Corporation (CNPC) acquire assets for the first time in frontier plays such as Mozambique’s offshore Rovuma gas basin. While Asian buyers will probably reduce their oil imports due to slower than expected growth in 2013, this unlikely to be significant enough to trigger a large decline in imports of SSA’s crude to the East. Despite slow economic recovery globally, key emerging market economies, such as India and China are likely to remain firm trading partners for SSA for decades to come.
Oil prices ended 2012 with an average of US$111 per barrel (bbl). Prices in 2013 will continued to be influenced by supply and demand dynamics. With global oil demand likely to remain slow in 2013, oil prices in particular are likely to remain around US$100/bbl over the next 12-24 months. Output increases from non-OPEC countries are likely to continue into 2013, with increasing North American unconventional supplies constituting a further downward pull factor on oil prices. This is also likely to have a moderating impact on the prices of key SSA crude oil grades such as Nigeria’s Bonny light and, which have historically traded at a premium of around $3 to Brent crude.
China, the US and Europe will account for around 46% of global oil demand in 2013, though oil demand in the US and Europe has been steadily decline in recent years. Demographic changes, slow economic recovery, and continued high unemployment will continue to constitute a damper on global oil demand in the years ahead. Oil supply growth is still only about 50% of what it used to be in 2010, and much of the supply growth the years ahead likely to come from unconventional sources.
Gas production in Middle Africa in 2013 will stand at nearly 2.4 trillion cubic feet a day. Nigeria’s gas production accounts for 64% of the region’s 6.6 billion cubic feet per day. Overall, gas production from the West Africa and Gulf of Guinea region will continue to dominate gas production in Middle Africa, possibly accounting for 79% of production in 2013.
New production from Nigeria, Angola and Ghana are also expected to boost the region’s gas output. Middle Africa’s Liquefied Natural Gas (LNG) exports (currently only from Nigeria and Equatorial Guinea) currently lie in the region of 60 million metric tonnes a year, though that figure is expected to rise by at least 20% with the expected coming on-stream of LNG exports from Angola by the end of 2013; the commencement of gas production for LNG in Angola to result in the addition of almost 600 mmscf/d in 2013.
Gas exploration intensified along the West African coast in 2012 with major discoveries reported in Ghana, Cote d’Ivoire and Equatorial Guinea. These discoveries are expected to spur major gas developments in these countries and even Nigeria (where exploration efforts have reduced over regulatory uncertainty) in 2013. The region’s demand for power has risen considerably over the last few years and will drive gas demand in 2013 significantly. New gas plants planned under the Nigeria Independent Power Projects (NIPP) scheme have been under-utilized primarily due to lack of adequate gas supply.
In Ghana, efforts to increase power supply have suffered the most from a decline in supply from the West Africa Gas Pipeline (WAGP). The WAGP has failed to deliver the level of gas agreed by its partners – 120 mmscfd – due to various issues including high moisture, low pressure, pipeline attacks etc. The success of the project in 2013 is likely to hinge on the direction of gas policy in Middle Africa’s largest gas producer, Nigeria.
Gas production grew by 31% in Central Africa in 2012 to 174 mmscfd. The growth in production was largely attributable to new production in Cameroon. Central Africa’s gas is predominantly for power generation. However, this could change as urea fertilizer production is set to join the mix in 2013. In Gabon, a new fertilizer plant off the country’s coast will produce an estimated 2200 tons of ammonia and 3850 tons of urea per day. In Central Africa as a whole gas volumes are likely to to 225 mmscf/d, underpinned by new production in Cameroon and the Republic of Congo.
Estimates of possible gas reserves off the coast of East and south-eastern Africa are in the region of 441 trillion cubic feet according to the United States Geological Survey (USGS). East Africa’s main gas market is Tanzania, the only gas producing country in the region. The country became the toast of explorers in 2012 following gas discoveries in the Rovuma basin, which have tripled its gas reserves to 28.7 trillion cubic feet (tcf). Up until 2012, Tanzania’s 200 mmscfd was produced purely for power generation. However, with its new-found gas reserves, there is talk of 1 or 2 LNG trains by the US IOC, ExxonMobil, UK BG Group and Norwegian National Oil Company (NOC), Statoil. Tanzania in the meantime hopes to step up gas production to 400 mmscfd by Q4 2013 to boost power generation.
