Africa Energy Outlook 2021 - BBrief

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Africa Energy Outlook 2021 - BBrief
Africa
Energy
Outlook
2021
Africa Energy Outlook 2021 - BBrief
2
        African Energy Outlook 2021                                                                                                   Credits

                                                                            Production
                                                                            Team
                                                                            Executive Chairman
                                                                            NJ Ayuk

                                                                            Senior Vice President
                                                                            Verner Ayukegba

                                                                            Director of Communications and Marketing

                                      Africa Energy                         Mandisa Nduli

                                      Outlook 2021                          Director of Strategy
                                                                            Mickaël Vogel

                                                                            Digital Marketing Coordinator
                                                                            Amina Williams
                                      Published and presented by the
                                      African Energy Chamber with de-       Creative Director
                                      sign by Africa Oil & Power.           Giovanni Trevisson

                                      Published 2 November 2020             Graphic Designers
                                      energychamber.org                     Paul Cheeseman
                                                                            Heidi Sparks
                                      The African Energy Chamber ex-
                                      tends thanks to all individuals and   With special thanks to:
                                      companies that supported the pro-     Dr Theophilus Acheampong
                                      duction of this report.               Dr Nathaniel Babajide
                                                                            Doris Agbevivi
                                                                            Dr Bridget Menyeh
                                                                            Dr Geoffrey Mabea
                                                                            Rystad Energy

2       African Energy Chamber                                                                                         www.energychamber.org    3
Africa Energy Outlook 2021 - BBrief
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        African Energy Outlook 2021

                    Africa Energy
                    Outlook 2021                                         Industry
                                                                         Outlook
                                                                                      44    Market realities: Impact on
                                                                                            fiscal terms

                                                                                      50    Energy transition contributions
                                                                                            on industry outlook

                   Contents             6    A letter from our
                                             Executive Chairman
                                             NJ Ayuk                     Employment   58    The state of jobs
                                                                         Outlook

                   Exploration &        8    Introduction
                   Production Outlook                                    Regional     60    Keeping African resources
                                                                         Outlook            competitive

                                                                                      66    Production review

                   Environmental        10   High carbon emission
                   Outlook                   is a threat to African
                                             competitiveness
                                                                         Power        84    Introduction
                                                                         Outlook
                                                                                      86    Africa’s electricity sector in 2021
                   Investments &        16   Free cash flow and
                   Commodities               government take                          93    Gas-to-power and Africa’s
                                                                                            industrialization
                   Outlook              20   Oil Markets
                                                                                      96    Regulatory reforms
                                        24   Gas Commodities
                                                                                      102   The energy transition and
                                        28   Market conditions                              Africa’s power sector

                                        34   The future of expenditure                104   Investing in the fight against
                                             investments                                    energy poverty

4       African Energy Chamber                                                                                  www.energychamber.org   5
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        African Energy Outlook 2021                                                                                                                                                                 A letter from our Executive Chairman, NJ Ayuk

            A Year
            Like No
            Other
            Dear Reader,

            2020 has been a year of unprecedented challenges,                                                              In 2021, Africa will benefit greatly if we create an          stable growth path. We believe the short-term outlook
            and the trials and tribulations have made the African                                                          investment climate that supports the development of all       will improve if countries apply more competitive fiscal
            Energy Chamber’s work more important now than                                                                  energy resources. At the African Energy Chamber, we           regimes. Emissions can be reduced by curbing flaring
            ever. We are committed to helping Africa’s oil and gas                                                         believe supporting the energy industry, promoting free        and monetizing gas, improving and future-proofing the
            stakeholders navigate a complex and ever-changing                                                              markets, the rule of law, individual freedoms and limited     carbon profile of African petroleum production.
            global energy landscape. We will continue our mission                                                          government, is a duty for all Africans.
            to support the dynamic private sector and unlock the                                                                                                                         Developing gas-to-power infrastructure will increase
            continent’s remarkable energy potential.                                                                       But we must not stop there, advocating for a market           access to affordable energy for all sectors of the
                                                                                                                           driven Afro-centric energy transition, with a specific        economy, offering massive knock-on benefits and
            Africa’s oil and gas industry is facing extraordinary                                                          focus on natural gas to expand market opportunities           making it easier to do business. Reducing lead times to
            circumstances. An ongoing energy transition and new                                                            is something we will continue to drive. The oil and gas       limit risk premiums put on long cycle projects will further
            efforts to decarbonize the world are weighing on oil                                                           industry is a force for good and we must not join those       bolster the industry’s viability and growth prospects. It
            demand. The shale revolution is exacerbating these                                                             forces that want to demonize hardworking people               will not be easy, but these reforms are necessary.
            pressures. And of course, the COVID-19 pandemic                                                                whose only crime is to work hard and play by the
            has wrought havoc on markets around the world,                                                                 rules and embrace hope rather than fear mongering             Again and again, our oil and gas sector has proven its
            accelerating and intensifying existing trends.                                                                 and embrace economic empowerment rather than                  resilience and adaptability. The world still needs oil and
                                                                                                                           development aid. That’s why we believe implementing           gas, and Africa still holds enormous untapped potential.
            External headwinds are forcing African petroleum                                                               programs like local content, economic diversification         The African Energy Chamber will remain a committed
            producers to re-examine their strategies.                                                                      that support natural gas value chains, making fiscal terms    partner of choice for the industry as we advance into an
            Conventional petroleum resources here should                                                                   competitive and reducing red tape and streamlining            uncertain future.
            be globally competitive, but growth has lagged                                                                 regulatory processes must be priorities in 2021.
            because of conditions above the ground, not
            below. Restrictive fiscal regimes, inefficient and        We have to cut red tape to make life easier for      Our African Energy Outlook 2021 addresses these
            carbon-intensive production, and difficulties in doing    hard-working Africans, businesses and investors      challenges head-on. Building on last year’s success, our
            business are preventing the industry from reaching        to work and grow the energy sector. We know          second annual report offers an even more exhaustive
            its full potential. As companies delay projects and cut   from experience this will reduce the cost of doing   and comprehensive look to the year ahead for African
            costs, planned capital expenditure in 2020-2021 has       business, speed up approvals and make life           oil and gas.                                                                                               Thank you,
            fallen from $90 billion pre-COVID-19, to $60 billion      better for Africans. We must never be ashamed of
            now. To remain competitive, African producers and         supporting an industry that has brought so much      The 2021 outlook details all of the major challenges facing                                                 NJ Ayuk
            governments must adapt. But how can they do it            to Africa and will continue to bring people out of   African oil and gas stakeholders, as well as workable                                            Executive Chairman
            when the economic order is being remade?                  poverty and reduce reliance on foreign aid.          solutions that will keep the industry on a strong and                                       African Energy Chamber

6       African Energy Chamber                                                                                                                                                                                              www.energychamber.org      7
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                                                                                                                               High level take aways | Time to act!

           African Energy Outlook 2021

High level take aways
Time to act!
The global energy transition and          but above surface conditions related        The impact of COVID-19 on 2021
decarbonization drive are putting         to fiscal regimes, carbon emissions         liquids production is however not
pressure on oil demand while shale        and general difficulty of doing busi-       so severe as the current 2021 out-
has unlocked abundant resources.          ness are holding projects back.             look stands at about 7.6 million bar-
The global context forces African                                                     rels per day compared to 8.2 million
petroleum producers to adapt or           The CAPEX spending 2020 - 2021              barrels per day in the beginning of
become uncompetitive.                     outlook pre-COVID-19 was almost             the year.
                                          $90 billion for 2020 and 2021, but has
The coronavirus pandemic (COVID-19)       been significantly reduced to about         Outside COVID-19, regulatory mat-
has accelerated this underlying pres-     $60 billion due to project delays and       ters have also unnecessarily de-
sure by causing unprecedented hav-        cost cutting measures.                      layed major projects in Nigeria,
oc on global energy markets that Afri-                                                Kenya, Uganda and Tanzania that
ca is not insulated from.                 The 2021 outlook therefore appears          represent big opportunity losses for
                                          weak on new project sanctions, but          local content development, delayed
Conventional petroleum resources          relatively stronger for jobs and drilling   job creation and further deteriorat-
such as those in Africa should be         markets on the back of ongoing proj-        ed Africa’s competitive position ver-
competitive in the global supply stack,   ects initiated pre-COVID-19.                sus resources elsewhere.

The African Energy Chamber believes that the short-term outlook can be remedied by:
Applying more compet-           Curbing flaring and mone-       Developing gas to power         Reducing lead time as
itive fiscal regimes that       tizing gas, which will help     infrastructure that will in-    higher risk premiums are
can help unlock 4.4 billion     improving the carbon            crease access to afford-        put on long cycle projects
barrels of liquids and $100     emission profile of Afri-       able energy to all sectors      versus short cycle projects.
billion of additional invest-   can petroleum production        of the economy.
ments by 2030.                  that currently bottom tier
                                among the continents.

