JOHANNESBURG – Africa is likely to experience continued oil and gas investment over the next three to five years as the stabilisation of crude prices above
US$ 60 a barrel, coupled with the continent’s rapidly expanding population, lure both major and independent oil producers to one of the world’s last remaining energy investment frontiers, says Standard Bank.
A string of successful exploration projects over the last decade has seen the number of African countries with proven oil and gas reserves rise to 28 thanks to new discoveries in Ghana, Niger, Mozambique, Uganda, Kenya, Senegal, Mauritania and South Africa. The investment required to bring these countries on stream will add further impetus to Africa’s oil consumption, which at 4 million barrels a day already significantly exceeds the continent’s 2.1 million barrels of daily refinery output, according to Standard Bank.
“An expanding population, rapid urbanisation and accelerating economic growth are causing the gap between Africa’s demand for gas and petroleum products, and its ability to supply them, to incrementally widen over time,” says Dele Kuti, Head of Oil and Gas for Standard Bank Group. “This will serve to attract further investment from both major and independent oil producers, which in itself will exert further pressure on the demand side of the equation as the resulting infrastructure investment in refineries, roads, pipelines and housing drives energy consumption.”
Africa’s oil and gas sector is once again attracting investment from exploration companies and refiners following a prolonged break sparked by a slump in oil prices which saw crude drop to below US$ 30 a barrel in early 2016. An improvement in oil prices, which Mr Kuti says are expected to average between US$ 60 and US$ 70 a barrel over the next three to five years, are attracting greater interest in the continent, which is seeing a population boom that will likely see the number of people double to 2.5 billion by 2050 according to UN projections. The BP 2019 Energy Outlook says Africa is 6% of global energy demand by 2040.
In 2018, the International Energy Agency (IEA) projected global energy demand would grow by more than 24% to 2040, requiring more than US$ 2 trillion a year in investment to bring new energy supply on stream. Given Africa’s burgeoning population and economic growth, it is likely that a portion of this investment will be directed towards the continent’s relatively untapped energy market.
“All of this investment activity will in turn spur demand for lending, deal structuring and transacting capabilities across the continent,” says Mr Kuti. “Institutions with deep knowledge of the continent stand to benefit from those initiatives.”
Standard Bank is one of the largest oil and gas lenders in Sub-Saharan Africa given its on-the-ground presence in 20 countries across the continent. It’s Corporate and Investment Banking (CIB) division has a deep specialisation in Africa’s natural resources sector, where it has built up an enviable track record across the full spectrum of the mining, oil and gas value chain. These capabilities range from investment banking and advisory services to foreign exchange and commodities trading as well as the provision of working capital, cash management and forex solutions.
Some of the deals Standard Bank has been involved in during the last three years include the provision of US$ 225 million towards a US$ 2 billion facility for Petrobras O&G BV in Nigeria; US$ 175 million of a US$ 2.5 billion loan to Tullow Oil for Pan African expansion; provision of US$ 136 million of a US$ 1.5 billion facility for Kosmos Energy in Ghana, served as joint book – runner for the US$ 750 million Vivo IPO, US$75 million to Coral LNG in which Standard Bank was the only African Bank at financial close as well as supported in US$ 1.8 billion worth of trade flows relating to fuel / refined product imports into sub-Saharan Africa. Last year Standard Bank also provided US$ 80 million in reserve-based lending to Svenska Petroleum Exploration; US$ 136.5 million to Kosmos Energy Ghana, and US$ 40 million to Eland Oil & Gas in Nigeria.
“We have a wealth of knowledge across our team and have acted as mandated lead arranger, bookrunner, facility and security agent, and onshore bank for a number of international players in the industry,” says Mr Kuti. “Our understanding of the continent is unrivalled, which coupled with our deep institutional knowledge base and industry expertise, means we are able to provide the necessary bespoke services required to successfully navigate the complexities of doing business in Africa’s frontier markets.”