Monday, September 19, 2011

Southern Africa as the next "oil boom"

JOHANNESBURG - Recent discoveries of oil in SA’s neighbours Mozambique and Namibia may revolutionise economies in the region, and provide substantial opportunity for SA, provided they are managed right.

An estimated 11bn barrels worth of oil were recently discovered in fields around Namibia’s southern coast while American Oil Company Anadarko has discovered oil reserves off the coast of Mozambique.
Although these discoveries are not massive in global terms they are, especially the Namibian discovery, significant, and are likely to spark an intensification of exploration activity in the region which may result in yet more findings.

And SA, according to Deloitte’s global head for oil and gas, Adi Karev and his South African counterpart, Anton Botha, may stand to benefit significantly.
 “There’s a saying in the oil and gas business that you can do two things when you explore (you can) explore next to the well that you have already found and your probability of finding more is higher, or explore further away in places you’ve never explored before and that probability is lower.
 “The more we find in Africa, the higher the probability that we will find more,” said Karev.
In light of these discoveries, asked whether Africa could be the next oil growth story, Karev responded by saying “it is, without any doubt.”

Africa “represents a higher potential than it has in the past”, he said indicating that it has now become one of “multiple” regions with significant potential to benefit from an oil boom.
But “Africa is not the USA,” he commented as he graciously recognised that Africa is a continent, not a country and “there are countries that posses, within that context of higher promise (even) higher promise”.
That level of promise is related not only to the size and number of reserves, said Karev, but to the available levels of technological expertise and regional infrastructural capacity needed to exploit those reserves.
This is where SA stands to benefit.

“When you find oil in most developed economies where the environment for services is ripe and acceptable (and) in environments where you find oil in proximity to economies that are well developed, and SA is a well developed economy, there are a number of ‘circles’ (of benefit and growth) that come out of that,” said Karev.

The immediate benefit comes from the extraction of that oil and the engineering activities associated with that extraction and SA stands to benefit by leveraging its existing capacity to help in these efforts.
But it is in the down-stream support services required for oil (and gas) extraction that offers the primary opportunity for SA.

“The closer oil finds and gas finds come to the borders the greater the opportunity for us in SA to leverage the expertise that we have and the capabilities that we have,” says Botha.
“Oil services will boom in this part of the world …  with SA having the ports, engineers, services and logistics … to support this industry that’s absolutely booming in Africa, I believe … that oil services (in SA) will boom,” he said.

The responsible exploitation of oil could be a game changer for Sub-Saharan Africa but for it to be a success there will need to bet a significant and “mature” buy-in from the region’s governing elite, say Karev and Botha.

Political instability and, dare we say greed, may pose the greatest risk to a potentially great opportunity.

“There are a number of ways that politics tends to impact the ‘appropriate exploitation of reserves’,” says Karev, “not the least of which is the recognition that you cannot run the exploration and production activities that are long term, very engineering oriented and need to be intensively managed (and) operationally controlled in cycles that mimic the cycles that are associated with political changes (in Africa and elsewhere).

“When you do you end up under-exploiting, you end up under-leveraging and creating inefficiencies”.
Ultimately, says Karev, the investment/extraction cycles associated with oil last upwards of four decades, political cycles fluctuate in a matter of years, creating a stable environment across these cycles is the challenge.
“What we have not seen in Africa is the ability of creating this arm-length relationship,” where politicians allow oil projects to run without too much interference while creating an environment of sustained support.

Source: Moneyweb