8          African Energy Chamber                                                                                                       www.energychamber.org         9
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          African Energy Outlook 2021                                                                                                                           Gas to power push represents the most promising way to decarbonize the African upstream

                                                                                                                                                                               Upstream CO2 emission                                                                  Upstream CO2                                                                       Oil & Gas
                                                                                                                                                                                    intensity 2018                                                                    emmision 2018                                                                  Production 2018
                                                                                                                                                                                     (kgCO2/boe)                                                                         (Mt Co2)                                                                       (mmboe/d)

Gas to power push represents
the most promising way to                                                                                                                    Total

decarbonize the African upstream                                                                                                             Flaring
                                                                                                                                                                      31         30                17

                                                                                                                                                                                                     3
                                                                                                                                                                                                                     16     14            15
                                                                                                                                                                                                                                           2
                                                                                                                                                                                                                                                   139      102              253

                                                                                                                                                                                                                                                                              47
                                                                                                                                                                                                                                                                                              283    223           43
                                                                                                                                                                                                                                                                                                                    5
                                                                                                                                                                                   9                                 5                                      31                                90

                                                                                                                                                                                                                              7                                                                      111
                                                                                                                                                                      18                                                                           80

                                                                                                                                             Extraction

                                                                                                                                                                      13         21                14                11       7           13       59       71               206              192    111           38
Strong incentives to monetize           As the world is moving towards the ener-        er premiums to be deployed in carbon

                                                                                                                                                                      Africa

                                                                                                                                                                                 South America

                                                                                                                                                                                                   North America

                                                                                                                                                                                                                     APAC

                                                                                                                                                                                                                            Middle East

                                                                                                                                                                                                                                          Europe

                                                                                                                                                                                                                                                   Africa

                                                                                                                                                                                                                                                            South America

                                                                                                                                                                                                                                                                              North America

                                                                                                                                                                                                                                                                                              APAC

                                                                                                                                                                                                                                                                                                     Middle East

                                                                                                                                                                                                                                                                                                                   Europe

                                                                                                                                                                                                                                                                                                                                   Africa

                                                                                                                                                                                                                                                                                                                                             South America

                                                                                                                                                                                                                                                                                                                                                               North America

                                                                                                                                                                                                                                                                                                                                                                                APAC

                                                                                                                                                                                                                                                                                                                                                                                        Middle East

                                                                                                                                                                                                                                                                                                                                                                                                       Europe
African gas and create new de-          gy transition in order to curb greenhouse       inefficient hydrocarbon production, and
                                        gas emissions and meet the targets in           it is therefore increasingly important
mand centers, especially in pro-
                                        the Paris agreement, the oil and gas in-        to help minimize emissions in order to
moting gas to power internally,         dustry is doing its share. While combus-        have a competitive project. Unfortunate-
will fasten the decarbonization         tion of hydrocarbons by off-takers and          ly, Africa continues to operate carbon
   of African upstream activities.      consumers does represent around 90%             inefficient production, which further im-        Figure 1.1: Upstream emissions | Continent comparison
                                        of total emissions, the remaining 10%           pacts its ability to raise capital for oil and   Flaring varies globally and contributes significantly to upstream emissions intensity
Africa to remain at least until         is what oil and gas companies are tar-          gas projects.
                                        geting to cut through initiatives such as
2025 the least carbon efficient                                                                                                                                                   Production 2018                                                                                                                                              Production 2018
                                        electrification, reduced flaring and more       A data base has been built on the back
oil producing frontier with over                                                                                                                                                 by supply segment                                                                                                                                           by hydrocarbon type
                                        energy efficient extraction methods. An         of all knowledge about emissions and                                                         (percentage)                                                                                                                                                (percentage)
30 kilogram CO2 emitted per             often-used metric to determine hydro-           the type of hydrocarbon production (on-
barrel of oil equivalent produced.      carbon production’s carbon efficiency           shore, offshore, oil type etc.) in order to                            100%                                                                                                                                                         100%
                                        is to consider the amount of emissions          have a view of carbon efficiency globally.           Other                                                                                                                          Heavy Oil 15-19
Continued high carbon emission          outside combustion per unit of produc-          This is illustrated on Figure 1.1 where the          Onshore
                                                                                                                                                               80%                                                                                                                                                          80%
                                        tion. The lower this ratio is, the more effi-   sum of each continent’s upstream pro-                                                                                                                                               Heavy Oil 20-23
is a threat to Africa’s global com-
                                        cient your production is.                       duction and upstream emissions from                  Oil
                       petitiveness.                                                    2018 are compared to each other.                     Sands                                                                                                                          Sour (
Africa Energy Outlook 2021 - BBrief
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             African Energy Outlook 2021                                             Gas to power push represents the most promising way to decarbonize the African upstream

                                                                                                                                                                                      100%
                                                                                                                                                                                      90%
                                                                                                                                                                                      80%
          Fig. 1.2 Historical Oil & Gas
          Production

                                                                                                                                                                                      70%
          (mmboe/d)

                                                                                                                                                                                      60%
          Africa
          1960 - 2018

          South America

                                                                                                                                                                                      50%
          1940 - 2018

          North America
          1920 - 2018

                                                                                                                                                                                      40%
          APAC
          1960 - 2018

                                                                                                                                                                                      30%
          Middle East
          1950-2018

                                                                                                                                                                                      20%
          Europe
          1950 - 2018

                                                                                                                                                                                      10%
                                                                                                                                                                                      0%
                                           1920

                                                  1930

                                                         1940

                                                                1950

                                                                       1960

                                                                              1970

                                                                                                     1980

                                                                                                                         1990

                                                                                                                                            2000

                                                                                                                                                                2010

                                                                                                                                                                               2018
12           African Energy Chamber                                                                                                                www.energychamber.org              13
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              African Energy Outlook 2021                                                                                                        Gas to power push represents the most promising way to decarbonize the African upstream

                              Figure 1.3: Upstream Flaring Emissions | Large differences in flaring
                              Between 5085% of total upstream for oil fields                                                                                                  Data Source: Rystad Energy Research & Analysis; NOAA/World Bank

                  Algeria
                     Iran
                     Iraq                                                                                                                                                                                          Flaring
                   Libya
                  Russia
              Kazakhstan
                  Nigeria
                  Mexico
                   Oman
              Venezuela
                  Angola
            United States
                  Kuwait
                    UAE
          United Kingdom
               Colombia
                   China
             Saudi Arabia
                   Brazil                Extraction
                 Norway
                 Canada

                                                                         20%                                               40%      60%                                          80%                                                  100%

                            Figure 1.2 breaks down the top 20 oil produc-       tries are in the upper half with Angola as the            less points to Africa overall not improving    the resources’ competitiveness in a world
                            ers globally on how much flaring represents         best performer of the group. It is primarily the          its position with emissions remaining above    with increasingly constrained carbon emis-
                            in terms of emissions versus the emission           North African countries Algeria and Libya that            30 kg CO2 per barrel of oil equivalent.        sion budget. In this context, political will and
                            from the extraction process. Ideally, the flaring   have poor performance with regards to flaring             While flaring is and upstream emissions are    industry compliance will be key. Initiatives
                            component is as small as possible.                  emissions.                                                not always easy to reduce, it nevertheless     such as the Nigerian Gas Flare Commer-
                                                                                                                                          does represent an enormous opportuni-          cialization Program are extremely positive
                            Of four African countries on the list (Algeria,     2018 is currently the last year with high quality         ty for Africa to reduce its carbon emission    steps in that direction and must be encour-
                            Libya, Nigeria and Angola) none of the coun-        data, but projections towards 2025 neverthe-              per production unit and thereby increase       aged and supported by all stakeholders.

14            African Energy Chamber                                                                                                                                                                                     www.energychamber.org   15
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          African Energy Outlook 2021                                                                                                                          COVID-19 curbs free cash flow and government take but 2021 outlook improves

                                                                                                                                 Figure 2.1: Free cash flow evolution per Continent
                                                                                                                                 USD/boe nominal                                                                                      Data Source: UCube August 2020

                                                                                                                                 $20

COVID-19 curbs free cash                                                                                                         $10

flow and government take                                                                                                         $0

but 2021 outlook improves                                                                                                        $-10

                                                                                                                                 $-20

                                                                                                                                 $-30

                                                                                                                                        2012   2013    2014     2015   2016    2017     2018        2019     2020      2021    2022      2023     2024      2025

Generated free cash flow and            The goal of any project within the oil       able years in history on the back of high                          Australia       Asia          Middle East             Africa          South America
government take is expected             and gas world is to create value by          commodity prices and capital programs
                                        generating sufficient revenue to recu-       ramping up (Figure 2.2). In 2014, the
to decline by north of 50% in
                                        perate all cost and generate sufficient      commodity prices started to decline to
2020 from approximately $10/            free cash flow to justify the required       thereby decrease free cash flow genera-
boe nominal in 2019 to $4/boe           rate of return. Multiple parameters influ-   tion, but more impactful were the numer-    Figure 2.2: Free cash flow evolution for Africa
              nominal in 2020.          ence the free cash flow generation, but      ous giant projects initiated from 2012 to   USD billion nominal                                                                            Data Source: UCube August 2020
                                        chief among them is commodity pric-          2014 that represented enormous capital
Improved outlook for 2021 at            es that determine how much revenue           expenditure. It was these locked-in cap-    $80
                                        is generated. As projects are evolving       ital programs, together with the drop in
$6/boe nominal on the back of
                                        through their life cycles at different       commodity prices, that caused free cash
curbed expenditure and higher           points in time, the sum of all cash flows    flow generation to be highly constrained    $70
            commodity prices.           across all projects create trends. Ver-      during 2015 and 2016.
                                        sus other continents, Australia has and                                                  $60                  Free cash flow from                                  Forecast
Continued impact of COVID-19            is expected to generate on average the       From 2017 onwards, the capital pro-                              upstream operations
on demand and commodity pric-           highest free cash flow per barrel of oil     grams were completed, the projects
                                        equivalent from 2018 to 2025 (Figure         started to produce and generate reve-       $50
es will be crucial to short-term
                                        2.1). African performance is however in      nue, and commodity prices increased.
       forecast and expectations        line with other continents and exhibits      The result was an improving free cash       $40
                                        similar volatility on the back of the in-    flow that grew to $55 billion in 2018.
                                        dustry’s typical boom and bust cycles.       The industry had effectively responded
                                                                                     to the commodity price shock in 2014        $30
                                        Analyzing free cash flow from all Afri-      and rebalanced spending and revenue
                                        can projects, one notices that 2012 and      to be more sustainable than what was        $20
                                        2013 remain some of the most profit-         the case in 2015 and 2016.

