Opinion

Why is oil security suddenly a top priority in Africa?

Posted by Scott Johnson

11-Jul-2019


Just this week, South Africa announced a new oil and gas policy is in the pipeline. This will be music to the ears of individuals involved in African energy and infrastructure such as Sebastian Wagner, Mzi Khumalo and Olusegun Okubanjo. But questions surely remain as to how the continent can tackle the biggest challenge right now: insecurity.

After trying, unsuccessfully, to sweep the issue under the carpet for the last few years, it now seems like a collective recognition of the issue is beginning to form. This renewed focus has some urgency behind it but why now, and what are the longer-term solutions likely to be?

Inward investment is falling where insecurity is an issue

According to Deloitte, Africa has up to 7.5% of global oil and gas reserves and in the biggest producing nations, oil exports account for more than 90% of revenues. Production is continuing to rise, with crude oil production sitting at around 8.19 million barrels of oil per day across the region.

On top of this, Africa's middle classes are growing, upping their spend on luxury items, and turning some of the larger cities into vibrant hubs of entrepreneurial activity. This in turn is catching the eye of international investors and foreign inward investment is growing fast, especially in countries including Ghana.

In fact, according to the United Nations, foreign investment in sub-Saharan Africa spiked 13% in 2019 rising to $32bon on the back of two straight years of decline. So the interest is there. But it's not been universal. Nigeria, for example, suffered a huge drop in inward investment in 2019, down an eyewatering 43% to $2bn.

Up until now, many have put this, and declines in other nation states, down to government policies and spats with existing corporations; giving large-scale investors the jitters and making them wonder if Africa is the place for them. But the feeling is starting to grow that there's another reason why some countries are attracting investment and others are not: security.

Recent events have put the spotlight on oil security

Nigeria, the continent's largest producer, is one of the best examples on the planet right now of why security matters in the oil industry. In 2018, Nigeria was beset by security problems, made even worse by political instability. It was the perfect storm.

But security has increased over the last half-year and earlier this month, the Nigerian National Petroleum Corporation estimated that crude oil production in Nigeria had risen to 2.3m barrels per day, up from 2.1m in 2018 – accounting for around 70% of the entire country's revenue. The Niger Delta lies at the heart of this huge oil production capacity, and the stability, or not, in this particular region has an almost instant effect.

Armed groups are rife in the region and theft is a huge challenge. So is sabotage. Just a few weeks ago, Royal Dutch Shell released a report detailing the cost of these kinds of attacks. The report revealed that in 2018 thieves and saboteurs caused an 80% increase in the number of spills. Hardly surprising when some estimates put the number of people involved in these activities somewhere north of half a million individuals.

What is the solution?

There is no quick, easy solution to this long-running issue. There will always be people who, as one commentator put it, see oil as belonging to them and it's the government who is doing the stealing. But there is a new drive in government to try and work together to call time on these kind of activities for good.

The Nigerian Oil Minister, Emmanuel Kachikwu, said recently that the government now acknowledges the need for a holist approach: “Oil theft is rife because there is an economic gain to be made from it. So we want to shut those illegal gains by creating positive and legal economic opportunities.”

Creating a secure environment for oil companies to operate successfully in Nigeria, and Africa as a whole, is not going to be easy. But the incentives are huge. Oil theft is a massive drain on resources and many believe that the losses are so great that, if they could be stopped, the resulting revenue could fund Nigeria's entire budget deficit.

There is a real push on to tackle security in the oil sector across Africa right now. If it works then Africa could reach its economic potential much quicker than expected. And this potential is huge.

In February this year, Total announced it had discovered up to 1 billion barrels of gas condensate and light oil during its drilling in the Brulpadda prospects the Outeniqua basin off South Africa. And it's by no means the only company that expects to make big discoveries over the next few years.



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Nigeriaenergy securitySub-Saharan AfricaNigerian National Petroleum CorporationRoyal Dutch Shell

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