The recent drop in the price of oil from $37 to $33 is bound to put undue pressure on energy companies that are already scrambling to pay debts and fund operations. It can also destabilize the credit markets even further. According to reports, this fall in oil prices is due to an increase in the supply of crude oil by members of the Organisation of Petroleum Exporting Countries (OPEC) in order to stop the production of shale by the United States. However, some African countries have not been able to increase their oil production to meet with other countries and as the major oil producers in the world struggle with the fall in oil price we are keen on finding out the fate of Africa in increasing its share in oil production

A few weeks ago, Ventures Africa spoke with Edward Voelcker, an oil and gas expert with over 28 years of experience in the industry. Edward is a partner at Energy and Natural Resources for Nigeria’s largest auditing company, KPMG Nigeria. We asked him if he thinks Africa would be able to increase its oil and gas production by 2030 and the challenges that the energy industry in Africa still needs to overcome. We also asked him if he thinks Nigeria would reduce the price of petrol any time soon.

Here is what he had to say:

Ventures Africa (VA): Considering the fall in the price of oil, do you think Africa will be able to increase its production of oil in 2030?

Edward Voelcker (EV): I think that at the [then] present oil price of $40-50 per barrel, it would be very difficult to increase Africa’s present production, which is already around 8 million barrels a day for the whole continent. If production is increased by 30 percent, that amount would be become 11miilion barrels a day and that would be quite a challenge. Most of the new discoveries in Africa tend to be in deep water and the capital expenditure for this costs a lot but, technology does promise some cost cuts in future. However, if the prices return, as we have seen in the last five years, closer to $80 -100 per barrel, then yes that could happen quite easily. The current crashing price is not as a result of a lack of oil because there is an abundance of oil in the continent, especially in the newly discovered regions within East Africa, it is simply a custom of economic returns at 40-50$ per barrel.

VA: Does this mean that we have larger deposits of oil in East Africa than other regions?

EV: If the prices were right, you would see increased levels of exploration around Africa and I am almost certain you would find more oil and gas along West Africa. In East Africa right now, most of the oil found is onshore. In Uganda, which is a landlocked country, and in Kenya, the demand for oil is quite large and they have about two billion barrels of recoverable oil. This is a challenging project because of the cost involved in building pipelines from Uganda to the coast of Kenya but we are trying to determine the feasibility of this project considering the current oil price. However, there are huge quantities of natural gas in Tanzania and Mozambique. Here, their natural gas deposits are found both offshore and in deep water. If the companies that are trying to develop the natural gas reach final investment decisions and go forward in this project, East Africa has the potential to become the second or third largest natural gas producer in the world easily.

VA: So what are the challenges that still need to be sorted out before the energy industry in Africa can reach its full potential, looking at geo-political issues and other disturbances?

EV: I think the key is always around stakeholder alignment. A long time ago, the only people at the table to reach an agreement were the investors and the federal government. Now, we know that model doesn’t work as you need to have discussions with more stakeholders including members of the local government and the people whose land would be affected by the development. You would also have issues around environmental concerns and the local content concerning how much of the money you will spend on developing an oil field would actually be spent in the country, with the people of the country and the infrastructure of the country versus simply importing it. All of these stakeholders have to be aligned in order to ensure that the project is done right and there is a win-win situation for everyone involved.

VA: What are the desires of the government, investors and people of these communities?

EV: Certainly, the biggest requirement for an investor is political stability and economic stability. In many of the contracts signed, there are actually clauses titled economic stability clauses. Oil and gas development usually last 20, 30, 40 years and over, the government of the country concerned may change from its initial democratic or non-democratic state but the economic terms that were agreed by the first government must be upheld so that the project will pay out over the agreed period of time. Local content is a great example of what governments would like you to build, however, investors often find that very expensive and sometimes that can make it difficult to complete a project if you are expecting to build every piece of equipment or kit within the concerned country. This is because, most times, many of these countries do not have the ability to do it. For the people, I imagine, using a sweeping generalization on the people on the planet, they want to be treated fairly, they want to know what is going on their land and they want it to be developed in an environmental-friendly way. They would like the government and the investors to deliver services such as electricity, clean water, roads and other infrastructure. Historically, that was the role of the government, but now investors have to take on some of these tasks by providing healthcare or education.

VA: Do you think other African investors have learnt from what happened to Nigeria in terms of environmental degradation?

EV: The answer is an emphatic YES. They have learnt several lessons from Nigeria and many other countries about what to do and they have become better for it. They are interested in working with the stakeholders now, more than ever, to ensure that they do good work that does not affect the environment adversely. However, I do worry about the Nigerian briefcase companies, companies that come in to get contracts from governments for reasons, which may not be transparent and hire lower quality contractors to work. They don’t sit down with the stakeholders and they don’t have a reputation that can be harmed worldwide and their alignment with other stakeholders will not be the same as an International Oil Company (IOC).

VA: Do you think the price of fuel in Nigeria will fall soon as a result of the dwindling oil price?

EV: No. The N85 per litre is still below the world market price of petrol. Particularly, with the fall in Nigeria, the government still has subsidy payments to make.

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