                                                                                                                                 $10

                                                                                                                                 $0

                                                                                                                                        2012   2013   2014      2015   2016    2017     2018        2019     2020      2021    2022      2023      2024     2025

16        African Energy Chamber                                                                                                                                                                                          www.energychamber.org                    17
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            African Energy Outlook 2021

                                                                                                                                          COVID-19 curbs free cash flow and government take but 2021 outlook improves

Under normal circumstances, this new        Figure 2.3: Government take evolution for Africa
balance was expected to continue,           USD billion nominal                        Data Source: UCube August 2020
but the impact of COVID-19 has cre-
ated many similarities to 2015 and                                                                                                 Figure 2.4: Top 10 free cash flow for companies operating in Africa
2016 whereby free cash flow will be                                                                                                USD billion nominal                      Data Source: UCube August 2020
squeezed on the back of reduced rev-
                                            $200
enue and locked in capital programs. As
such, the industry will once again have                                                                                            3500
to rebalance its spending and revenue       $160
which typically implies curbing explora-
tion activity and deferring new invest-
ment decisions. While 2020 free cash        $120                                                                                   3000
flow is not expected to decline towards
the same depth as during 2015 and
                                            $80
2016, the spend curtailment and expect-
ed higher commodity prices are antici-                                                                                             2500
pated to create a rebound into 2021.        $40
With more free cash flow generated in
2021, the scene is set for a new cycle of
investments with activity picking up for    $0                                                                                     2000
deferred projects and exploration activ-           2012       2014       2016        2018      2020       2022       2024
ity. For the same reason, we can expect
most key final investment decisions (FID)   generated for companies, the general         only about $55 billion in government
on African projects to be taken in 2021.    relationship between commodity prices        take (Figure 2.3). However, as commod-    1500
                                            and locked in capital programs will also     ity prices are expected to increase and
While fiscal parameters such as depre-      influence government take. From a gov-       the balance between revenue and cost
ciation and royalties can cause distor-     ernment perspective, 2020 is potentially     improves, so will also expected govern-
tions versus the observed free cash flow    the worst year since at least 2012 with      ment take towards 2021 and onwards.
                                                                                                                                   1000

The rebound by 2021 in free cash            tinent. CNOOC is the sole exception          tal to the health of these economies.
                                                                                                                                   500
flow and government take described          at 10th place, representing growing          The African OPEC nations may soon
above is dependent on increasing            Chinese interest in African resources.       lose the capacity to produce at their
commodity prices in order to gen-                                                        desired levels if upstream operators
erate more revenue. For instance,           The economies of the hydrocar-               and international majors stop investing
scenarios where oil remains at $50/         bon-producing African nations are            and delay the sanctioning of projects.    0
bbl or below implies that free cash         heavily reliant on their respective out-     While Angola or Gabon have been
flow and government take will be un-        put to meet both domestic energy             implementing a strong enabling envi-

                                                                                                                                                                 Total

                                                                                                                                                                                                                Sonagol

                                                                                                                                                                                                                          ExxonMobil

                                                                                                                                                                                                                                       Shell
                                                                                                                                             NOC (Libya)

                                                                                                                                                           ENI

                                                                                                                                                                         Sonatrach

                                                                                                                                                                                     NNPC (Nigeria)

                                                                                                                                                                                                      Chevron

                                                                                                                                                                                                                                               CNOOC
able to reach 2019 levels. Figure 2.4       needs and exports. For example, Nige-        ronment for their oil and gas investors
breaks down the expected 2021 free          ria had previously set its 2020 capital      in recent years, policy uncertainty and
cash flow per top 10 companies with         budget based on its plans to produce         in some cases the unchecked use by
activity in Africa. The list is dominated   2.1 million barrels per day of oil in 2020   African policy-makers of the oil & gas
by majors and national oil companies        at a crude price of $57 per barrel. An       sector as a cash cow could adversely
(NOCs), which is to be expected giv-        extended period of the current price         affect the continent’s production out-
en the player landscape on the con-         scenario will therefore prove detrimen-      look and competitiveness.

18          African Energy Chamber                                                                                                                                                                                                     www.energychamber.org   19
20
             African Energy Outlook 2021                                                                                                                                             COVID-19 curbs free cash flow and government take but 2021 outlook improves

COVID-19 causes                                                                                                                2 000

unprecedented
                                                                                                                                                                                                                                                                         Data Source: Rystad Energy research and analysis
                                                                                                                               0

                                                                                                                               -2 000

oil market turmoil
                                                                                                                                         -2.4                                                                                                                                                                                                -1.5
                                                                                                                                                                                                                                                                                                                            -2.0   -1.9
                                                                                                                                                                                                                                                                                                                  -2.2
                                                                                                                                                                                                                                                                                                           -2.7
                                                                                                                               -4 000                                                                                                                                                     -3.5   -3.1
                                                                                                                                                                                                                                                                                -3.8
                                                                                                                                                                                                                                                               -4.5      -4.4
                                                                                                                               -6 000                                                                                                                   -5.4
                                                                                                                                                                                                                                              -5.9
                                                                                                                               -8 000                                                                                                  -7.0                                                           Base Case Scenario
                                                                                                                                                                                                                              -7.7
                                                                                                                                                                                                              -8.0     -8.2
                                                                                                                                                  -6.3
                                                                                                                               -10 000
                                                                                                                                                                                                       -9.1
                                                                                                                                                                                             -10.0                                            Second Wave Scenario
High uncertainty around short-                  2020 has been one of, if not the most,                                         -12 000
term outlook for 2021 due to the                volatile years in oil price history. The                                                                                                                                                                                                    Jet fuel
                                                COVID-19 pandemic has ravaged the                                              -14 000
            COVID-19 pandemic.                                                                                                                                                       -12.1                                                                                                  Maritime (bunkers)
                                                global energy markets, and as such
                                                                                                                               -16 000                   -10.6
                                                                                                                                                                                                                                                                                            Other fuels
                                                global liquids demand that has typically
COVID-19 caused unprecedented                   increased by about 1 to 1.5 million bar-                                       -18 000                                                                                                                                                      Petrochemical (LPG and naphtha)
disruption in the oil market, exem-             rels per day year-over-year, is current-                                                                                                                                                                                                    Road diesel
                                                                                                                               -20 000
plified by reference prices trading             ly expected to see an annual average
                                                                                                                                                                           -17.2
                                                                                                                                                                                                                                                                                            Road gasoline
                 at negative values             contraction of 10 million barrels per day                                      -22 000                                                                                                                                                      Previous
                                                from 2019 to 2020.
                                                                                                                                                                                                                                                                                            Second wave scenario
                                                                                                                               -24 000
Reference prices recovery for                   The impact on average oil price per                                                                                -23.2
2021 ($49/bbl) and 2022 ($70/                   year is real, and best estimate projec-

                                                                                                                                         Jan-20

                                                                                                                                                          Mar-20

                                                                                                                                                                            May-20

                                                                                                                                                                                              Jul-20

                                                                                                                                                                                                              Sep-20

                                                                                                                                                                                                                              Nov-20

                                                                                                                                                                                                                                               Jan-21

                                                                                                                                                                                                                                                                Mar-21

                                                                                                                                                                                                                                                                                 May-21

                                                                                                                                                                                                                                                                                                  Jul-21

                                                                                                                                                                                                                                                                                                                   Sep-21

                                                                                                                                                                                                                                                                                                                                    Nov-21
bbl) expected to mimic global eco-              tion towards 2025 do not expect the
                  nomic recovery                $70/bbl threshold to be reached be-
                                                fore 2022 (Figure 3.1).

Figure 3.1: Oil price outlook
                                                                                                                                                                                                         Figure 3.2: Global oil products (liquids) demand forecast by scenario
Brent USD/bbl nominal
                                                                                                                                                                                                         Million barrels per day

                                                                                                                                                                                                        It was in particular April 2020 that saw un-                            At this rate of oversupply, the global stor-
                                                                                                                                                                                                        precedented market turmoil as the full im-                              age capacity was rapidly filling up leading
     $112B    $109B    $100B $54B       $44B       $55B     $72B     $64B     $40B    $49B     $70B    $66B    $66B    $68B
                                                                                                                                                                                                        pact of various economies entering lock-                                to negative pricing for various reference
                                                                                                                                                                                                        down, and thereby reducing demand, as                                   prices. In particular, the negative West
                                                                                                                                                                                                        well as OPEC and Russia increasing pro-                                 Texas Intermediary price at -$37.63/bbl
                                                                                                                                                                                                        duction, and thereby increasing supply, re-                             on 20 April 2020 will remain a testament
      2012

               2013

                        2014

                                 2015

                                         2016

                                                     2017

                                                              2018

                                                                       2019

                                                                               2020

                                                                                        2021

                                                                                                2022

                                                                                                        2023

                                                                                                                2024

                                                                                                                        2025

                                                                                                                                                                                                        sulted in an oversupply situation of about                              to the extraordinary circumstances the
                                                                                                                                                                                                        23 million barrels per day (Figure 3.2).                                market was subject to.

Data Source: UCube August 2020

20           African Energy Chamber                                                                                                                                                                                                                                              www.energychamber.org                                         21
22
                   African Energy Outlook 2021                                                                                                                                                                                         COVID-19 curbs free cash flow and government take but 2021 outlook improves

Globally, suppliers responded to the                                       tailments such as the oil sand produc-                                  OPEC members Angola and Libya did              Going forward towards 2021, there re-                Should the demand outlook unfold similar            downwards revision in oil price outlook,
oversupply situation and negative pric-                                    tion in Canada. Overall, production was                                 not face the same production cuts as           mains high uncertainty around how the                to the base view, the oil price is expect-          but nevertheless an expectation that the
es by curtailing production. The big-                                      reduced with about 12.5 million bpd                                     the Angolan production is declining,           virus outbreak will unfold, how economies            ed to see a similar gradual increase. By            price will remain north of $50/bbl. Figure
gest reduction came from OPEC+ that                                        from March 2020 to June 2020.                                           and Libya faces domestic unrest.               will react and ultimately what the impact            2022, assuming the virus is under control           3.4 compares the communicated oil price
decided on a 9 million barrels per day                                                                                                                                                            will be on oil markets. Figure 3.3 illus-            and normalcy has returned, there is a risk          outlooks from the latest Q2 2020 updates.
production cut to help balance the mar-                                    Africa was also impacted by the pro-                                    The initial turmoil caused by COVID-19         trates a potential view of what can happen           of spiking oil prices above $70/bbl as the          For African nations, such price outlook will
ket, and to which several African OPEC                                     duction cuts with up to 460,000 barrels                                 stabilized over the summer months as           should a second wave of COVID-19 mani-               dearth of investments throughout 2020               notably call for much more competitive
and non-OPEC nations rallied.                                              of oil per day (bopd) curtailed in May                                  demand bounced back following lock-            fest itself and see the reinstatement of the         and 2021 may lead to a constrained sup-             frameworks on deep water developments
                                                                           and June 2020. OPEC members Alge-                                       down measures being removed and                draconian lockdowns from spring 2020.                ply outlook. Beyond 2022, the expecta-              and projects, which continue to represent
Also, other countries instituted govern-                                   ria and Nigeria have faced the majority                                 the supply being curtailed.                    The base view is a gradual increase in de-           tion is for the oil price to stabilize around       a substantial share of the continent’s pro-
ment mandated production cuts such                                         of the production cuts with about 40                                                                                   mand throughout the remainder of 2020                $60-65/bbl. Benchmarked versus the                  duction but are also the most expensive
as Norway while other countries saw                                        percent each, followed by non-OPEC                                      The Brent oil price subsequently increased     and throughout 2021 to reach the pre-                oil price expectations of leading E&Ps              and most uneconomically feasible ven-
market forces forcing production cur-                                      members Sudan and South Sudan.                                          from sub $20/bbl to over $40/bbl.              COVID-19 demand levels by late 2021.                 the general consensus appears to be a               tures given this outlook.

