African Superpower

With African oil production progressing at an outstanding pace is it time to say farewell to the old guard and welcome the new champions of petroleum production? In 2011 the International Energy Agency published a report to say the top 10 oil producing countries accounted for 63% of the world’s petroleum production. Furthermore not one African country is featured in the top ten. The first to feature being Nigeria at number 13 producing 2.5 million barrels per day. Interestingly the top spot was not Saudi Arabia but Russia producing 10 million barrels of crude oil everyday. In 2013 The Richest, produced a top 10 African list and showed Nigeria was still top within the African continent and South Africa came last in the round up.

So what does this mean for Africa as a continental petroleum superpower and what is the impact for new suppliers like Uganda? The Society of Petroleum Engineers (SPC) recently highlighted a 2002 report from Washington, saying that within the next 50 years Africa will overtake the Middle East as America’s main petroleum provider. This is considered quite amazing by many, considering the tight stranglehold the Middle East has over global petroleum markets. I remember OPEC (Organisation of the Petroleum Exporting Countries) slowed down oil production in the early 80s and this had an instant impact on the stock market sending the price of crude oil to an all time high, leading some to suggest it was a deliberate ploy to increase profits. When this is coupled to the knowledge that 60% of the biggest petroleum discoveries were found in Africa it does beg the question do we need the Middle East in the next 10 years? Certainly a number of countries will be looking to source their supplies from other places and this may produce a pricing war as emerging countries try to forge a path into a new hydrocarbon marketplace.

The Africa oil and gas review states that Africa has reserves of over 100 trillion barrels of crude oil which equates to about 8% of the world’s supply so is the U.S buying all the African oil and gas? Well in the early 2000 Nigeria along with Angola and Algeria did provide a good portion of their supply. However in 2014 that market has dried up as America moved into shale hydrocarbon release systems. Now the biggest importer of African oil is India closely followed by China, who happens to be the two fastest growing emerging global economies. With the increase in financial wealth and the rise of the middle classes, people from those countries have a greater available income which in most cases is spent on the high street buying goods made from petroleum derivatives.   

This shows how unpredictable oil and gas markets can be, especially with new technologies allowing companies to extract hydrocarbons from previously unreachable sources. Therefore the global dynamic can easily change with every new reservoir discovery, new release in technology or political instability changing the positioning of the major suppliers. So what is needed for the African markets to expand? Certainly there is a need for additional resources, in Europe governments are under a lot of pressure from environmental groups like Greenpeace to reduce hydrocarbon footprints and minimise the use of fossil fuels. In the UK heavy discounts are being offered to consumers to buy solar panels to provide hot water, electric cars and even to buy new fuel efficient petrol vehicles.

However the environmental lobby has not made as much impact on newly emerging markets. China and India are petroleum hungry as they develop their countries. After speaking to a number of consumers in Nigeria and Uganda, they were more concerned about the price and supply of fuel rather than the effects on the environment. Therefore demand in Africa is high and growth can come at an astonishing rate but can African countries properly unlock their true potential? There must be a good infrastructure available and in place before production starts this means pipelines, roads and refineries are ready. A properly skilled workforce have been hired or trained. Also health and safety guidelines need to be drafted and passed by parliament to ensure good safety practices by the operators to avoid injury to employees and waste pollution to the surrounding environment.

Regulations in Europe have become progressively strengthened in a attempt to stamp out price fixing and corruption. However such regulations have either not been implemented or not enforced within the African continent. In recent years it has been reported that Nigeria has lost close to $29 billion due to possible price fixing by the operators Shell, Total and Eni. This situation has forced the Nigerian government to create a special taskforce to help combat corruption within the oil industry. The problem is that the amounts of money involved can easily push a supplier to either take unnecessary risks in the production stage, cutting health and safety corners or do illegal trading to increase profits.

Many countries now use expert auditors to oversee such projects. I am personally involved in training members of parliament in the proper use of governance to aid correct decision making when deciding on the right petroleum contract that  servers both local community and national interests. Due to this new awareness by many members of parliament, organisations have started to voluntarily correct any potential misconduct before government intervention forces them. Recently Statoil, a prolific Norwegian oil company recently changed one of its state partners to a couple of local companies who had a much better record and more transparent business accounting.

Wherever a country is along the development cycle either fully fledged crude oil production and refining or has just started exploration. It is important to assess the available technology, accessibility of the reservoir, the geology and political stability and willingness to grow. But most important of all is having the right people in the right places. Locally trained experts who have a passion for their country and want the best for it and its people.