- Africa Oil & Power and the African Energy Chamber hosted a webinar under the theme ‘Driving African Energy Investment — Perspectives on LNG, Oil and Gas Operations, and Private Equity,’ on Friday.
- Speakers included Nyonga Fofang, Managing Director, Bambili Group; Steve Brann, Senior Investment Manager, Vitol, and Kola Karim, Managing Director and CEO, Shoreline Energy International.
Cape Town, South Africa, May 18, 2020 – Africa Oil & Power and the African Energy Chamber hosted a webinar under the theme ‘Driving African Energy Investment — Perspectives on LNG, Oil and Gas Operations, and Private Equity,’ on Friday to highlight how private equity and project developments have been affected by COVID-19 and the role LNG will play in the future.
The fallout of the COVID-19 pandemic has rattled both the oil and gas and finance sectors. Investors and business owners will face new obstacles in getting projects off the ground in the coming years, with only the most competitive oil and gas projects and well-positioned companies moving forward. Speakers on the public webinar focused on how the private equity market will recover, the projects that will attract investors in the current climate, and how companies can access investment and continue to thrive.
“In the private equity space most [companies] are now focused on their portfolios, liquidity proceedings, their revolving credit lines, their planned expenses, which investments can be delayed, and additional capital required to withstand the storm. We are in for an interesting time,” said Nyonga Fofang, Managing Director, Bambili Group. “From a South African perspective, it is clear that this pandemic and its implications are still far-reaching and we do not know the extent of it. I am not sure how the government is approaching this; the view is that they are taking scientific advice. All we know is that it is not going to be a normal economy, it is going to be a new normal.”
COVID-19 has had a significant hit on the oil and gas sector, causing a reduction in LNG demand worldwide. “The world is already expecting an oversupply of LNG this year, as we did in 2019. The demand and supply expectations have been exacerbated by COVID-19. Demand in the east has started to pick up, which is a positive thing, because demand in Europe is still yet to resume. In Europe, a lot of the global oversupply is transferred into the European grid and it is also driving a global hit on prices,” said Steve Brann, Senior Investment Manager, Vitol.
“We have also seen announcements from the major [oil and gas] companies about [delays to] FIDs on projects that have not yet taken FID and we have seen announcements on delays to projects that are already under construction. This is largely a short-term phenomenon. On the projects that are under construction, the delays are based on how to get crews who were often on 28 days off, 28 days on type of rotation and how you square that with 14 days of quarantine in various locations. It has been a bit tricky just to get people on and off of platforms for operating assets but also for projects. We have seen some attempts to declare force majeure on projects, sometimes valid and sometimes invalid. The delays of FID were always going to be tricky because of the expected low pricing and FIDs are being pushed back until there is more certainty, so to my knowledge, there are no projects expected to come onstream this year, but there were some big decisions people were hoping to make this year. The silver lining in that is that Nigeria LNG announced [last Thursday] that they had signed their exploration and production contract for train 7 and that is in the midst of this crisis. Part of the reason they were able to do so is that the project is fully supported by its shareholders, they are not in a situation where they need to go out and sell all of the volume to the market. The actual shareholders of Nigeria LNG can take their own equity volumes and that will underwrite the project and they are all very strong companies in their own right. Projects like that can still progress provided they can actually get their counterparties to sign contracts during the crisis. We see six to twelve months delay on everything and then in 2021, hopefully, a recovery in these projects,” he added.
Kola Karim, Managing Director and CEO, Shoreline Energy International, highlighted Nigeria’s massive reserves of 210 trillion cubic feet of discovered gas and the need for national backing to prioritize the use of this resource. An energy sector properly using Nigeria’s natural gas resource could help change the dynamic and power the country through challenging times. Beyond Nigeria’s borders, new export pipelines and gas hubs could revolutionize African economies by providing efficient and cleaner fuel.
“There could not be a better time to do this than now, where you can negotiate better terms in energizing projects of this nature. This for me is one of the major advantages … Sovereign countries such as Mozambique, Senegal, Nigeria should get together to create a pan-African master plan. This, going forward, will be a natural hedge for future oil collapses,” he said.
Karim also expressed that more industrialized African countries can benefit from low priced LNG. He noted that governments need to engage and consider holistically how to utilize resources on the continent, especially gas. The African energy sector, using natural resources present on the continent, could be an opportunity for the continent to change the narrative, with sovereign countries taking the lead.
Shawn Duthie, Managing Director, Inyani Intelligence concluded by saying: “Politically a lot of countries are taking advantage of COVID-19, being able to put in states of emergency and cancel or delay elections. One of the concerns is that when we go to a new normal, how long will it take for some of these governments to actually … take down the state of emergency, because COVID-19 is not really going anywhere … the operational risk is going to increase as well, all economies are going to take a hit, and as they take a hit we are expecting a lot more social strife.” Strong leadership, he noted, would be key to mitigating this risk, turning the crisis to an advantage and altering the composition of African economies and energy sectors.