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Energy
Credit crunch threat looms over African boom
These are times of unprecedented opportunity for the African oil and gas industry. The continent’s proven reserves of all forms of hydrocarbons are increasing. Firms from Africa, Asia, Europe, Australia, North America and Brazil are pouring investment into an increasing number of African states; and high prices for both oil and gas are generating buoyant revenues for further upstream development and wider government expenditure.
But clouds from the credit crunch fall-out are threatening to darken this rosy scenario. Can Africa’s energy industry ride out the storm? Report by Neil Ford.
Perhaps the most interesting African trend at present is the boom in frontier discoveries that is helping to spread the benefits of hydrocarbons to more countries. Yet it is difficult to ignore the global economic crisis. Africa may have fewer ties to the global economic system than most other regions and so is sheltered from the credit crisis to some extent, but recession in North America, Europe and parts of East Asia will cut demand for the raw materials that underpin most African economies.
At the same time, European and North American demand for Chinese consumer goods is likely to fall, triggering lower demand for oil, copper, iron ore and other raw materials in what is Africa’s fastest-growing trading partner. This should not have such a big impact on the African oil industry, as long as oil prices remain fairly buoyant. The barrel price may have fallen from a peak of $147 in July to under $80 by late October but this is still more than sufficient to justify field development in both established arenas, such as the Gulf of Guinea, and new frontier areas, such as the Indian Ocean and Central Africa. Even a barrel price of $50 would probably be adequate to encourage oil companies to pursue planned projects.
However, the credit crisis could affect upstream developments if oil companies are unable to secure sufficient financial support. This is particularly crucial for the independents that have discovered oil and gas in relatively unattractive regions for the first time and which need to attract the support of larger partners or financial institutions to fund field development.
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