Figure 3.3: Global liquids supply and demand balances | Current base case                                                                                                                         Figure 3.4: Long-term oil price assumptions vary widely across companies
Million barrels per day                                                                                                                                                                           USD per barrel

                                                                                  History        Forecast
25                                                                                                                                                    100

                                                                                                                                                                                                  $85

20                                                                                                                                                       95                                       $80
                                                                                                                                                                      Implied Stock Change                                                                       Equinor | $80 (2030+)
                                                                                                                                                                      Liquids supply (rhs)
                                                                                                                                                                                                  $75
                                                                                                                                                                      Products demands (rhs)
15                                                                                                                                                      90
                                                                                                                                                                                                  $70

                                                                                                                                                                                                  $65
                                                                                                                                                                                                                                            Woodside | $65 (2025+)
10                                                                                                                                                       85
                                                                                                                                                                                                  $60                      Shell, ENI | $60 (2023+)
                                                                                                                                                                                                                                                                                                       Repsol | $59.6 (2020 - 2050)
                                                                                                                                                                                                                  Total | $56.8 (2021 - 2050)
                                                                                                                                                                                                  $55
5                                                                                                                                                       80                                                        BP | $55 (2021 - 2050)

                                                                                                                                                                                                  $50
                                                                                                                                                                                                                                            Petronas | $50 (2025+)

0                                   2        4         12        25          6                                                                           75                                       $45
                                                                                                 -1        -1        -1                            -1
     2019-10

               2019-11

                         2019-12

                                   2020-01

                                             2020-02

                                                       2020-03

                                                                 2020-04

                                                                             2020-05

                                                                                       2020-06

                                                                                                 2020-07

                                                                                                           2020-08

                                                                                                                     2020-09

                                                                                                                               2020-10

                                                                                                                                         2020-11

                                                                                                                                                   2020-12

                                                                                                                                                                                                        2020

                                                                                                                                                                                                                               2025

                                                                                                                                                                                                                                                         2030

                                                                                                                                                                                                                                                                               2035

                                                                                                                                                                                                                                                                                                         2040

                                                                                                                                                                                                                                                                                                                               2045

                                                                                                                                                                                                                                                                                                                                                     2050
Data Source: Rystad research and analysis; OilMarketCube                                                                                                              Draws in June and July    Data Source: Rystad research and analysis
                                                                                                                                                                      helped support sturdy
                                                                                                                                                                      oil prices in $40s

22                 African Energy Chamber                                                                                                                                                                                                                                                                       www.energychamber.org               23
24                                                                                                                                                                                   2021 to see a renewed push towards domestic gas monetization
                 African Energy Outlook 2021                                                                                                                                                               as Global LNG glut continues to depress prices

2021 to see a renewed
push towards domestic gas
monetization as Global LNG                                                                                                                                                                                                 Loose market due to new LNG capacity coming
                                                                                                                                                                                                                           on-line to prevail for a longer period.

glut continues to depress prices                                                                                                                                                                                             Peak in prices pushed back one year as san-
                                                                                                                                                                                                                             tioning of new liquefaction plants is postponed

                                                                                                                                                                                                                                      Downside rish still expected towards
                                                                                                                                                                                                                                      2026 as new supply come on line. How-
                                                                                                                                                                                                                                      ever, the drop in prices is more limited
Depressed global gas prices and                Over the last five years, the global sup-      Gas markets are not insulated to COVID-19,     Looking forward, expectations for the                                                    due to fewer projects being sanctioned.
                                               ply and demand for gas has grown rap-          but are less exposed than the oil market       global market fundamentals are to re-        20
the ever-increasing demand for
                                               idly. Demand has been spearheaded by           as a result of COVID-19 curtailing trans-      main loose through 2021 on the back
affordable power offer a unique
                                               growth in North America and Asia while         portation more than anything else. Gas is      of weak COVID-19 induced demand
environment for Africa to push for             supply growth has come from North              less used in transportation, and as a result   and continued high supply of LNG
further domestic gas monetization.             America through the vast growth in hydro-      less impacted by COVID-19. The gas mar-        before prices tighten significantly as
                                               carbon production from shale formations.       ket was nevertheless already facing a glut     LNG demand growth will outpace liq-
COVID-19 also caused gas demand                2017, 2018 and 2019 in particular saw          of LNG even before COVID-19, resulting         uefaction capacity due to more delays
disruption. While less prominent               strong growth with an average growth           in even more depressed prices as the           in project sanctioning (Figure 4.2). The
                                               of 170 billion cubic meters per year (Fig-     pandemic’s impact on demand started to         forecast points to a tight LNG balance
than for oil, it was nevertheless suf-                                                                                                                                                    10
                                               ure 4.1). However, global gas production       manifest in the spring of 2020.                between 2023 and 2025, and along
   ficient to further depress prices.          is expected to decline in 2020 on the                                                         with it, a price spike. Following this pe-                                                     Asia oil-index
                                               back of production curtailments in North       As a result, key reference prices in           riod, there is a downside risk in prices                                                       NE Asia spot LNG
As a result, all major reference               America and Russia. It will be the first       Europe, North America and Asia all             for 2026 and 2027 driven by the po-                                                            TTF
prices have converged as a glut of             time since 2009 that global gas produc-        have experienced negative pressure             tential of seeing a new wave of sanc-
         LNG has to be absorbed.               tion experiences a decline.                    since the start of 2020.                       tioning activity during 2021 and 2022.
                                                                                                                                                                                                                                            Henry Hub
                                                 200
Africa is expected to increase its
                                                                                                                                                                                          0
gas exports once big LNG facil-
ities are on-stream, ultimately

                                                                                                                                                                                               2010

                                                                                                                                                                                                                    2020

                                                                                                                                                                                                                                          2030

                                                                                                                                                                                                                                                                  2040
increasing African exposure to
              global gas market.                 100

                                                                                                                                                                                          Figure 4.2: Gas reference prices moving forward
                                                                                                                                                                                          USD per million Btu
     Australia               North America                                                                                                                                                Data Source: GasMarketCube August 2020
     Asia                    Europe              0

     Middle East             Russia
     Africa                  Total
     South America
                                                 -100

Figure 4.1: Global gas supply
growth by continent
Billion cubic meters
                                                        2015   2016   2017   2018   2019    2020   2021   2022    2023   2024   2025

                                                 Data Source: UCube August 2020

24               African Energy Chamber                                                                                                                                                                                              www.energychamber.org                       25
26
                  African Energy Outlook 2021                                                                                                                                                         Only gas-friendly policies can further unlock Africa’s gas potential

Only gas-friendly policies
can further unlock Africa’s                                                                                                                                                                    Figure 4.4: Estimated African gas flaring
                                                                                                                                                                                               Billion cubic meters
                                                                                                                                                                                                                                                                              Nigeria
                                                                                                                                                                                                                                                                              Algeria
                                                                                                                                                                                                                                                                                                 Angola
                                                                                                                                                                                                                                                                                                 Egypt

gas potential                                                                                                                                                                                  Data Source: UCube August 2020                                                 Libya              Other Countries

                                                                                                                                                                                                      5
                                                                                                                                                                                                                                            6
                                                                                                                                                                                                      3    6      6             6
                                                                                                                                                                                                                                    6       2             6   5
Domestic use of gas on the Afri-                Given the gas glut on global markets                2025, gas production is expected to            levels for the continent split on key                   2
                                                with corresponding depressed prices,                accelerate on the back of big new de-          countries. Overall flaring is expected to          3           3             3                         2   2
can continent would have many                                                                                                                                                                                                       3                                               4    4      3
                                                there may now be an opportunity to                  velopments in East Africa coming on-           decline in line with the oil production,                3                                4                                                                 3
      positive benefits. Including:                                                                                                                                                                               3                                       3   3       4             2    2      2                    3
                                                stimulate to more domestic gas con-                 stream. Domestic gas consumption is            but nevertheless represents significant                                      4                                                                             2
                                                sumption. Expanding infrastructure to               still not expected to follow this growth       resources that could be utilized for in-                                         4                                 2             2    2      2                    2
Minimize flaring and improve                                                                                                                                                                          6    4      3             2           4                                                                 2
                                                displace diesel, increased use of gas in            acceleration unless strong gas-friendly        dustrial purposes for example.                                                   2                     4                                                          2
carbon emission metrics for up-                 the power mix and gas for industrial pur-           policies are adopted and result in the                                                                                                                    3       3
              stream production                 poses are all initiatives that would bene-          expansion of African gas infrastruc-           The African gas trade balance would                                                                                2             5    5      5
                                                fit from the low cost of gas.                       ture, which implies increased exports          shift should all the flared gas be uti-                                                                                                                    5
                                                                                                                                                                                                                                                                                                                     5
Capture more value from the natu-                                                                   towards 2030. Only sustained political         lized (Figure 4.5). The gas could either           7    7
                                                In this regard, Figure 4.3 illustrates ex-          will, friendly legislation and strong indus-   represent an uplift in domestic de-                            8             8           8
ral resources for the local economy                                                                                                                                                                                                 8                     8   7
                                                pectations on production, demand and                try support can unlock the true potential      mand and maintain expected export                                                                                  6             6    6      6             5
                                                                                                                                                                                                                                                                                                                     5
                                                net export of gas from the African con-             African gas can have within Africa.            capacity, or it could represent addition-
Create more jobs and activity relat-            tinent. Supply and demand have overall                                                             al export capacity in the case of fixed
 ed to use of gas across industries             experienced a similar pace of growth to             A source of African gas currently not          domestic demand. It would result in                9    9      8             8   7       8             7   7       6             6    6      6             6      5
                                                maintain a net export capacity of about             used is flared gas from oil production.        a 13 percent uplift of demand or a 28
Improve project economics if the                100 billion cubic meters per year. Post             Figure 4.4 illustrates estimated flaring       percent uplift in net export capacity.

