African potential is limitless

Nov 24, 2003 01:00 AM

by Neil Ford

African oil and gas has assumed a far greater global importance in the current climate of conflict in the Middle East. Africa's reserves and the new off-shore finds have turned into a major player in the field and the continent's vast gas reserves have a potentially unlimited market.
African oil and gas production has long played a considerable role in supplying global hydrocarbon needs. Algerian and Libyan oil production has been matched by the output of sub-Saharan Africa, mainly from Nigeria and Angola, while Algeria has been a major player in the LNG market for 40 years. Today, however, Africa is assuming an altogether bigger role in the oil and gas sector, and becoming of much more strategic importance, especially given the desire of many states to lessen their dependence on Middle Eastern suppliers.

With oil prices at the upper end of their historic range, any new discoveries and production developments are welcomed by net oil importers. While huge new discoveries in Iran and Kazakhstan make many of the headlines within the industry, exports from such regions to the main markets continue to be subject to political and strategic considerations. As a result, new offshore discoveries that are made well away from the narrow waterways of the Middle East are even more popular with policy makers in the West, although their total reserves may be considerably more limited.
Three such regions have been developed as the result of technological advances which enabled economic production of oil fields in increasingly deep water. Deepwater fields in the Gulf of Mexico and the Campos Basin of Brazil are located close to the world's biggest market in the US, but transport times from the Gulf of Guinea are not much greater. Production from West and Central African fields can be shipped to North America or Western Europe across open seas that cannot be bottlenecked by potential conflict or political upheaval.

Traditional areas of production in the Niger Delta and the Cabinda enclaveof Angola, plus the mature fields of Congo-Brazzaville and Gabon, are being complemented by a range of new fields which are gradually being brought on stream.
In Angola, ExxonMobil's Kizomba fields and TotalFinaElf's Girassol complex are in the process of being developed, while other major finds such as Dalia, Lirio, Orquidea and Tulipa have been made over the past couple of years. In Nigeria, Shell's Bonga, EA and Forcados fields and ExxonMobil's Erha and Yoho discoveries rank among the biggest finds.

Africa holds more deepwater oil reserves than anywhere else in the world and its fields are also the largest. While onshore production in the Middle East, North America and Siberia continues to dominate global production, much of the new production brought on stream over the next two decades is expected to be sourced from deepwater fields.
Moreover, as the use of floating, production, storage and off-loading (FPSO) vessels becomes commonplace and other technological advances are developed to cope with ultra deepwater production, exploration efforts in offshore areas lying in 1,500-3,000 metres of water in the Gulf of Guinea are expected to be stepped up. The importance of the Gulf of Guinea and surrounding region has also been highlighted by the accession of several new countries to the ranks of the oil producers.

Equatorial Guinea looks set to become the third biggest oil producer in sub-Saharan Africa within a few years, while the neighbouring offshore archipelago state of Sao Tome and Principe could potentially be catapulted into the same league. The licensing round for the Nigeria-Sao Tome and Principe joint development zone (JDZ) was finally launched in April. Bids for the nine deep and ultra deepwater blocks were due to close on 18 October, with the selected companies and consortia to be named shortly thereafter, although bidders are understood to be concerned about the financial requirements of the licences.
Another new producer was born in July this year, when one of the biggest single investment projects in Africa finally came on stream and the first oil flowed down the Chad-Cameroon oil pipeline. With field and pipeline development costs of around $ 3.7 bn, the scheme is certainly the biggest ever investment into Chad and one that could revolutionise that country's revenues.

The scheme could also trigger increased exploration investment inland from the West African coast, particularly in the Lake Chad Basin, while it could also lead to the development of as yet untapped fields in Cameroon, for which it would be uneconomic to construct a separate pipeline.
Apart from its growing importance in terms of oil production, Africa also looks set to makes the most of growing global demand for gas. While the Songo Songo scheme in Tanzania and the Sasol led product to develop Mozambican gas for use in South Africa highlight the increased use of natural gas within the continent itself, most investment is being put into export projects. Over $ 3.8 bn has already been invested into the Nigerian LNG Bonny Island plant, which will eventually produce 17 mm tpy of LNG, making Nigeria the world's third biggest producer by 2007.

Algeria has maintained a healthy LNG sector but has put most effort into supplying piped natural gas to the newly liberalised gas and power markets of the European Union. With two gas pipelines to Southern Europe already in place and another two at the planning stage, the country is already the second biggest supplier to Western Europe after Russia.
Increasingly stringent environmental legislation should lead to a further dash for gas, particular in the accessor states of East and Central Europe, as a growing number of plants move away from oil and gas fired production towards the use of natural gas as a feed-stock.

Nigerian participation in helping Algeria supply this demand has also been mooted. The $ 7 bn Trans-Saharan Gas Pipeline (TSGP) project to transport Nigerian gas to the EU via Algeria's existing gas pipeline infrastructure seems highly ambitious.
However,with the required level of supplies and potential markets already in place, the scheme -- or one very like it -- could help the Nigerian government to enforce the phasing out of gas flaring. However, a number of other less ambitious projects will be required if the Gulf of Guinea oil producers are to make the most of their associated and non-associated reserves of natural gas.

One area where African oil producers have failed to make a great deal of progress is in increasing the proportion of oil production that is actually refined on the continent. Much of the value of refined petroleum products is added at the refining stage and at present, the lion's share of African oil is exported in the form of crude oil for processing elsewhere in the world. Although a global top 10 oil producer, Nigeria is infamous for not being able to supply its own needs and actually imports a large slice of its fuel requirements.
This absurd state of affairs is attributed to manipulation of the sector by fuel marketers and smuggling to neighbouring states with higher fuel prices. However, the installation of greater refining capacity would enable Nigeria to supply its own needs as well as those of many other countries in the region.

The official capacity of the country's main four refineries is 438,750 bpd but a lack of investment over a long period means that they generally operate well below this figure. The government is attempting to attract foreign investment into the sector but market conditions appear to be discouraging private operators.
Angola finally looks like boosting its refining capacity from the current level of 39,000 bpd. TotalFinaElf is to increase capacity at the existing Fina Petroleos de Angola plant to 60,000 bpd by the start of 2005, while a new 200,000 bpd plant is to be built in the town of Lobito providing foreign partners can come up with 40 % of the installation's $ 5 bn construction costs.

On the distribution and retailing side of the sector, investment continues to be made by a variety ofcompanies, including the majors and domestic firms in Nigeria and South Africa, while the Addax & Oryx Group has invested heavily in a variety of downstream infrastructure in countries from Nigeria to Tanzania, including service stations and storage facilities.
Large scale investment has made the oil and gas industry the most important sector in Africa after agriculture. The levels of proven reserves of crude oil and overall production are rising rapidly, and sustained high oil prices should lead to yet more investment. However, it is up to the continent's oil producers to make the most of what were previously seen as mere spin-offs of the oil sector.

Gas exports have the potential to generate as much income as oil production but governments have failed to take the sector seriously, while the obsession with crude oil has also led to widespread under-investment in African refining.
Only when African oil producing nations come to view the sector holistically, can they expected to make the most of their natural wealth.

Source: African Business
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