By NJ Ayuk
Opinion
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
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.
Credit: oilandgasrepublic.com
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