                                                                                                                                                                                                  2012

                                                                                                                                                                                                          2013

                                                                                                                                                                                                                  2014

                                                                                                                                                                                                                            2015

                                                                                                                                                                                                                                    2016

                                                                                                                                                                                                                                            2017

                                                                                                                                                                                                                                                      2018

                                                                                                                                                                                                                                                              2019

                                                                                                                                                                                                                                                                      2020

                                                                                                                                                                                                                                                                                2021

                                                                                                                                                                                                                                                                                         2022

                                                                                                                                                                                                                                                                                                2023

                                                                                                                                                                                                                                                                                                              2024

                                                                                                                                                                                                                                                                                                                     2025
  gas otherwise would be flared.

                                                                                                                 Data Source: UCube August 2020                                                                                                                                     Data Source: UCube August 2020
340
                                                                                                                                                   300
300
                                                                                                                                                   250

260                                                                                                                                                200

                                                                                                                                                   150
220
                                                                                                                                                   100
180                                                                                                                                                50

140                                                                                                                                                0

                                                                                                                                                   -50
100
                                                                                                                                                   -100
60                                                                                                                                                 -150
           2010

                        2014

                                    2016

                                                 2018

                                                               2020

                                                                            2022

                                                                                             2024

                                                                                                              2026

                                                                                                                             2028

                                                                                                                                           2030

                                                                                                                                                            2012

                                                                                                                                                                     2013

                                                                                                                                                                              2014

                                                                                                                                                                                      2015

                                                                                                                                                                                               2016

                                                                                                                                                                                                           2017

                                                                                                                                                                                                                         2018

                                                                                                                                                                                                                                     2019

                                                                                                                                                                                                                                                   2020

                                                                                                                                                                                                                                                               2021

                                                                                                                                                                                                                                                                             2022

                                                                                                                                                                                                                                                                                         2023

                                                                                                                                                                                                                                                                                                       2024

                                                                                                                                                                                                                                                                                                                     2025
Figure 4.3: Africa gas net gas             Gas Demand Base Case                                                                                    Figure 4.5: Potential Africa gas net gas production                                  Gas Demand Base Case                        Flaring add to production
production balance                         Gas Production                                                                                          balance with flaring included                                                        Gas Production                              Extra export capacity
Billion cubic meters                       Net Gas Import                                                                                          Billion cubic meters                                                                 Net Gas Import                              Extra domestic demand

26                African Energy Chamber                                                                                                                                                                                                                          www.energychamber.org                                     27
28
          African Energy Outlook 2021                                                                                                                               COVID-19 capex cuts expected to impact drilling activity in 2021

COVID-19 capex cuts
expected to impact
drilling activity in 2021

                                                                                                                                                    19’s impact on global and African energy        the number of wells hovering around
                                                                                                                                                    supply. The current estimate points to only     700 per year. By 2024, as a result of
                                                                                                                                                    about 800 wells to be drilled, represent-       new projects being sanctioned for de-
Drilling activity expected to                                                                                                                       ing a year over year decline of about 20        velopment on the back of a higher oil
fall below 800 wells per year                                                                                                                       percent versus 2019 Beyond 2020, there          price, activity is expected to increase
in 2021 versus the 966 wells                                                                                                                        is limited respite expected until 2024 with     again towards 800 wells per year.
                                                                                     Figure 5.1: Estimated number
    drilled in 2019 pre-COVID-19        Limited Outlook                              of wells drilled in Africa

Offshore rig demand expected to                                                                                                                                                                               Data Source: WellCube August 2020
drop year-on-year in 2020 by 30         Wells drilled on the African continent
percent with 2021 expected to           and its continental shelves ultimate-
experience a slight increase from       ly represent the activity that ensures       1.8K
                                        hydrocarbon recovery from its under-
2020, spelling out a tough environ-
                                        ground deposits. An estimated 1,850          1.6K
 ment for drilling service providers    wells were drilled during 2012 with
                                                                                                   Offshore
                                                                                     1.4K
                                        about 1,350 or 73 percent drilled on-
High impact exploration drilling        shore and the remaining 500 or 27 per-       1.2K
may create new opportunities            cent drilled offshore (Figure 5.1).
                                                                                     1K
that can drive drilling demand
                                        The trend since 2012 has been a de-
            on a mid-term basis                                                      0.8K
                                        clining number of wells drilled per year,
                                        and in particular since the oil price drop   0.6K
Overall environment favorable                                                                      Onshore
                                        in late 2014 which exacerbated this
for increased local procurement         trend. As a result, the 2019 estimate of     0.4K
of goods and services to cut cost.      wells drilled was almost 1,000, a drop
                                                                                     0.2K
                                        of about 45 percent in activity versus
                                        2012. Reduced drilling activity onshore      0
                                        Libya and Egypt are the main drivers
                                                                                            2012

                                                                                                          2013

                                                                                                                 2014

                                                                                                                        2015

                                                                                                                               2016

                                                                                                                                      2017

                                                                                                                                             2018

                                                                                                                                                      2019

                                                                                                                                                                   2020

                                                                                                                                                                                  2021

                                                                                                                                                                                                  2022

                                                                                                                                                                                                               2023

                                                                                                                                                                                                                             2024

                                                                                                                                                                                                                                            2024
                                        behind this decline.

                                        Going into 2020, the activity is expected
                                        to decline further as a result of COVID-

28        African Energy Chamber                                                                                                                                                                               www.energychamber.org               29
30
             African Energy Outlook 2021                                                                                                                                                                              COVID-19 capex cuts expected to impact drilling activity in 2021

                                                                                                                                                             However, from 2022 onwards the expec-             tential of these new projects and fur-             In that regard, Figure 5.4 provides the
                                                                                                                                                             tation is for rig demand to rebound slight-       ther exploration activity will be able to          breakdown of the top 10 countries by
                                                                                                                                                             ly as drilling programs associated with           increase demand towards its highest                rig demand with associated split on
                                                                                                                                                             projects currently under development              level since 2015. However, should the              what resource class is supporting the
                                                                                                                                                             are initiated and a higher oil price expec-       oil price not recover, it would jeopar-            rig demand. For Angola, about 35 per-
                                                                                                                                                             tation help revive exploration activity.          dize about 50 percent of the expected              cent of the demand is related to con-
                                                                                                                                                                                                               2025 rig demand.                                   tingent resources which means that rig
                                                                                                                                                             However, the expected growth to-                                                                     demand in this particular area is sensi-
                                                                                                                                                             wards 50 rig years in 2025 is obvious-            Breaking down cumulative offshore                  tive to investment decisions expected
                                                                                                                                                             ly contingent on new projects being               rig demand from 2020 to 2025 per                   over the next years. Ghana also has a
                                                                                                                                                             sanctioned (Figure 5.3). Based on the             country reveals Egypt as the most ac-              large share of contingent demand on
                                                                                                                                                             oil price outlook presented under the             tive country in Africa with almost 60 rig          the back of the big Pecan project that
                                                                                                                                                             oil market section, the combined po-              years, followed by Angola and Nigeria.             may be sanctioned for development.

                                                                                                                                                             Figure 5.3: Offshore rig demand evolution per life cycle
                                                                                                                                                             Rig years                                                                                                          Data Source: RigCube August 2020

     Offshore Rig Demand                                                                                                                                     80

                                                                                                                                                             70

                                                                                                                                                             60
                                                                                                                  Data Source: RigCube August 2020                         Exploration rig demand
     The number and type of wells can be           90
     translated into rig demand expecta-                                                                                                                     50
     tions. In other words, how many drilling                                                                                                                40
                                                   80
     rigs have to be operational for a year in
     order to drill the wells. Figure 5.2 illus-                                                                                                             30                                                                                                                                Contingent
     trates the offshore rig demand split by                                                                                                                                                                                                                                                    resources
                                                   70                                                                                                        20                                                                                                                                rig demand
     jack-ups and floaters. Jack-ups are typ-
     ically used in shallow water with water                                                                                                                 10
                                                   60                                                                                                                      Reserves rig demand
     depth up to 125 meters while floaters
                                                                                                                                                             0
     serve drilling demand in deeper waters.

