Recent developments across SSA for oil and gas projects indicate signs for more regional investment in the near term, Fitch Solutions says.

Final investment decisions (FIDs) for Q1 of 2021 indicate the likelihood for higher investments in oil and gas projects being made throughout the year, though significant risks remain.

In Mozambique, Sasol reached FID in February 2021 on a $760 million project to build an LPG facility and a 450MW gas-fired power plant. In Angola, Chevron’s subsidiary Cabinda Gulf Oil reached FID on the Sanha Lean Gas Connection Project. The FID included building a platform to connect with existing Sanha Condensate complex and export gas to the Angola LNG plant.

Oil price downturn in 2020 saw a significant reduction in capex of up to 35% across SSA. This was evident as weak oil prices reduced the expenditure budgets of major oil and gas companies. Following this also, projects lagged and faced cancellations.

Nonetheless, countries’ experience of a recovery in macroeconomic environment as well as higher oil prices over Q1 of 2021, show a better outlook for more investment in the short term.

Fitch notes that some key projects for which FID may occur include Total’s Lake Albert development in Uganda and Exxonmobil’s Rovuma LNG project in Area 4 offshore in Mozambique.

This notwithstanding, Fitch raises a sign of caution, as risks to development of these projects are inching to the downsides. In Uganda, for instance, FID is expected in 2021 for the multi-field Lake Albert project.

However, the project has faced various setbacks including tax disputes, divestments and most recently, uncertainty regarding funding of the Uganda-Tanzania pipeline.

Mozambique’s Rovuma LNG project also risks delay in FID which should happen this year into 2022. This is because of the frequent insurgent attacks occurring in the region, Fitch warns.

Investment across SSA depends on sustained rise in oil prices

Fitch expects that higher oil prices will spark investor interest to improve investment across SSA. Fitch’s recent forecast of oil price shows a rise from $63/bbl in 2021 to $64/bbl in 2022.

This is well anchored on rising oil prices at the beginning of the year and an increasingly strong market sentiment. Fitch, however, notes that this outlook may not materialise if the trajectory of oil prices is not maintained.

Fitch estimates that Capex for SSA in 2021 will increase by 11% to $17.1 billion, from an estimated $13.8 billion in 2020. This is as a result of improved oil price and market environment.

Furthermore, Fitch expects that increasing oil prices seen in Q1 of 2021 will increase SSA capex spending, although it may not rise to pre-pandemic levels. This is at the back of uncertainties in the oil price environment, given the existence of several downside risks.

These uncertainties include a slower than anticipated global recovery, delays in global vaccine rollouts. This will then lead to increased volatilities in the oil markets.

LNG infrastructure, substantial driver of Capex spending in SSA

Fitch indicates that Mozambique, Nigeria, Mauritania and Senegal are all expected to benefit from the construction of new projects per Fitch’s forecasts.

Apart from the Rovuma Area 4 project, Mozambique has two other LNG megaprojects still under construction. These projects have reached FID and set to commence operations in the near term. All these three projects estimate close to $56 billion, though these projects remain vulnerable to security concerns in Mozambique.

Nigeria is in the process of developing a seventh LNG train at its NLNG facility, which will cost $5.6 billion. Also, phase I of BP’s Greater Tortue Ahmehyim LNG project is also in the pipeline. The project will see Mauritania and Senegal have their first gas in 2023.

Meanwhile, phase II of the said project while handled by project partner, Kosmos Energy targeted for Q4 of 2022. All of these investments reflect a growing interest in LNG across SSA.

Fitch expects that the associated benefits that LNG output provides to government finances will support future investment in LNG infrastructure in the region.