A string of successful exploration projects over the last decade has seen the number of African countries with proven oil and gas reserves rise to 28.
This capacity is thanks to new discoveries in Ghana, Niger, Mozambique, Uganda, Kenya, Senegal, Mauritania and South Africa. Key to maximising the benefits of this investment is being able to identify the correct opportunities.
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The investment required to bring these countries onstream will add further impetus to Africa’s oil consumption, which at 4 million barrels a day already significantly exceeds the continent’s 2.1 million barrels of daily refinery output. Africa’s oil and gas sector is once again attracting investment from exploration companies and refiners following a prolonged break sparked by a slump in oil prices.
Standard Bank is one of the largest oil and gas lenders in sub-Saharan Africa. In the last three years, the firm has engaged in several million-dollar deals in Ghana, Nigeria and Mozambique. The company has acted as mandated lead arranger, bookrunner, facility and security agent, and onshore bank for several international players in the industry.
Coral Floating LNG project transforming the industry
The game-changing nature of Mozambique’s offshore gas opportunities offers major opportunities for investors. Mozambique’s resources are huge, with 150 trillion cubic feet of liquefied natural gas (LNG) reserves, equivalent to 24 billion barrels of oil.
The process of transforming those resources into individual LNG and Domgas requires an immense amount of investment. The general assumption at Standard Bank is that around $128 billion needs to be spent between 2017-2025.
The Coral Floating LNG project is currently under construction and is envisaged to produce its first gas in July 2022. Standard Bank was the only African bank at Financial Close. The FID for Area 1 was approved on 18 June and has kick-started development in Mozambique.
With over 5, 000 workers on site, Area 1 is responsible for constructing support facilities to be shared with Area 4, such as the Materials Offloading Facility and LNG Marine Terminal, as well as a resettlement camp, airstrip and highway amongst other developments.
An independent macroeconomic study of Area 4’s Rovuma LNG project indicated that it is expected to attract between $27 and 32 billion in investment. This will drive Mozambique to become the world’s fourth largest producer of LNG, and add between $15 to 18 billion to the country’s GDP.
The Final Investment Decision for Area 4 is expected in October this year. Expressed another way, once this is approved, the Afungi Site in Northern Mozambique will become the world’s most expensive piece of real estate, attracting $55 billion in investment.
The process of developing LNG plants will automatically provide opportunities for multiple industrial, tertiary as well as service-based companies, some of which may need to establish a local presence to serve these plants.
“Beyond the hard infrastructure, entire new urban centres and the populations that they will house, feed, clothe, educate, entertain and provide with services represent a huge opportunity for a highly diversified industrial and services sector,” says Rob Cleasby, Global Head, Financial Institutions Group, Standard Bank Corporate and Investment Banking.
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The rise of an oil and gas market in East Africa
Another opportunity is developing in East Africa, whose highly diversified economies are growing northwards of 6% in a highly integrated regional market that is attracting significant levels of Foreign Direct Investment (FDI).
The development of the Uganda-Tanzania pipeline has further spurred FDI, with an expected capex spend of $25 billion over the next 5-7 years. Upstream, midstream and downstream projects are expected to propel the region’s economy from its current $175 billion to $400 billion by 2028.
Opportunities are also opening up for private infrastructure investors in public-private partnerships (PPPs). Unlike government-to-government projects, which often exclude smaller and local players, PPPs generally focus on commercially viable projects with strong, cash-generative, business cases. These projects are also highly reliant on domestic and other foreign business involvement, support, supply, operation and outsourcing.
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“Businesses across nearly all sectors have the opportunity to partner with well-capitalised East African firms needing increasingly advanced technical skills and knowledge to grow,” says Carl Henriksen, Head: Japanese Corporates, Client Coverage at Standard Bank Corporate and Investment Banking.