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Wednesday, February 24, 2021

Operators pulling back oil and gas investments in Africa as world economy falters

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(GlobalData) The coronavirus pandemic and weak global economic outlook coupled with fragile energy demand has resulted in a decline in oil and gas prices. The all-pervasive nature of these circumstances has also impacted the African midstream sector, forcing several major midstream oil and gas operators to revisit their strategies and reduce capital expenditure (capex) for 2020. As a result, delays in forthcoming pipeline and liquefied natural gas (LNG) projects have become unavoidable, says GlobalData, a leading data and analytics company.

Haseeb Ahmed, Oil and Gas Analyst at GlobalData, comments: “Uncertainty in the LNG market, and the severity and duration of the pandemic, hinder long-term LNG supply contracts being signed in the near to medium term. The absence of new long-term contracts and a shift in preference of LNG buyers from long-term supply contracts to short-term contracts or spot purchases, will likely impact the commercial operations or start plans of some of the proposed LNG projects in Africa.”

Global oil and gas majors with operations in Africa such as ExxonMobil, Royal Dutch Shell, Total SE and BP, have all reduced their overall capex by over 20% for 2020. This has led to certain upcoming projects in the region either getting stalled or delayed. The start years of some LNG projects such as Rovuma, Tortue FLNG Phases 2 and 3, and Mozambique LNG have been pushed back, among others.

“The sector has undergone significant losses, thereby pushing companies to take desperate measures such as reducing capex or delaying final investment decisions (FIDs),” Ahmed said. “However, these are only short-term solutions. Midstream companies need to work on long-term strategies to tackle any such future challenge to ensure future business sustainability.”

Guyana remains one of the few locations where investment in exploration and production activities have continued largely unaffected despite the demand destruction brought on by the pandemic and the resulting low oil prices.  ExxonMobil sanctioned its third project in August, the biggest investment in the South American country’s history, and continues to target multiple exploration prospects in its search for more hydrocarbons.

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