                                                                                                                                                                                 2013
                                                                                                                                                                    2012

                                                                                                                                                                                            2014

                                                                                                                                                                                                       2015

                                                                                                                                                                                                              2016

                                                                                                                                                                                                                        2017

                                                                                                                                                                                                                                   2018

                                                                                                                                                                                                                                              2019

                                                                                                                                                                                                                                                       2020

                                                                                                                                                                                                                                                                  2021

                                                                                                                                                                                                                                                                             2022

                                                                                                                                                                                                                                                                                       2023

                                                                                                                                                                                                                                                                                                 2024

                                                                                                                                                                                                                                                                                                             2025
                                                   50
     From a high level of demand in 2012 to
     2014 of about 80 rig years, the late 2014
                                                                      40

     oil price collapse reduced drilling de-       40
                                                        40

                                                               40

     mand significantly. By 2018, demand was                                                                                                                 Figure 5.4: Cumulative offshore rig demand 2020-2025 per country                                        Exploration Rig Demand
     down to 35 rig years implying a reduction                                                                                                               Rig years                                                                                               Contingent Resources rig demand
     of 56%. 2019 was in that respect a more       30
                                                                                                                                                                                                                                                                     Reserves rig demand
                                                                             33

                                                                                                                                                             50
     promising year as demand increased
                                                                                                                                                      26

     towards 45 rig years, representing an in-     20
                                                                                    22

                                                                                                                                               28
                                                                                                         26

     crease of almost 30 percent.                                                                                                                            40
                                                                                                  20

                                                                                                                                        19
                                                                                           22

                                                                                                                              20
                                                                                                                       16

     At the start of 2020, the demand was          10                                                                                                        30
                                                                                                                18

     not expected to decline towards and
     below 2018 levels again, but the ex-
                                                                             30
                                                                      46

                                                                                                         20

                                                                                                                                                      24
                                                                                           16

                                                                                                  16

                                                                                                                                               19
                                                                                                                                        15
                                                        41

                                                               41

                                                                                                                              14
                                                                                    21

                                                                                                                       11

                                                   0                                                                                                         20
                                                                                                                9

     traordinary impact of COVID-19 means
                                                        2012

                                                               2013

                                                                      2014

                                                                             2015

                                                                                    2016

                                                                                           2017

                                                                                                  2018

                                                                                                         2019

                                                                                                                2020

                                                                                                                       2021

                                                                                                                              2022

     that estimates for 2020 and 2021 are
                                                                                                                                        2023

                                                                                                                                               2024

                                                                                                                                                      2025

     pointing to record low rig demand of                                                                                                                    10
     less than 30 rig years. It is in particu-
     lar floating rigs that will be impacted by         Figure 5.2: Offshore rig demand evolution                                    Floater
                                                                                                                                                             0
     lower demand versus the 2019 actuals.              Rig years                                                                    Jackup
                                                                                                                                                                   Egypt           Angola          Nigeria    Gabon            Ghana      Mozambique      Libya          Senegal       Congo            Namibia

                                                                                                                                                             Data Source: RigCube August 2020

30           African Energy Chamber                                                                                                                                                                                                                                 www.energychamber.org                         31
32
             African Energy Outlook 2021                                                                                                                                    COVID-19 capex cuts expected to impact drilling activity in 2021

                                                                                    Figure 5.5: High impact wells in
                                                                                    South West Africa
                                                                                                                                                                                                                        DRC
South West Africa                                                                      Ondjaba-1
                                                                                       Angola
                                                                                                                                     Graff
                                                                                                                                     Namibia
Exploration
                                                                                    Total (50%), Sonangol (50%)                   Shell (45%), Kosmos (45%),
                                                                                                                                  Namcor (10%)

                                                                                                                                                                                               ANGOLA
The southwestern coast of Africa, in-      the trigger to extend West African       Kaombo area well in 3600 meters water depth
cluding Namibia and South Africa, is       offshore petroleum activity further                                                    Graff prospect4
                                                                                    Lower Congo basin
home to perhaps the most anticipat-        south from Angola. Finally, the follow
                                                                                    Play opener potential                         Cretaceous fan, Orange basin

                                                                                                                                                                                                                        ZAMBIA
ed wildcats in 2020 and 2021 global-       up activity to the breakthrough 2019
ly. The prospects, if successful, could    Brulpadda discovery in South Africa
open new basins for development            has commenced in the second half            Osprey                                        Gazania-1
and trigger big new investments to-        of 2020 with the Luiperd prospect,          Namibia                                       South Africa
wards the latter half of the 2020s.        where a significant gas discovery
                                           was made in Q4 2020.                     Eco Atlantic (57.5%), Azinam (32.5%)          Africa Energy (90%), Crown Energy (10%)
High impact wells have been com-                                                    Namcor (10%)
municated by various participants          Total is here hoping to find more liq-
                                                                                                                                  Gazania prospect3
from Angola all the way down to            uids and confirm the South African
South Africa (Figure 5.5). French ma-
jor Total is in the driving seat of this
                                           offshore resource potential to further
                                           support a development agenda to-
                                                                                    Osprey prospect2
                                                                                    Albian toe of slope fan, Walvis basin
                                                                                                                                  Fluvio-deltaic interbedded sand,
                                                                                                                                  Orange basin                                                                          BOTSWANA
exploration where high impact and          wards the latter half of the decade.     800 MMboe potential                           350 MMboe potential
record setting wells will be drilled
in those waters. In Angola, the well       Other companies have also com-
                                                                                                                                                                                                       NAMIBIA
                                                                                       Aurora-1X                                     Wolf
planned in block 48 will be the deep-      municated their intention to drill in
                                                                                       Namibia                                       South Africa
est on record in terms of water depth      the area with the Orange Basin on
measuring about 3,600 meters. The          the border between Namibia and
Venus prospect in Namibia has per-         South Africa as the most activity        Maurel & Prom (42.5%),                        Maurel & Prom (42.5%),
haps the biggest impact potential as       area, and by extension, presum-          Azinam (42.5%), Namcor (8%),                  Azinam (42.5%), Namcor (8%),
its size and remote location can be        able also the most promising area.       Livingstone (4%), Frontier (3%)               Livingstone (4%), Frontier (3%)

High impact well reason                                                             Aurora prospect2                              Aurora prospect2
                                                                                    Albian sand fan and Cenomanian-Conia-         Albian sand fan and Cenomanian-Conia-
Frontier basin:                                                                     cian slope channel, Walvis basin              cian slope channel, Walvis basin
The basin with little or no exploration                                             >1000 MMboe potential                         >1000 MMboe potential

                                                                                                                                                                                                                         SOUTH
Large prospective resources:
                                                                                       Venus                                         Luiperd-1
The pre-drill estimates by the company are quite significant.                          Namibia                                       South Africa

Focus for Company:
The wells which are highly talked and strategically important for companies.        Total (40%), QP (30%), Impact (20%),          Total (45%), Qatar Petroleum (25%),                                                    AFRICA
                                                                                    Namcor (10%)                                  CNRL (20%)
Emerging Basin:
The basins where some significant recent exploration has taken place.               Venus prospect3                               Luiperd & Blassop prospects2
                                                                                    Cretaceous fan, Orange basin                  M. Cretaceous submarine fan,
Play Opening:                                                                                                                     Outeniqua Basin
                                                                                    1000 MMboe potential
The well targeting a new play or area within the province or basin.                                                               50% bigger than Brulpadda

                                                                                                                                                                                                                      Data Source: Rystad research and analysis

32           African Energy Chamber                                                                                                                                                                               www.energychamber.org                    33
34                                                                                                                                                                                     2020’s 30% CAPEX drop expected to be recovered
          African Energy Outlook 2021                                                                                                                                                               in 2022 on the back of mega LNG projects

2020’s 30% CAPEX drop
expected to be recovered
in 2022 on the back of                                                                                                            Figure 6.1: African upstream capital expenditure

mega LNG projects
                                                                                                                                  Billion USD nominal                                                                               Data Source: UCube August 2020

                                                                                                                                  70

                                                                                                                                  60

                                                                                                                                                            1

                                                                                                                                                                                                                                                           1
                                                                                                                                  50
Upstream investments expected

                                                                                                                                                                    2
to fall below $30 billion in 2020
                         and 2021       $80bn can be unlocked by                                                                  40

Rebound in investments can be           2025 pending market conditions

                                                                                                                                                                           2
strong, but depends on projects to      and policy reforms

                                                                                                                                                                                     3

                                                                                                                                                                                                                             5
be sanctioned in particular related                                                                                               30

                                                                                                                                                                                                8

                                                                                                                                                                                                                                        15
   to the East African LNG facilities

                                                                                                                                                                                                                  1
                                                                                                                                                                                                         1

                                                                                                                                                                                                                                                  27

                                                                                                                                                                                                                                                           30
                                        Investments are required to convert re-      Such pre-FID expenditures represent
Most service segments expect-           sources in the ground to revenue and val-    about 33 percent of CAPEX expected           20

                                                                                                                                                                                                                                                           4
                                                                                                                                                                                                                             12

                                                                                                                                                                                                                                                  6
                                                                                                                                                                                                                                        9
ed to see a decline in market size      ue. The investments represent jobs and       during the next five years. This remains

                                                                                                                                                                                                         9

                                                                                                                                                                                                                  11
with the exception of EPCI ben-         business for a plethora of African service   a heavy share of uncertain spending, and
                                        providers and is therefore an important      one that could translate into jobs and lo-
efitting from mega LNG projects.
                                        metric to the wider activity level around    cal content growth if approved. Put sim-     10
                                        the oil and gas industry. From 2020 to       ply, African regulators, policy-makers and
                                        2025, up to $80bn of capital expenditure     governments have the power to unlock

                                                                                                                                              2 58

                                                                                                                                                     2 63
                                                                                                                                       2 51
                                        (CAPEX) remains contingent and is pend-      an additional $80bn of investment by

                                                                                                                                                            1 56

                                                                                                                                                                    1 46

                                                                                                                                                                                                 1 29

                                                                                                                                                                                                                                                           20
                                                                                                                                                                                     34
                                                                                                                                  0

                                                                                                                                                                           37

                                                                                                                                                                                                         18

                                                                                                                                                                                                                             19

                                                                                                                                                                                                                                        19

                                                                                                                                                                                                                                                  19
                                                                                                                                                                                                                  17
                                        ing the taking of FID on new projects from   2025 if the right measures are taken and
                                        discovered fields (Figure 6.1).              the right policies are put in place.

