In honor of Africa Oil Week, November 3-7, 2014, Canary, LLC is taking a closer look at Africa’s rapidly changing oil and gas landscape. Our blog this week will feature two posts about the oil and gas opportunities that several African nations are poised to offer.
There was a video circulating on Facebook recently about the images of Africa that the media tends to bypass: images of thriving, modern cities; stunning architecture; and successful businesses. No doubt the African continent faces its share of challenges, but that video strikes a chord because Africa is also rich in promise, opportunity, growth, and excitement. I saw that side of Africa in spring 2014, when I joined US Secretary of Commerce Penny Pritzker’s trade mission to Ghana and Nigeria. There, I joined 19 other delegates from US businesses in panel discussions and meetings focused on Africa’s energy sector.
There’s plenty to discuss, too. The energy industries in both Ghana and Nigeria are at critical junctions: The right turn could result in real growth and opportunity, while a wrong move could foster even more difficulty. Depending on how the governments of these countries respond – and whether outside businesses invest in these sectors – we could really see oil and gas take off and create a brighter, more stable future for residents.
Ghana: Powerful Changes Ahead?
Ghana undoubtedly faces some hurdles to clear when it comes to meeting the country’s energy needs.
Alfred Ogbamey, a spokesman for the Ghana National Gas Co., said Ghana’s power generation has been hampered by an unreliable supply of natural gas from Nigeria, low water levels in the country’s hydroelectric dams, and maintenance work on existing plants.
Ghanaians have struggled with intermittent power for a decade now. But perhaps now is the time for change: They’re hoping the nearly completed Atuabo gas processing plant will put an end to the outages.
Ghana National Gas Co. says it expects the Atuabo plant to begin full operations by the first quarter of 2015. The plant will use volumes of natural gas from the deepwater Jubilee Oil Field in offshore Ghana. If all goes according to plan, the plant could open the door to a new season of reliable energy and economic growth.
US Provides a Shot in the Arm
Gene Cretz, US Ambassador to Ghana, recently projected that Ghana’s energy sector could turn around within two or three years. The result? Great potential for widespread socioeconomic transformation.
The US already has taken steps to help boost Ghana’s economic health by approving a $500 million Millennium Challenge Corporation (MCC) Compact for Ghana. The MCC is a US foreign aid agency focused on battling global poverty. Its compacts – multi-year agreements – direct funding to specific areas to boost economic growth. And this is actually the second one the US has established for the African nation – a real show of our confidence in the country’s potential.
“It’s very rare for the US to provide a country with a second compact; this is going to focus on improving the generation, distribution, and access to power throughout the country,” Cretz said during an interview with the Ghana News Agency. “The MCC Compact project is also going to bring in over $3 billion dollars with the private sector investment in the country.”
The Jubilee Oil Field represents another set of challenges and opportunities for Ghana. This offshore oil was discovered in 2007 and began producing in December 2010 at a project led by British oil firm Tullow. Now oil exports represents a significant portion of the country’s gross domestic product growth. In fact, Ghana expects to increase its oil output to 190,000 barrels of crude per day by the end of 2016, the head of Ghana National Petroleum Corp. (GNPC) announced October 23.
So it was not good news to the government when workers went on strike at Jubilee on October 29. The 40-worker crew, which works for MODEC Ghana Limited, says the strike is to protest poor working conditions. They also complain that the company pays expatriate workers more than the Ghanaian workers.
The communications consultant at Ghana’s Energy Ministry, Edward Bawa, said the company involved is a private one, and the government cannot impose a directive on it. Bawa is encouraging open dialog among workers and company leadership.
“These workers, whose contribution is very valuable, we want to see them to work because we need the oil,” Bawa said. “We need to export the oil, and we need to get the revenues to be able to meet the critical social interventions which the government seeks to achieve.”
But not all of the news is bad. Tullow and its partners, including Anadarko Petroleum Corp., have committed to investing $2.2 billion next year to drill wells in Jubilee and Ghana’s offshore Tweneboa-Enyenra-Ntomme, or TEN, oil fields. The TEN project, valued at $4.9 billion, will start production by the middle of 2016. It is expected to add 80,000 barrels of oil to the country’s daily production, which is about 103,000 barrels per day now.
Sharing the Benefits
There’s every reason to be hopeful about Ghana’s future in oil and gas, the country’s leaders say. Emmanuel Armah-Kofi Buah, Minister for Energy and Petroleum, promised earlier this fall that Ghana’s oil and gas resources would continue to serve as a blessing – rather than a curse – to the country.
With that idea in mind, the government has announced an agreement with the Singaporean government to have 40 Ghanaian technicians and 15 engineers work with Singaporean counterparts at Singapore’s Jurong Shipyard, where Ghana’s second Floating Production Storage and Offloading (FPSO) vessel is being built. The Ghanaian professionals include men and women who are being trained to work on the new FPSO being built for TEN field.
“Ghana has made significant progress in developing the critical regulatory framework for the oil sector, including the Petroleum Revenue Management Act (PRMA),” Buah said. “We are also building a critical cadre of Ghanaians with the capability to protect the interest of Ghana.”
Another piece of the puzzle for Ghana’s energy goals: The Tullow Group Scholarship program, in its fourth year, spends about $2.7 million annually on Ghanaian beneficiaries who are selected through a competitive selection process organized by the British Council in Accra. Already, 174 Ghanaians have been trained through this initiative. This year, 50 new Ghanaian beneficiaries will travel to the UK to train in the fields of interest to them on Tullow’s scholarship.
