By Ryan Olson, The Heritage Foundation
For several years, now, Sub-Saharan Africa’s largest oil producing states have been working to create sovereign wealth funds (SWFs). But as oil prices and production decline, such funds may not be able to deliver the benefits they once promised.
Since 2007 Angola, Ghana, Nigeria and Mauritania have joined Equatorial Guinea and Gabon in the club of oil-producing countries with SWFs. Currently, four of sub-Saharan Africa’s five largest oil producers maintain some sort of SWF.
Attracted, perhaps, by the success of similar funds in the Middle East and North Africa (MENA) region, sub-Saharan governments are looking to capture oil revenues in rainy day funds in order to smooth fiscal expenditures during suppressed commodity cycles. Read more
By Thomas Lassourd and David Manley, Natural Resource Governance Institute
Probably the most dramatic aspect of the early 2015 global economy is the historically low level of commodity prices. Crude oil prices have fallen by 50 per cent since June. But oil is not the only commodity that has stumbled. Since their peak in February 2011, copper prices have dropped 38 per cent and iron ore prices have fallen a staggering 63 per cent.
Predicting the future is a dangerous occupation. Most observers – and the market -did not foresee the dramatic fall that has occurred. Some analysts and the forwards market expect prices to go even lower, before increasing to $65 per barrel in the next two to three years, while others believe prices will slowly rise to $100 per barrel within the same time frame. Read more
There are very few things on which economists overwhelmingly agree: free trade and apple pie are about it. But almost all of them will say that across-the-board subsidies for households and companies to lower the price of fuel are a terrible idea.
While advanced economies in general tax fossil fuels – or the carbon emissions that emanate from its use – emerging markets are still big users of subsidies and price caps. The IMF estimates that consumption of petroleum, electricity, natural gas and coal were subsidised by about 2 per cent of total government revenue in 2011 – and much more if compared to a hypothetical efficient tax system. Hydrocarbon exporters accounted for about two-thirds of the total. The subsidy of fossil fuels by oil producers and particularly within the Middle East and North Africa is extreme. Read more
By Ben Payton, Maplecroft
Africa’s booming economic performance over the past decade has seen GDP growth jump from an average of 2.5 per cent a year in the 1990s to 6 per cent a year since 2000. Asia’s insatiable demand for raw materials and the subsequent commodity price hikes have spawned an array of costly extractive projects on the continent, and investment and consumer demand are on the rise.
However, a growing reliance on borrowing, combined with the downturn in commodity prices points to a deteriorating outlook for many of the continent’s key growth markets in the medium term. Read more
Bahrain, Angola, Ecuador and Venezuela rank as the emerging markets (EM) most vulnerable to a downgrade in their sovereign credit ratings if oil prices do not recover in 2015, Fitch Ratings said in a report published on Tuesday.
With benchmark Brent crude prices close to $80 a barrel, down from $115 a barrel in mid-June, the revenues of all oil producers are under pressure. But due to differing levels of fiscal reliance on oil income, the speed of deterioration in domestic budgetary conditions varies sharply among EM producers. Read more
Nigeria has become the first country to completely stop selling oil to the US due to the impact of the shale revolution – an astounding reversal as the African nation was only four years ago one of the top-5 oil suppliers to America.
According to the US Department of Energy, Nigeria did not export a single barrel of crude to US-based refiners in July for the first time since records start in 1973. Preliminary data suggest the trend continued in August and September. Read more
When a country cuts power to its aluminium smelters so its people can watch the World Cup on TV, you have to conclude that its economic policy isn’t all about investing for the future.
Ghana this week called in the International Monetary Fund after a depreciation in its currency threatened to turn into a rout. The episode is an excellent illustration of the injunction to be careful what you wish for, in this case Ghana’s discovery of oil. Its fellow minerals exporter, copper-rich Zambia, has also called in the IMF.
The two nations have become object lessons in how easy outside financing and high but volatile export prices give countries enough rope to strangle themselves. Their experience is unlikely to be a bad as similar countries in previous decades, but it still represents another chapter in the sad history of resource-dependent economies going wrong. Read more
“If you wake me up at 2 am and ask me what I am thinking about, the answer is power,” says Pankaj Kulshrestha, chief operating officer of Eaton Towers, one of a crop of infrastructure companies that have sprung up in the past five years to control some 15 per cent of Africa’s telecoms towers.
Such nighttime frets arise from the fact that telecoms towers – which much of Africa relies upon to enable internet access – need diesel-powered generators to keep humming. And the supply of diesel in sub-Saharan Africa is prey to theft, political upheavals and economic volatility.
As a result, the business model of “towercos” such as Kulshrestha’s, as well as the operation of some 170,000 telecoms towers and the provision of wireless internet for communications, banking and commerce in large swathes of the continent all hinge on the vicissitudes of the market in the fuel. Read more
By Edward Robinson, Culmer Raphael
Events in Algeria could be about to complicate the European Union’s response to Russia’s intervention in Ukraine.
