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Covid-19 puts African energy on pause

Discoveries have been almost non-existent since the pandemic, and investments in the power sector have stalled despite urgent need

When Covid-19 became a pandemic in February, Petroleum Economist feared it would impact the oil and gas industry disproportionally hard in sub-Saharan Africa. Unfortunately, this prediction has come to pass.

Global discovery volumes have understandably been weak so far this year. Discoveries of conventional resources were the lowest of any H1 of the 21st century, at just 4.9bn bl boe, according to data and analytics company Rystad Energy, with average monthly discoveries down 34pc. But Africa accounted for less than 1pc of these volumes, while Russia, South America and the Middle East accounted for a combined 73pc.

The Covid-19 lockdown, travel restrictions and associated logistical issues were certainly major factors. While these difficulties had little effect on the testing and completion phases, they caused delays for projects in the initial and ongoing drilling phases that required crew changes, according to Rystad.

1pc – Share of global discoveries made in Africa H1 2020

Sub-Saharan Africa has so far recorded a low Covid-19 death toll; but the ultimate outcome remains to be seen and even today’s figures are obscured by a low level of testing. The World Health Organization (WHO) predicts that a quarter of a billion people in Africa are at risk of contracting the virus in the next year, and that the disease will last for several years.

Angola had put a new royalty and tax regime in place to attract IOCs and address years of declining production, with the aim of replacing 750,000bl/d of its declining 1.38mn bl/d 2019 output to at least maintain volumes. But capital spending cuts induced by Covid-19 may have thrown a wrench into the country’s plan.

“Angola desperately needs to accelerate its new developments to reduce its declining production and must undertake more exploration to replace its depleted reserves. Despite the government’s efforts to make operations in the country more operator-friendly, investors may quit Angola unless the government acts swiftly,” says Siva Prasad, senior upstream analyst at Rystad Energy.

Vulnerable

Recoverable oil reserves have also declined. For example, Nigerian potential reserves are expected to fall 6bn bl, according to Rystad figures. But smaller or new producer countries may be even more vulnerable due to the need for building associated infrastructure.

“Non-Opec countries account for the lion’s share of ‘lost’ recoverable resources, with more than 260bn bl of undiscovered oil now more likely to be left untouched, especially in remote exploratory areas,” says Rystad Energy’s head of analysis, Per Magnus Nysveen.

The pandemic has also impacted midstream development. “One of the primary strategies that a majority of pipeline operators have been falling back on, is to halt or delay any avoidable current or upcoming projects,” says Haseeb Ahmed, oil and gas analyst at data analytics firm GlobalData. “With uncertainty looming large on the prospective projects, pipeline companies are compelled to make tough decisions to keep operations running.”

“If a country does not have electricity security, fighting a pandemic is extraordinarily difficult” Harezi, Karpowership

For example, Ahmed notes that the contractor of the Niger-Benin pipeline has halted all construction activities, and it is unclear when it might start commercial operations.

In addition to the decline in upstream E&P, power generation projects are also the subject of delays and cancellations. This problem is particularly acute given the lack of universal electrification in many sub-Saharan countries and the urgent need for power in the fight against Covid-19.

“Major energy projects are being been put on hold, and this is worrying because most of these halted projects were planned for developing nations that already experience fragile and intermittent electricity,” Zeynep Harezi, chief commercial officer at global floating power plant provider Karpowership, tells Petroleum Economist.

“If a country does not have electricity security, fighting a pandemic is extraordinarily difficult. Stable and secure power supply is needed to power up ventilators and other medical equipment at healthcare facilities, to provide communications and IT services that inform communities, connect people and keep business going during social distancing, and to supply clean water for essential hygiene.”

She says that only 28pc of health facilities in some areas have access to reliable electric power.

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