Africa’s oil giants poised to ride wave of rising prices

Sep 29, 2005 02:00 AM

The World Petroleum Congress is being held in Africa for the first time, and as African countries gear up for massive oil production expansion, the location is appropriate.
Plans by almost all of Africa’s oil-producing countries -- many announced for the first time at the congress -- to expand exploration and production are staggering. Africa’s biggest producer, Nigeria, has already announced plans to increase output to 4-mm bpd by the end of the decade, almost doubling the 2,4-mm bpd it produces.

Angolan officials announced at the congress that they planned to spend $ 26,9 bn to develop 8,27-bn barrels of resources and reserves between next year and 2010.
Algeria, Libya and Morocco have ambitious plans, and are likely to overtake Mexico, the world’s second-largest oil and gas producer, before the end of the decade.

The African oil giants’ confidence, almost verging on euphoria, has been boosted by the recent sharp increase in the oil price, which will result in large tax windfalls for oil-producing nations.
According to one estimate, the tax revenue from the oil price increase last year will result in a $ 5 bn windfall, increasing total tax revenue by 40 % for African oil-producing nations. This is likely to increase even more this year.

The groundswell of activity includes plans for oil pipelines to crisscross the continent and for the building of a host of refineries, which can cost up to $ 6 bn a pop. Nigeria has far too few refineries, which means it is unable to supply its domestic market with petrol.
Plans on the continent include tunnelling more than 4,000 km to create a pipeline from Nigeria to Algeria, and from there all the way to Spain and Italy. The continent has been through a period of extended growth, and produces about 10 % of world oil production, mainly through an “explosion of production and exploration” in the Gulf of Guinea.
Merrill Lynch strategist Refilwe Moloto agrees: “Many African nations have moved from being charity cases to investment cases.”

Behind the euphoria, it is clear there are problems and challenges. Many African countries bump up against institutional, financial and expertise restrictions that could temper plans in the long run. Moloto says Africa has not solved many governance problems, which could hinder concepts.
United Nations Conference on Trade and Development energy representative Lamon Rutten says that comparatively simple steps such as continental co-operation to harmonise product standards have not gone anywhere.

The African Petroleum Producers Association, which was conceived four years ago, did not yet have the required number of participants -- in terms of its establishing protocol -- to function. Speakers at the congress lamented a skills shortage in Africa, and emphasised the need for increased training, while others pointed out the low multiplier effect typically resulting from petroleum projects.
Raising finance could be a problem. Barkindo says that the total expansion plans of African countries between now and 2030 could amount to more than $ 10-tn. This is double the national savings that African countries are expected to generate over the same period.

Another example of difficulties that were experienced is the huge expectation gap between Angolan officials and large oil companies. This emerged in discussions about a refinery planned by Angolan state oil company, Sonangol, for the port city of Lobito.
Carlos Saturnino, Sonangol’s negotiations director, says that discussions are taking place to find a partner for the project who will take up a little more than half of the equity with oil majors including Total, Chevron and Exxon.

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