Stunning drops in crude oil prices—the result of
COVID-19-related declines in demand and an oil price war between Saudi Arabia
and Russia—have been taking their toll around the globe this spring. For
Africa’s oil-producing countries, where crude oil exports make up a large
portion of their revenue, the situation is especially dire.
In Nigeria, for example, Finance Minister Zainab Ahmed
recently warned of an imminent recession and requested billions of dollars in
international emergency funding.
As of the second week of April, national oil production in
Angola was expected to fall from 1.8 million to 1.36 million barrels per day as
the government prepared to freeze 30% of its goods and services budget.
Ghana, according to the Africa Centre for Energy Policy,
stands to see a 53% shortfall this year in projected revenue from crude oil
sales. There are similar difficulties across the continent.
There has been a ray of hope: a landmark production-cut
agreement among OPEC, OPEC+ and G20 stakeholders on April 12 put an end to the
oil price war. Shortly after that historical agreement, the African Petroleum
Producers Organization (APPO) committed to significant crude production cuts of
its own, effective May 1. While demand remains a concern, the production cuts
will help lower oil inventories and should bring some stability to the oil
market.
I am not saying we can expect smooth sailing from this point
on. There’s no denying that the COVID-19 pandemic will continue to test African
countries on multiple fronts, from the health and safety dangers it poses to
our people to the economic devastation and low demand for crude. The situation
is painful, but it’s not permanent. And when this chapter is over, African
countries will recover.
This is the time to lay the framework for that recovery.
When demand for crude oil increases again, and it will, Africa will need
exploration and production activities to resume. That means oil and gas
ministries should be working now on regulations that foster a more enabling
environment for investors and businesses. We should be fine-tuning our local
content policies and exploring technologies that can contribute to a leaner,
more profitable petroleum sector.
Last October, I released a book that explains how we can
accomplish these things, along with other measures that will help Africa better
capitalize on its oil and gas resources. The ideas and examples it provides
remain on point. We can still do this.
Exploring Solutions
With demand for oil at a historic low, it may seem odd to
talk about E&P activity. But, as I have said, the situation we find
ourselves in now is temporary. After we get through the current crisis,
production will play a critical role in our economic recovery.
We need indigenous companies involved so employees, business
partners, and suppliers can benefit from these activities. We also need foreign
companies that are willing to share knowledge and technology—and to create
economic opportunities in the communities where they operate. That’s why it’s
vital that government leaders take steps now to remove obstacles to launching
production, from red tape and lengthy delays to excessive taxes.
Governments also need to support smaller independent
companies by breaking exploration maps into smaller sections. And we need
better fiscal terms for companies like breaks on import duties.
This isn’t my first time to call for these things, I cover
them in-depth in my book, Billions at Play: The Future of African Energy and
Doing Deals. But in the COVID-19 era, they’ve become more important than ever.
Local Content:
Striking a Balance
African countries need to develop fair, balanced local
content policies that create economic and educational opportunities for
Africans without overly burdening foreign investors and discouraging them from
operating here. A shining example of this kind of balance can be found in
Equatorial Guinea, which I wrote about in Billions at Play.
“The government enacted requirements for international
companies to hire Equatoguineans, contribute to training programs, and work
with local subcontractors. They were careful to balance the need to boost local
industry, however, with the limitations of the current local industry. They
understood how unrealistic it was to require 100 percent local content until
more training, education, and local capacity in that field is created.”
I’d like to see more African countries consider the example
of Equatorial Guinea, along with successful local content policies in Nigeria
and Angola, also covered in my book. Effective local content is key to helping
everyday Africans realize the benefits of Africa’s oil and gas resources. This
is a good time for leaders to look at what works and what doesn’t in their own
policies and make the necessary adjustments.
It’s Time for More
Tech
COVID-19 has forced companies around the globe to rely on technology
to function, whether they’re using it to hold virtual meetings or monitor vital
assets. I’m confident that technological solutions will play an important role
in the comeback of Africa’s oil & gas industry, too.
In my book, I described technology’s potential to help
indigenous African oil & gas companies operate more efficiently and boost
profits, which in turn, benefits their communities and promotes economic
growth.
“Innovations such as the development of new ways to drill
wells and handle equipment, the design of new seismic data collection programs,
the management of petroleum data systems, and the monitoring and protection of
internet-connected equipment have the potential to redefine how business is
done in this sector.”
Now, with economic difficulties and low oil prices, benefits
like these could be more valuable than ever. I encourage African oil and gas
companies to work with one another, and with local tech firms, to augment their
technological capacities.
African companies also should be pursuing partnerships with
foreign investors that are open to technical knowledge and skills transfers.
Billions at Play describes the successes that Angola-based Friburge Oil &
Gas has had partnering with international technology providers to drive
efficiency and environmentally friendly production methods.
We need to see more companies doing the same. Governments
can support these efforts through local content policies that call for
knowledge sharing, along with the creation of educational initiatives and
public-private partnerships.
Long before the unthinkable happened, and COVID-19 changed
our world, I made a case for strategically harnessing Africa’s oil and gas
resources to create stability and economic growth. Now, because of the
pandemic, we find ourselves in a difficult place with extremely low oil prices
and faltering economies. As a result, some of those strategies I’ve recommended
may have to go on hold.
Nevertheless, the steps I’ve put forth to help us reap the
full benefits of our petroleum resources will still have merit when we emerge
from this trial. If we start preparing now to set them in place, they’re even
more likely to be successful.
By NJ Ayuk: The
Executive Chairman of the African Energy Chamber, CEO of pan-African corporate
law conglomerate Centurion Law Group, and the author of several books about the
oil and gas industry in Africa, including Billions at Play: The Future of
African Energy and Doing Deals.
Distributed by APO
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