African gas and oil boom goes pop

Logistics companies that have geared up to support the expected boom in oil and gas exploration and exploitation across Africa are experiencing mixed fortunes. According to an International Energy Agency (IEA) special report published in October 2014, almost 30% of global oil and gas discoveries made over the last five years were in sub- Saharan Africa. The Mamba and Prosperidade field off Mozambique is one of the biggest gas reserves in the world. Oil has been found offshore Kenya by Pancontinental Oil and Gas NL, which is believed to be the first oil discovery off the East African coast. Close to home, projects in Namibia, Mozambique and the Karoo have yet to meet the hype of a year or two ago. Explorative fracking of the Karoo, which in March 2014 was reported to be “just weeks away”, is now seemingly on hold. In October 2014 Royal Dutch Shell announced that as part of a review due to falling oil prices, the company had adjusted its activities in shale oil and gas opportunities outside of the Americas and would be downscaling its planned South African operations. It cited the falling oil prices as one of the reasons for pulling out. Oil drilling rigs are lying idle off Walvis Bay for the same reason. From approximately $100 per barrel in June 2014, oil prices plunged to less than $50 in early 2015. This is 40% less than the 10-year average of just over $80. In Africa this is affecting freight volumes as governments run out of reserves and put the squeeze on imports. At the height of the oil boom, the governments of Angola, Nigeria and Chad drew 70% or more of their revenues from their oil sector. Plunging revenues forced these governments to slash spending, freeze construction of new projects and delay the payment of civil servants’ salaries. This has had a knock-on effect on the demand for project cargo. Spending power by government, mines and consumers has also been affected by related movements in other commodity prices, which have dropped on average by 10 to 50% from their 10-year averages. For example, in early 2015, iron ore prices were down 50% and rubber prices down 37% from their 10-year averages. Red tape is also putting the plug on hopes for a quick injection of investment into the oil and gas sector. Mozambique’s hopes of becoming the world’s third largest liquefied natural gas (LNG) exporter after Australia and Qatar by the end of this decade have been bogged down by legislation. Further up the coast oil companies seem to be in little rush to exploit reserves in Kenya, Tanzania, Ethiopia and Uganda where costs are high due to a combination of geology and lack of infrastructure. With the current oil glut it may well be more profitable to “bank” the oil and gas by leaving it in the ground until world prices recover. Logistics suppliers to the industry will be keeping a close watch on developments. INSERT With the current oil glut it may well be more profitable to “bank” the oil and gas by leaving it in the ground until world prices recover. CAPTION An oil rig berthed where the new container terminal is now being built in Walvis Bay. The rig operation will move to Berth 1 at the far end of the quay wall.