                                                                                                                                       2012

                                                                                                                                              2013

                                                                                                                                                     2014

                                                                                                                                                            2015

                                                                                                                                                                    2016

                                                                                                                                                                           2017

                                                                                                                                                                                     2018

                                                                                                                                                                                                 2019

                                                                                                                                                                                                         2020

                                                                                                                                                                                                                  2021

                                                                                                                                                                                                                             2022

                                                                                                                                                                                                                                        2023

                                                                                                                                                                                                                                                  2024

                                                                                                                                                                                                                                                           2025
                                                                                                                                              Abandoned     Producing      Under Developement              Discovery            Undiscovered

34        African Energy Chamber                                                                                                                                                                                         www.energychamber.org                    35
36                                                                                                                                                                                                     2020’s 30% CAPEX drop expected to be recovered
              African Energy Outlook 2021                                                                                                                                                                            in 2022 on the back of mega LNG projects

Many global E&P players, including          2020 by 30 percent with no plans for a          to external influences such as export       Figure 6.3: Impact of Covid-19 and price crash
the international majors, are looking at    rebound in 2021. Kosmos seeks to be-            route disagreements and fiscal parame-      Offshore, especially deepwater projects taking the brunt of CAPEX cuts
significant cuts to their capital spend-    come cash-flow neutral in a $35/bbl oil         ters. Going into 2020, the expenditure      Million USD                                                                                           Data Source: Rystad Energy UCube
ing and operational expenditure. To-        price environment. Tullow has also re-          is expected to drop to below $30 billion
tal slashed its 2020 exploration and        duced its investment budget by about            representing an almost 30 percent drop                                                   Before COVID-19             After COVID-19
production budget by up to $2.5 bil-        a third this year and cut its exploration       versus 2019. The impact of COVID-19 is
lion and targets $800 million in sav-       spending by almost half to weather the          the main factor as it has deferred FID on   60K
ings in operating costs. The French         oil price storm.                                many projects (Figure 6.2).
major will also suspend its previously
announced $2 billion buyback pro-           From the peak in 2014 at about $65              Moreover, expensive deep-water              50K
gram, and the other majors are doing        billion, CAPEX in Africa has steadily           projects are most prone to the re-
the same. Independents with a strong        declined to under $40 billion by 2019.          duced outlook on investments (Figure
                                                                                                                                        40K
presence in Africa like Kosmos Energy       This decline is a result of lower activity      6.3), a key factor to take into account
(Kosmos) and Tullow Oil (Tullow) have       from new projects, general cost com-            given that the largest discoveries and
also reviewed their 2020 spending           pression in the industry and friction in        prospects on Africa’s Atlantic coast
                                                                                                                                        30K
plans. Kosmos has cut its CAPEX in          getting new projects sanctioned due             are in deep water acreages.

                                                                                                                                        20K

Figure 6.2: Impact of Covid-19 and price crash
Reduced sanctioning and delayed greenfield spending                                                                                     10K
Million USD                                                                                         Data Source: Rystad Energy UCube

                                                                                                                                        0

                                             Before COVID-19        After COVID-19                                                            2020      2021      2022      2023     2024          2025           2020      2021       2022          2023      2024     2025

60K                                                                                                                                                                            Producing           Under Developement              Pre-FID

50K

                                                                                                                                        The deferred projects and the projects       Figure 6.4: Investment outlook sensitivity based on oil price
40K
                                                                                                                                        originally slated for investments from       Million USD Nominal
                                                                                                                                        2022 onwards will together have the
                                                                                                                                        potential to contribute to a significant
30K
                                                                                                                                        growth potential. Should the projects         60K
                                                                                                                                                                                                                                                            Economics Mid Case
                                                                                                                                        materialize, the potential cumulative ex-
20K                                                                                                                                     penditure may increase to above $50
                                                                                                                                        billion by 2024.                              50K                                                                   Economics Low Case

10K                                                                                                                                     However, as Figure 6.4 illustrates, lower
                                                                                                                                        oil price expectations may shave of the       40K
                                                                                                                                                                                                                                                            Economics Low Low Case
0                                                                                                                                       growth potential as projects are not com-
                                                                                                                                        mercially viable and/or further deferred.                                                                           Economics
       2020      2021     2022    2023       2024      2025           2020      2021         2022      2023       2024      2025        With the oil price at $50/bbl, investments    30K
                                                                                                                                        are expected to only barely rebound in
                                       Producing        Under Developement               Pre-FID                                        real terms to 2019 levels by 2024.                  2019      2020      2021     2022      2023       2024      2025

                                                                                                                                                                                      Data Source: UCube August 2020

36            African Energy Chamber                                                                                                                                                                                                      www.energychamber.org                  37
38                                                                                                                                                                                                               2020’s 30% CAPEX drop expected to be recovered
          African Energy Outlook 2021                                                                                                                                                                                         in 2022 on the back of mega LNG projects

                               20

                               18

                               16                                                                                                                        Subsea Tiebacks and LNG Projects Remain
                               14
                                                                                                                                                         Pillars of Future Industry Spending

                               12

                                                                                                                                                         Out of all contingent projects yet      developments further boosts this          be amongst the last big conventional
                               10
                                                                                                                                                         to make FID between 2020 and            category in light of the mega-proj-       onshore projects in the world.
                                                                                                                                                         2025, investments related to sub-       ects expected in Mozambique.
                               8                                                                                                                         sea tiebacks is the single great-                                                 The third biggest category of upcom-
                                                                                                                                                         est category, reaching almost $20       The second biggest category is all in-    ing projects, at almost $15 billion, re-
                                                                                                                                                         billion across the period (Figure       vestments related to onshore produc-      lates to investments in onshore LNG
                               6
                                                                                                                                                         6.5). Subsea tiebacks are likely to     tion. Continued drilling of new wells     facilities. It is in particular the East
                                                                                                                                                         be more and more common as it           and other improvements are needed         African gas resources that is likely to
                                                                 Onshore LNG plant

                               4                                                                                                                         makes commercial sense to pig-          to arrest production decline in the ma-   trigger these investments. In terms
                                                                                                                    Fixed and floater
                                     Subsea tie back

                                                                                                                                        Other concepts
                                                                                     Steel platform

                                                                                                                                                         gyback smaller hydrocarbon accu-        ture areas of African onshore produc-     of resource size, these projects are
                                                                                                                                                         mulations on existing infrastructure.   tion. Big investments are also expect-    the biggest and most important in
                               2
                                                       Onshore

                                                                                                                                                         The breakeven therefore achieved        ed in Uganda and Kenya related to         Africa, and they will also help bring
                                                                                                             FLNG
                                                                                                      FPSO

                                                                                                                                                         from such a development solution        the greenfield onshore development        activity to a part of Africa that previ-
                               0                                                                                                                         is typically also very competitive.     of Lake Albert and the Lokichar Basin.    ously had not seen much hydrocar-
                                                                                                                                                         The offshore-related part of LNG        Such greenfield developments may          bons-related developments.
                               Figure 6.5: Contingent investment spending per project type
                               Billion USD Nominal
                               Data Source: UCube August 2020

38        African Energy Chamber                                                                                                                                                                                                                 www.energychamber.org                39
40                                                                                                                                                                                                   2020’s 30% CAPEX drop expected to be recovered
             African Energy Outlook 2021                                                                                                                                                                          in 2022 on the back of mega LNG projects

Out of upcoming major projects in Africa,     In its latest announcement, Shell dis-       (Rovuma LNG), which was to be sanc-         Figure 6.7: Upcoming Natural gas projects in Africa and their timeline and recoverable reserves estimates
the top six gas projects are all bigger in    tanced itself from deep-water mega-proj-     tioned this year, has now spilled over
terms of oil equivalents than the oil proj-   ects off the coast of Nigeria, placing the   to 2021 at best. The Ahmeyim and Ya-
ects (Figures 6.6 and 6.7). Taking into       Bonga Southwest-Aparo, a 150,000 bpd         kaar gas hubs off the coast of Maurita-                   Project                Country          Operator         FID*       Start-Up              Resources (MMboe)
account all cumulative investments per        FPSO development that was soon com-          nia and Senegal and a few other nat-
                                                                                                                                       MZLNG Joint Development (T1 - T2)   Mozambique      ExxonMobil         2025         2030                                    4625
country, Mozambique remains in clear          ing up for FID, on the backburner for now.   ural gas projects in the northern and
lead which further emphasizes how im-         Tullow is expected to delay the South Lo-    eastern regions of the African conti-       Area 1 LNG (T1 - T2)                Mozambique          Total          2019         2025                                    3590
portant the LNG projects are for the Afri-    kichar development off Kenya.                nent may have their FIDs postponed to       Area 4 LNG (T1 - T2)                Mozambique      ExxonMobil         2022         2026                                    2330
can investment outlook (Figure 6.8).                                                       2022–2023 as part of Kosmos’s plans
                                              The Palas-Astraea-Juno (PAJ) margin-         to trim down its capital expenses.          Yakaar - Teranga LNG Hub              Senegal              BP          2027         2032                                    2145
The majority of the projects in Africa that   al fields development operated by BP                                                     NLNG Seven Plus                       Nigeria           Shell          2019         2025                                    1450
were up for sanctioning were planned          in Angola is another project that could      The investments for the above projects
                                                                                                                                       Greater Tortue Ahmeyim LNG Hub       Mauritania            BP          2024         2028                                    1480
assuming an oil price of between $55          see delays due to a relatively high          will now see a timeline shift or even a
and $60/bbl. The oil price currently hov-     breakeven price and BP’s commit-             spending cut altogether, which will ul-                                                            Poly GCL
ering around $40/bbl therefore spells bad     ments to other parts of the world and        timately impact production levels in                                                               Petroleum
                                                                                                                                       Djibouti FLNG T1                      Ethiopia                         2022         2025                                    520
                                                                                                                                                                                             Investment
news, especially as the top upcoming FIDs     to the energy transition.                    this region. Current estimate is that the
                                                                                                                                                                                                 Ltd
in Africa have a breakeven crude price of                                                  timeline delays for these pre-FID proj-
                                                                                                                                       Assa North                            Nigeria           Shell          2025         2028                                    415
over $45/bbl, with some even close to         Upcoming gas projects will also take         ects in Africa could lead to a 200,000
$60/bbl. ENI and ExxonMobil have both         a hit and run a risk of delays. Although     bpd drop in liquids production on aver-     Tinrhert Gas Project                  Algeria         Sonatrach        2023         2025                                    385
stated that they will focus on developing     Nigeria approved the development of          age between 2021 and 2025.                                                       Equatorial
projects with a breakeven crude price         NLNG train 7 last year, the upstream                                                     Fortuna FLNG                                            Lukoil         2025         2029                                    250
                                                                                                                                                                             Guinea
of less than $35/bbl. The ENI-operated        gas developments that were planned           The impact could be much higher in the
                                                                                                                                       Quiluma/ Maboqueiro                                                                                                         250
Agogo full field development off Ango-        to supply feedgas to this development        longer term, with liquids production set                                          Angola             Eni           2021         2024
                                                                                                                                       (Northern Gas Complex)
la now faces getting delayed due to its       might now take a back seat. The FID for      to drop on average by close to 1.185 mil-                                                                                                                               215
                                                                                                                                       Yakaar (domestic)                    Senegal               BP          2023         2025
breakeven price of $45/bbl.                   the Area 4 LNG project in Mozambique         lion bpd over the years 2026 to 2030.
                                                                                                                                       HA                                    Nigeria           Shell          2022         2026                                    210

