West African oil in high demand

Despite developments in the rest of sub-Saharan Africa, the Gulf of Guinea remains the heart of the region’s oil and gas industry. As discussed in our Nigeria Special Report, Nigeria remains the biggest oil producer in Africa and could become even more important if the key tenets of its Petroleum Industry Bill are finally passed and actually implemented. Ghana’s growing importance as an oil producer is also fully discussed here but the relevance of its Jubilee Project stretches far across national boundaries. Oil companies are now reappraising the geology of the whole of West Africa, eager to begin exploration in the hope of making a similar discovery.

Côte d’Ivoire

Interest is even growing in one country that has been virtually absent from oil and gas sector coverage in African Business over the past decade. Côte d’Ivoire was once the second biggest oil producer in West Africa after Nigeria, with ambitious plans for further oil exploration and the development of gas fields with proven reserves. As readers will be all too aware, however, internal conflict soon saw contracts torn up or suspended, as the economy nose-dived. However, two developments have now made the country an altogether more attractive prospect.

Firstly, the end of the civil war offers the prospect of renewed national cohesion, stability and investment. Secondly, headlinegrabbing oil discoveries to the west in the Mano River states and to the east in Ghana have reawakened interest in Ivorian hydrocarbon prospects. The civil war and instability that has wracked Côte d’Ivoire over the past 12 years and deterred investment in the country’s offshore acreage occurred at exactly the same time that deepwater exploration and production was taking off. New deepwater technology has now entered the mainstream, reducing exploration and production costs and bringing much of Côte d’Ivoire’s previously unexplored acreage within reach for large and small oil companies alike.

The country currently produces a useful 32,000 b/d but the government has set a target of boosting this to about 200,000 b/d within five years. Government production targets rarely carry much weight but there is some Oil and Vanco Côte d’Ivoire both discovered oil on blocks CI103 and CI401 respectively last year and plan to drill appraisal wells to test the scale of the finds.

The head of hydrocarbons at the Ministry of Mines, Petroleum and Energy, Ibrahima Diaby, said: “With these discoveries and the projected investments, Côte d’Ivoire will be able to realise its target of raising output to around 200,000 b/d.”

In addition, the governments of Côte d’Ivoire and Ghana have finally begun talks over the delimitation of their common maritime boundary. Although this process is to be welcomed, it is far better to settle such matters before any interest in hydrocarbon potential has been aroused and vested interests become reinforced.

New investment is also being made in the gas sector. Foxtrot, Petroci and Gaz de France have committed almost $1bn over five years to increase gas production on block CI27. In the short term, output is to rise from 110m cubic feet a day now to 140m cubic feet a day by the middle of this year. Figures on output up to 2017 have not been released but are likely to depend on the construction of new power plants in the country.

Long term contracts to supply the Azito and Vridi plants are already in place but the new government hopes that shelved generation schemes can be resumed, partly in order to satisfy the anticipated rise in domestic demand but also to supply neighbouring states. Some government officials, however, have included Ghana – which currently imports Ivorian electricity – on the list of likely markets. This seems mistaken. With its own gas to power projects and new hydro schemes approaching completion, Ghana is unlikely to consume much more Ivorian power.

Chinese interest intensifies

By usual international standards, West and Central Africa may not be known for its political stability. Yet its geographical location and the lack of cross-border wars means that it is now viewed as a more secure bet for oil supplies than many other hydrocarbon rich parts of the world.

Washington, for instance, has long sought to increase US imports of West African oil in order to reduce its dependence on more traditional sources of supply, such as the Gulf and Venezuela, which have their own political and military difficulties as far as the US is concerned. However, it now appears that Beijing too has identified West Africa as a secure source of supply.

The shipping lanes between Africa and China are relatively secure, particularly at a time when fears over a war involving Iran and the closure of the Strait of Hormuz are growing. The Chinese government has its own concerns over the closure of the Malacca Straits but these will be partially overcome this year when the new Myanmar-China oil pipeline is completed.

Investment bank Arctic Securities predicts that Chinese imports of West African oil will increase by 18% this year, following a 16% rise in 2012. This is far in excess of the 6% predicted rise in total Chinese oil imports in 2013 to 5.6m b/d. A spokesperson for the Norwegian company stated: “Crude flows from West Africa to Asia on very large crude carriers have tracked up sharply by 40%, a shift we expect to continue as Arabian Gulf volumes are not enough to satisfy Asian thirst.”

Angola

As far as government analysts in Washington and Beijing are concerned, West Africa stretches from Senegal right around the Gulf of Guinea to Angola; and it is Angolan oil that attracts perhaps most attention from the strategists. Angolan oil production looks set to regain the record level that was achieved in 2008, when the country briefly overtook Nigeria as Africa’s biggest oil producer.

Output failed to stabilise around the 2m b/d level for 2012 that the government had forecast, averaging 1.7m b/d last year, even after the Satellites do Kizomba project came on stream on Block 15 with an additional 100,000 b/d. Luanda blamed technical problems on established fields for the shortfall that should now have been solved. A further 150,000 b/d will be provided by BP’s Plutão, Saturno, Vénus and Marte (PSVM) project on Block 31. If further problems can be avoided, average output of 1.9m b/d should be achieved this year. The delayed Angola LNG project is also expected to finally come into production this year. In the longer term, Luanda hopes that exploration in the zone of common interest it shares with Democratic Republic of Congo (DR Congo) will yield further discoveries.

DRC

Kinshasa announced in January that its own state oil company, Cohydro, may begin work in the zone alongside Angola’s Sonangol this year. Congolese oil minister Crispin Atama Tabe Mogodi said: “We are in talks with the Angolan authorities to see in what way the two national companies, Sonangol and Cohydro, can begin to explore and exploit I think the negotiations are going well.” There have been no updates on possible oil and exploration in other maritime territory that the two countries both claim.

Kinshasa may have more difficulty in persuading foreign investors to launch onshore exploration programmes. It is particularly keen to oversee exploration on the Congolese side of the Lake Albert Basin, where about 3.5bn barrels of oil has been discovered on the Ugandan side. DR Congo currently produces just 25,000 b/d and continued conflict in the east of the country makes oil exploration very difficult. The Congolese government has announced that new hydrocarbon legislation could be passed as soon as April.

Previous licences have been awarded on an opaque, piecemeal basis but the new investment regime is designed to provide greater accountability. Speaking at a transparency conference in Lubumbashi, Atama said: “In our code we’ve integrated the principle of the tender for all hydrocarbons rights purchases. The ministry will also open a website, so that all the different contracts will be immediately and systematically published.” Similar pledges in other sectors have not been complied with.