Nigeria’s Pressing Challenges
While Ghana’s energy future brightens, nearby Nigeria is facing a dark reality. On October 30, the Nigerian Association of Petroleum Explorationists (NAPE) announced that the country’s oil exploration had reached the lowest point in its history.
The shale energy revolution in the US has led to a sharp drop in American demand for Nigerian oil and gas. At the same time, amped up oil and gas production in other African nations has made the global market even more competitive for Nigeria.
“For the first time in several years, the nation’s reserve is showing a sign of decline as exploration drilling has hit the lowest level ever experienced in the nation’s history,” NAPE President Adedoja Ojelabi said. “Expectedly, reports of new discoveries are few and far between and where reported, the reserves are getting smaller.”
During its 32nd annual International Conference and Exhibition, to be held November 9-13 in Lagos, NAPE plans to look at emerging and revolutionary technologies for hydrocarbon exploration, the commercialization and exploration strategies for deepwater plays, and portfolio growth and diversification of hydrocarbon potential in inland basins.
Around the same time Ojelabi was sharing her unpleasant news, the managing director of Nigeria’s Pipelines and Products Marketing Company Limited, Haruna Momoh, announced that 80% of the country’s 5,120km pipeline network for petroleum product distribution has been vandalized. As a result of the vandalism, Nigeria has been struggling to distribute petroleum products.
As if things weren’t bad enough: Nigeria’s infrastructure has been a thorn in its energy productivity for some time, from aging pipelines to poor roadways to limited trucks for product haulage. This oil and gas crisis will require decisive action – by the government and outside investors.
The Search for New Markets
Nigeria definitely poses unique challenges for firms seeking oil business opportunities, says Albert Goldson, executive director of Indo-Brazilian Associates LLC, a NYC-based boutique global advisory firm and think tank. Goldson recently shared his thoughts on Nigeria by email.
“Almost every oil-producing country presents high risks ranging from militant activity to extreme government corruption,” says Goldson, who also is a member of the Association of Former Intelligence Officers. “However, the biggest risk may be on the business side with respect to finding new markets. Because of the record US shale-to-oil production, Nigerian oil exports to the US have dried up despite possessing Bonny Light, a much-desired low-sulfur, high-quality oil.
“The current strongest market for oil is China, which is purchasing copious amounts to fill their strategic reserves combined with record low oil prices. However this unusually strong demand may be temporary. Additionally, militants and black marketers, often with government connections, siphon off as much as 20% of Nigerian’s oil production, which may pose an unacceptably high financial risk.”
Calls for US Action
The president of the Nigerian-American Chamber of Commerce, Sam Ohuabunwa, has called upon the US to increase investments in Nigeria, noting that Nigeria has yet to benefit from the African Growth and Opportunities Act (AGOA). The US established AGOA in 2000 to provide duty-free and quota-free markets for goods from sub-Saharan African countries imported into the US. Ohuabunwa says the incentives on the AGOA platform are not sufficient to balance the trade volume deficit between Nigeria and the US.
What Nigeria really needs, the Society of Petroleum Engineers (SPE), Nigeria Council, says, is $100 billion in investments to reach its 2020 goal of producing four million barrels a day of oil. Equally critical, the council says, is the creation of a stable regulatory environment. The country could take a step toward that goal by speeding up passage of the Petroleum Industry Bill (PIB).
The council’s chairman, Bernard Oboarekpe, adds that indigenous companies should look toward the capital market to raise the huge capital required for expected industrial growth and expansion. The discovery of oil and gas in many more African countries can represent opportunity, he noted– opportunity for Africa to integrate, encourage in-continent utilization, and evolve from exporter of natural resources to exporter of finished products.
“African countries must invest now on infrastructural development and encourage free trade within the region to prepare themselves for any future global energy crisis,” Oboarekpe said.
Nigeria does maintain one advantage: that of refining capabilities. The Independent Petroleum Marketers Association of Nigeria (IPMAN) has said that the local refining of the nation’s crude remains the only way to stem the effects of declining crude oil prices on the Nigerian economy.
Chinedu Okorokwo, IPMAN National President, said the decline of price of crude oil at the international market should not disturb Nigerians, adding that local refining would cushion other expenses and boost Gross Domestic Products (GDP). According to him, more than 243 byproducts are associated with crude oil, but only three are maximized in Nigeria.
“When we refine our crude locally, we harness more products to boost the country’s economy. We should not entertain any fear on the current decline in crude oil prices globally,” said Okorokwo. “IPMAN is working seriously to ensure that the proposed three billion dollars refineries in Kogi and Bayelsa come on stream by 2016 to reduce cost of refining outside the country.”
More Signs of Hope
In addition to its refining capabilities, Nigeria is seeing other signs of hope.
IFC, a member of the World Bank Group, announced in late October an $87.5 million loan to Nigerian bank FCMB that will help fund infrastructure and green energy projects, and strengthen smaller businesses in the country, spurring job creation and economic growth.
Chartered Institute of Management Accountants (CIMA), said it’s not giving up on Nigeria, either. It has committed to contributing its expertise towards building a base of financially qualified business leaders that will grow Nigeria and its economy.
“We are looking forward to developing the country’s talent base and further enhancing its position as a leading African economy,” Managing Director Andrew Harding said. “A CIMA Centre of Excellence will be established in Nigeria to develop the field of management accountancy in Nigeria. “This, in turn, will make it easier for Nigerian management accountants to stay at the cutting edge of business evolution. Such expertise is essential if Nigeria is to achieve its goal of becoming one of the top 20 economic nations by 2020.”
Nigeria and Ghana’s oil and gas industries, like the nations themselves, are never going to be simple. There are very real difficulties ahead, but there’s no reason to overlook the promise.