                                                                                                                                       Ima gas                               Nigeria           AMNI           2023         2028                                    185
 Figure 6.6: Upcoming Liquids projects in Africa and their timeline and recoverable reserves estimates                                 Sanha Lean Gas                        Angola           Chevron         2023         2026                                    115

               Project                   Country      Operator          FID*        Start-Up           Resources (MMboe)               Data Source: Rystad Energy UCube                                                                      Liquids   Gas

 Tilenga                                 Uganda          Total         2022           2025                                     945

 Bosi                                    Nigeria     ExxonMobil        2025           2029                                     790     Figure 6.8: Contingent invest-                     Other Countries
                                                                                                                                                                                          25%
                                                                                                                               700
                                                                                                                                       ment spending per country
 Bonga North                             Nigeria         Shell         2026            2031                                            Billion USD Nominal                                                                                       Mozambique
 Bonga Southwest | Aparo                 Nigeria         Shell         2024           2028                                     630                                                                                                               23%

 Owowo West                              Nigeria     ExxonMobil        2024           2027                                     550

 Etan | Zabazaba                         Nigeria          Eni          2028           2032                                     520

 Pecan                                   Ghana       Aker Energy       2022           2025                                     335

 Chissonga                               Angola          Total         2024           2029                                     290

 Kingfisher South                        Uganda        CNOOC           2022           2025                                     270

 Agogo FFD                               Angola           Eni          2022           2025                                     245
                                                                                                                                                                                   Algeria
                                                                                                                               220                                                 5%
 SNE                                     Senegal      Woodside         2020           2023
                                                                                                                                                                                                                                                        Nigeria
 South Lokichar Phase 1                   Kenya       Tullow Oil       2023           2025                                     220
                                                                                                                                                                                         Uganda                                                         15%
 Egina South | Preowei                   Nigeria         Total         2023           2026                                     190                                                       5%

 Palas | Astraea | Juno (PAJ)            Angola           BP           2022           2025                                     140
                                                                                                                                                                                                Libya
 Alho | Cominhos, Cominhos East (ACCE)   Angola          Total         2023           2027                                     85
                                                                                                                                                                                                8%

                                                                                                                                                                                                                                    Angola
 Data Source: Rystad Energy UCube                                                                    Liquids     Gas                                                                                           Ghana
                                                                                                                                                                                                                                    11%
                                                                                                                                       Data Source: UCube August 2020                                          9%

40           African Energy Chamber                                                                                                                                                                                               www.energychamber.org                  41
42                                                                                                                                                                                                    2020’s 30% CAPEX drop expected to be recovered
              African Energy Outlook 2021                                                                                                                                                                          in 2022 on the back of mega LNG projects

                                                                                                                                                            Figure 6.10: Cumulative capital expenditure per period
                                                                                                                                                            Billion USD Nominal
Services sector impact                                                                                                                                      80                                                                            Data Source: UCube August 2020

With the CAPEX and expected type                         As a result, EPCI is the only segment                from high activity and high contract rates    70
of projects defined, it is possible to                 expected to buck the trend of declining                from 2010 to 2014 while subsequent years
forecast opportunities offered to the                  expenditure on the back of the LNG facil-              saw a reduction in both activity and rates.
services industry. EPCI companies are                  ities expected to be constructed towards               The segment is also adversely impacted        60
expected to benefit the most from fu-                  2025 (Figure 6.10). The relative worst per-            by the large share of gas developments
ture spending (Figure 6.9), followed                   forming sector across the periods is drill-            towards 2025 as gas projects are a lot
by well services contractors.                          ing contractors. This segment benefited                less drilling intensive than oil projects.    50
                                                                                                                                                                                                                                                             2010-2014
                                                                                                                                                                                                                                                             2015-2019
                                                                                                                                                            40                                                                                               2020-2024

Figure 6.9: African upstream capital expenditure per service segment
Billion USD Nominal                                                                                                                                         30

                                                                                                                                                            20
60                                                                             Data Source: UCube August 2020

                                                                                                                                                            10

50
                                                                                                                                                            0
                                                                                                                                                                  EPCI     Well Services &   Internal &   Subsea     Maintenance &        Drilling         Seismic
                                                                                                                                                                           Commodities         other                  Operations        Contractors
40

30

20
                                                                                                                          EPCI
                                                                                                                          Well Services and Commodities
                                                                                                                          Internal and other
10
                                                                                                                          Subsea
                                                                                                                          Maintenance and Operations
                                                                                                                          Drilling Contractors
0                                                                                                                         Seismic
      2012

             2013

                    2014

                           2015

                                  2016

                                         2017

                                                2018

                                                          2019

                                                                 2020

                                                                        2021

                                                                                  2022

                                                                                         2023

                                                                                                2024

                                                                                                       2025

42            African Energy Chamber                                                                                                                                                                                                 www.energychamber.org                 43
44                                                                                                                                                                                                                 New market realities for 2021 expected to drive
          African Energy Outlook 2021                                                                                                                                                                                reviews of fiscal terms to improve competitiveness

New market realities for
                                                                                                                                        With better fiscal regimes, Africa could unlock $100bn in
2021 expected to drive                                                                                                                  investment and 1 million bpd in additional output by 2030
reviews of fiscal terms to
improve competitiveness
                                                                                                                                        To investigate the potential on African             regime, regarded as one of the most                    breakeven higher than the threshold
                                                                                                                                        production and investments from al-                 favorable globally.                                    will not be allowed to reach production.
                                                                                                                                        tering fiscal regimes, a simulation has                                                                    The difference between the $35/bbl
                                                                                                                                        been made whereby all projects with                 Figure 7.1 illustrates African liquids pro-            threshold and the $50/bbl threshold is
                                                                                                                                        an expected FID by 2026 are subject                 duction towards 2030 under different                   therefore all projects that can contrib-
                                                                                                                                        to both their original fiscal regime as             breakeven thresholds. The thresholds                   ute with production with a breakeven
Projected market conditions for
                                                                                                                                        well as the United Kingdom’s (UK) fiscal            imply that any pre-FID project with a                  between $35 and $50 /bbl.
2021 do not indicate a return to
high commodity prices, implying         The end of the
that the super profit era of petro-
                      leum is over.     super-profit era?
The industry cost base has been
                                        Petroleum resources and the extraordi-           haps even more important than the ac-          Figure 7.1: African liquids production at different BE cutoffs
adjusted, but African fiscal re-                                                                                                        Million bbls/day
                                        nary profit they have typically generated        tual resource base created by nature, in
gimes are often lagging behind
                                        in the past have resulted in various fiscal      terms of influencing the FID of a new proj-
and remain uncompetitive in this                                                                                                        10K
                                        regimes. The fiscal regimes are designed         ect. When the oil price was above $100/
              new environment.          in some way or another to ensure that            bbl, these fiscal regime rules could be fa-
                                        part of this profit is collected by the state.   vorable towards the state as the breakev-
Many African governments will take      Depending on the rules of the fiscal re-         en would in any case be low enough to
steps to adjust the fiscal regimes in   gime, there might be impacts on the in-          secure an investment decision. However,
                                        vestment metrics used by private compa-          with an oil price at $50/bbl and below,
 2021 to improve competitiveness.
                                        nies on executing new projects.                  the surplus that can be distributed is like-
                                                                                         ly much smaller. From a post-tax point
Using a UK-type fiscal regime           A common example of such a metric is             of view, it may then be difficult to justify   5K
can help unlock $100 billion in-        breakeven, or what revenue is required,          new investments as the fiscal regime is
vestments in a $50/bbl scenario.        as a function of quantity and price, to          too strict to make the project commercial-
                                        cover all cost, pay all government take          ly viable even if the intrinsic value of the
                                        and generate sufficient return. Ideally this     resource base would otherwise imply so.
                                        breakeven should be as low as possible
                                        to improve the likelihood of the project         The result is therefore a pressure on cost
                                        generating positive financial returns.           compression in fiscal terms similar to
                                                                                         what the industry has experienced with         0
                                        As such, the rules and parameters of the         investments and operational expenditure
                                                                                                                                              2010

                                                                                                                                                     2011

                                                                                                                                                             2012

                                                                                                                                                                    2013

                                                                                                                                                                           2014

                                                                                                                                                                                  2015

                                                                                                                                                                                         2016

                                                                                                                                                                                                2017

                                                                                                                                                                                                       2018

                                                                                                                                                                                                              2019

                                                                                                                                                                                                                       2020

                                                                                                                                                                                                                              2021

                                                                                                                                                                                                                                     2022

                                                                                                                                                                                                                                            2023

                                                                                                                                                                                                                                                    2024

                                                                                                                                                                                                                                                           2025

                                                                                                                                                                                                                                                                  2026

                                                                                                                                                                                                                                                                         2027

                                                                                                                                                                                                                                                                                2028

                                                                                                                                                                                                                                                                                       2029

                                                                                                                                                                                                                                                                                              2030
                                        fiscal regime is often very important, per-      in order to unlock new potential projects.

                                                                                                                                        Data Source: UCube

44        African Energy Chamber                                                                                                                                                                                                                    www.energychamber.org                      45
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