JOHANNESBURG,
South Africa, May 4, 2020/ -- 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. And 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.
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