As part of a second possible package of sanctions, the European Commission is drawing up options for “reducing energy dependence on Russia”, to be debated by EU heads of government at the June summit. The obvious options include substituting some Russian gas imports with supplies from Europe’s second and third largest gas suppliers: Norway and Algeria. The CEO of ENI crystallised it last week when he said that he expected a ‘gigantic’ effort to diversify gas imports in the absence of any agreement with Russia over Crimea. Read more
South Africa, the African continent’s largest economy, had better take note. West Africa, an area that includes Nigeria, has for the third time in three years notched up more private equity (PE) deals than Southern Africa.
West Africa had the highest reported value of deals ($545m) during 2013, surpassing Southern Africa ($491m) and Eastern Africa ($163m), according to the 2014 Deloitte’s East Africa Private Equity Confidence Survey, published this month. Read more
To date, South Africa has done little to explore its offshore oil. Geological data is old and out of date, existing oilfields are ageing, and few new ones are being discovered. Even the Orange Basin, near Namibia, is believed to hold substantial reserves, but there has been little drilling since Shell acquired rights in 2009.
But technological innovations in deepwater drilling and seismic imaging, and general optimism following the discovery of hydrocarbons in the Karoo and along the southern African coastline, are prompting a growing number energy players to look again, despite the odds. Cairn India, Anadarko, Sunbird, Total, Sasol, ExxonMobil and Chevron are among those signing deals, bidding for exploration licenses and planning drilling activity this year. Read more
Investors in Nigeria’s oil sector have been having a tough time of it as commercial-scale theft and sabotage have hurt operations and the country sits in regulatory limbo. Now there’s some bad news on taxation.
International oil companies have been lobbying hard to have the fiscal terms proposed in the now-famous draft Petroleum Industry Bill (PIB) diluted, but it doesn’t look like those efforts have paid off. The government hasn’t got any intention of compromising on its proposed tax regime, the minister of petroleum resources said, despite complaints that production could slump by 25 per cent if the legislation is passed in its current form. Read more
Angola and Brazil have a lot in common: the Portuguese tongue, a delightful stretch of Atlantic coast and a reputation for beautiful people cavorting in beach-side bars. Brazil is Latin America’s powerhouse; Angola likes to think of itself, with some justification, as Africa’s emerging equivalent.
To oilmen and investors, however, the most intriguing thing the two nations share is a piece of geology that dates from the age of the dinosaurs, before the tectonic shifts that rent the landmass in which they were once conjoined. Read more
Africa’s extractive industry has its fair share of challenges, but that hasn’t stopped the oil industry from charging ahead. Alongside traditional suppliers Angola and Nigeria, countries like Ghana and Equatorial Guinea are rapidly boosting their output. The continent holds 12 per cent of the world’s crude oil reserves.
It’s also means analysts and data providers need to catch up. Last week global energy data supplier Platts announced it is expanding its portfolio of African oil coverage, publishing daily price assessments for five West African grades of crude oil. Read more
After coming out on top against Heritage Oil in a tax appeal tribunal at home, the Ugandan Revenue Authority claims to be winning the away leg in London as it chases the Jersey-based company for a tax bill of $435m.
Heritage disputes the claim, and says the arbitration is still at a preliminary phase. A swift conclusion seems unlikely, but the case signals a determination on the part of the Ugandan government to ensure it gets a cut of the spoils in its nascent oil industry, and underlines the risks facing investors. Read more
Californian oil major Chevron has given the go-ahead to a $5.6bn development project of an Angolan offshore oil field which will be the company’s second largest investment in African crude to date after its Agbami field in Nigeria.
The Mafumeira Sul project, run through Chevron’s subsidiary Cabinda Gulf Oil Company, is scheduled to begin production in 2015, and will eventually pump 110,000 barrels of crude oil per day from five new platforms, Chevron said. Read more
The Nigerian oil industry faces a difficult 2013 as shale oil in the US takes an increasing share of the north American market. Togo-based Ecobank has said that Nigerian crude oil exports to the US could fall by over a quarter this year, from 800,000bpd in 2012 to as low as 580,000bpd in 2013. Read more
Italian oil giant Eni SpA has confirmed a discovery of around 450m barrels at its Sankofa East field 50km off the coast of Ghana, boosting the west African nation’s overall oil reserves.
About 150m barrels of Eni’s find will be immediately recoverable, according to the company, which says the result “confirms the commercial standing” of its Ghanaian prospects. Plans for exploitation of the reserves are now underway. It’s small beans (relatively) for a company of Eni’s size, but big news for the budding Ghanaian oil industry. Read more
When it comes to oil and gas exploration, you win some and you lose some. All the more so when you’re blazing a trail in under-explored destinations like Uganda, Kenya and Ghana.
Shares for the oil explorer Tullow dropped sharply by over 5 per cent per cent as of 1pm in London on Friday to reach 1,159p, as the company released a statement containing details of nearly $300m of expected writedowns from explorations in Guyana, Ghana and Suriname – more than double its $120m of writedowns for 2011. Read more
Mozambique’s substantial offshore gas reserves moved a step closer to full development on Friday with the announcement of a heads of agreement between the Italian energy company Eni and the Texas-based Anadarko Petroleum to jointly construct an onshore liquefied natural gas (LNG) plant at an estimated cost of more than $10bn. Read more