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Some pain, some gain for Africa

Crude prices hurt exporters and LNG plans idled. Violence flared in the Niger Delta. East African oil and Senegal were bright spots

It was a rough 12 months for Africa's oil exporters - they depend too much on oil income for the price slump to have left them unscathed. Nigeria saw a return to Delta violence and struggled most. The highlights were new discoveries in Senegal and some progress in East Africa, where routes for exporting oil were established.

But for Nigeria 2016 was chaotic. President Mohamed Buhari had promised reform of the oil sector, a war on graft, more inward investment and more oil. Investors liked it when he appointed a former ExxonMobil man, Emmanuel Ibe Kachikwu, to run Nigerian National Petroleum Corporation (NNPC). He's now its chairman and the country's oil minister.

But a return to violence in the Niger Delta overshadowed whatever changes Buhari and Kachikwu had in mind. Attacks on energy soared in 2016 and became more sophisticated. Shell, ExxonMobil and others shut production for lengthy spells. It led to a ruinous few months for Nigeria's energy sector and its economy. Oil output slumped by about 0.5m barrels a day from the start of the year to hit - at most - 1.4m b/d in the summer. Ceasefires came and went. A recovery seemed possible as some export infrastructure resumed in October. But the government's target of 2.2m b/d looked distant. The Niger Delta Avengers, which had made their mark with attacks on infrastructure throughout the year, swore they would not let up. It all hurt Nigeria's economy, which started to shrink in the third quarter.

Angola's economy also struggled - but it kept a grip on oil output, which at 1.8m b/d for most of the year bested Nigeria's. Yet the oil-price collapse stung Luanda too. Inevitably, investors started to postpone projects. A string of developments sanctioned in healthier times came on stream, including ExxonMobil's Kizomba Satellites Phase 2 development and Eni's Mpungi field, in its deep-water West Hub project. The project pipeline hasn't dried up yet: more will start up in the coming months.

Senegal was the continent's upstream bright spot, yielding a promising new off-shore oil province in 2016. Investors liked the relative political and economic stability of the country. Cairn Energy, Kosmos Energy and others all advanced projects, in both oil and gas - the latter prompting talk of a floating liquefied natural gas development. That project looked distant, though - the global gas glut remained a headwind for any greenfield LNG project.

In Africa's east, gas exports also remained an investor focus. From Mozambique to Tanzania, offshore riches make it one of the LNG world's most promising plays. But 2016 was a year of hiatus, and promise remained just that. Eni and Anadarko, developers offshore Mozambique, didn't taken final decisions about whether to invest. Tanzania's government urged more speed from investors in its offshore, but in 2016 it seemed to be falling further behind Mozambique. In Africa's east, too, it seemed that the global supply glut, which started to bite in 2016, dulled the enthusiasm of investors. Some consolidation, especially in Mozambique's putative LNG sector, looked likely to emerge. But possible buyers - including ExxonMobil, which was said to have agreed a deal for part of Eni's Mozambican assets, and Qatar Petroleum - held fire.

More progress came in East Africa's oil sector. A deal struck in April by Kampala and Dodoma, backed by Total, to take oil from landlocked Uganda to the Indian Ocean port of Tanga in Tanzania, ended the saga over how the oil should reach the coast.

When the project is complete sometime in the early 2020s, the pipeline should prvide 200,000 b/d of oil for export. Not all of Uganda's upstream players - Tullow Oil and Cnooc among them - favoured the route, but at least the decision gave them some clarity. The 1.7bn barrels of reserves they hope to exploit now have a route to tidewater.

Tanzania's victory in the pipeline battle was Kenya's loss. Nairobi had proposed sharing a pipeline running to Lamu in northern Kenya. Without that option, Tullow in August agreed with the Kenyan government to develop a separate 100,000-b/d line to take oil from its reserves in the South Lokichar basin, in the country's northwest, to Lamu. Tullow recently increased its estimate of recoverable resources in the find to 0.75m barrels.

This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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