Prior to 2012, Mozambique gas reserves were estimated at about 5.5 tcf. Gas production of about 345 mmscfd was largely geared towards the fulfilment of the country’s bilateral arrangement with South Africa to boost power generation in South Africa. Gas production in the region is forecast to grow steadily over the next few years, predicated on rising demand for power. A substantial production increase is expected from 2017/2018 when LNG plants are expected to come on-stream. Explorers believe the Mozambique’s gas reserves can support up to 6 LNG trains and are set to stake as much as $5 to $8 billion over the next five years in projects.
Demand for refined products across the entire Africa continent is likely to rise by up to 40% to 4.3million barrels in 2020, from just 3 million barrels in 5 years ago. This equates to roughly an annual growth rate of between 3-4%, or indeed up to thrice the global demand increase forecast by the IEA. Middle Africa’s total installed refinery capacity stands at 860,000 bpd. However, we estimate that the region is likely to face a product supply gap of 485,000 bpd in 2013, underpinning continuing dependence on imports.
Across Middle Africa, gasoline and diesel will be primary fuels used in road transport, with gasoil and diesel constituting the most consumed product across all key sectors in 2012. Cote d’Ivoire is the largest exporter of refined petroleum products among Middle Africa’s refining countries. West, East and Southern Africa import more refined products than they export, despite West Africa’s significant exports of crude oil.
West Africa’s petroleum products market is still one of the key markets in Middle Africa. Oil consumption in West Africa is projected to rise to 665,000 bpd in 2013, driven by a considerable growth in demand for diesel, aviation fuel, LPG and gasoline. It plays host to the largest importer of petroleum products in Middle Africa, Nigeria, which imports nearly $7 billion worth of refined products annually, due to low capacity utilization of its refineries – less than 30% in 2012.
West Africa is also host to Cote d’Ivoire, which could still hold the key to improved refined products supply in the region. The country’s 70,000 bpd Société Ivorienne de Rafinnage (SIR) is a key supplier to the region, as oil consumption in Cote d’Ivoire is only 27,000 bpd. However, the region’s fuel demands are set to rise even faster, fuelled by faster urbanization of its major cities, rapid economic growth and regional integration of businesses. Active refining capacity in the region is currently around 38% of the 620,000 installed refining capacity.
Central Africa’s oil consumption is projected to rise 5% to 74,800 bpd in 2013. Unlike in West Africa where active refinery capacity is less than the region’s consumption, Central Africa’s four refineries in Cameroon, Chad, Gabon and Congo Brazzaville have a combined active capacity of 106,000 bpd. Among these, Cameroon’s SONARA is the key refinery in the Central Africa region. Cameroon’s estimated consumption of only 27,000 bpd is significantly lower than the refinery’s 45,000 bpd output; the balance is exported to the region. However, keeping fuel prices low remains a challenge for the region, consequently fuel subsidies are in use.
Cameroon’s fuel subsidy bill has been rising alongside gasoline consumption, reaching $600 million in 2012. East Africa’s downstream market consumes about 328,000 bpd of petroleum products and will see 4.5% increase to 342,000 bpd in 2013. There is however only one refinery in the region, the Kenya Pipeline and Refinery Ltd (KPRL), which functioned below 50% of its installed capacity throughout 2012, fuelling high levels of fuel imports in 2012. Further increases in imports are likely to create additional logistics problems for the region, which has struggled to cope with the demands of importing its fuel needs.
Diesel represents almost 50% of the 156,000 bpd of refined products consumed in Southern Africa (excluding South Africa). However, the bulk of the diesel is imported from neighbouring South Africa, Asia and Europe. The only refinery in the region is Zambia’s 24,000 bpd Indeni Refinery, which is only sufficient for Zambia’s own demand of approximately 20,000bpd and not the region’s need of more than 110,000bpd. Mozambique’s 350,000 bpd refinery, which is expected to commence construction in 2013 is a welcome development and is likely to find ready markets across the region. However, the refinery is not due for completion until 2014 or 2015.
Part II provides a regional analysis of African oil production. It can be accessed here
Rolake Akinkugbe is Head, Energy research, Ecobank Group.