Page 59 - bneMag April 2022 Russia living with sanctions

bne April 2022
Opinion 59
INTERVIEW
Implications of war in Ukraine for Africa
Jennifer DeLay
Experts from Rystad Energy and Welligence Energy Analytics speak to NewsBase about what the Russia-Ukraine conflict might mean for oil and gas producers in sub-Saharan Africa.
WHAT: Given Russia’s position as a major oil and gas exporter, the current conflict has the potential to make projects in sub-Saharan Africa more attractive.
WHY: African gas may draw more short-term interest than oil.
WHAT NEXT: African gas-producing states will have to demonstrate their ability to provide adequate support for LNG projects.
Russia’s invasion of Ukraine on February 24 hit the geopolitical scene like a bolt of lightning, and the shock spread quickly to the global economy as a consequence of the sanctions that Western states have imposed on Russia.
And there are surely more storms to come. The EU and the US have begun expanding their sanctions regimes to encompass crude oil and natural gas, two of Russia’s most valuable (and politically useful) exports. In turn, Russia has imposed a freeze on commodity exports out to the end of the year.
The parameters of this freeze are not yet clear. But since Russia is the world’s largest gas producer and one of the world’s top three producers of oil and wheat, this move has the potential to wreak economic havoc in many parts of the world – partly by driving food and fuel prices up and partly by complicating its relationships with countries that depend on imports of these basic commodities.
Under such circumstances, it is worth asking what these developments might mean for other producers of commodities such as oil and gas. NewsBase has therefore sought the opinion of two energy experts on the question of whether recent development represent a new opportunity for oil-
and gas-rich states in sub-Saharan Africa.
The following is a lightly edited version of the responses received from Derek Boulware, head of sub-Saharan Africa research at Welligence Energy Analytics, and Siva Prasad, senior analyst at Rystad Energy.
Investor sentiment
Question: How are recent developments on world oil and gas markets (rising prices, talk of sanctioning Russian oil and gas exports) likely to affect investor sentiment on upstream projects in sub-Saharan Africa?
Siva Prasad: Considering the amount of natural gas potential that sub-Saharan Africa holds and the need for Europe to find an alternate source of natural gas [following] Russia’s invasion of Ukraine, sub-Saharan Africa definitely stands at a point where previously stalled/delayed projects might come into [the] limelight.
We are already seeing BP, which was one of the first operators to announce its exit from Russia, start studies on its BirAllah gas discovery offshore Mauritania, targeting LNG sales to Europe. To be noted, it was previously estimated that BirAllah would see a delayed timeline of development, especially after the [Greater] Tortue Ahmeyim (GTA) scheme [offshore Senegal] was downsized from the initially planned 10mn tonnes per year capacity to 5mn tpy.
Shell and Equinor’s exits from Russia can mean increased focus on the currently less spoken about Tanzania LNG. ExxonMobil’s exit from Russia can mean acceleration of [the] currently phased-out development of Mozambique LNG.
Europe has been one of the two main importers of Nigerian LNG, with the other being Asia. Nigeria is bumping up its LNG export capacity from 22mn tpy to 30mn tpy, and this can mean increased focus on natural gas development in the country to feed the Nigeria LNG plant.
As such, the natural gas developments in the region can seem more attractive to the investors now as this not only helps fill the possible void of supply to Europe but is also in line with the energy transition strategy to focus more on natural gas developments compared to crude oil.
Derek Boulware: Put in simple terms, the events of the last month make sub-Saharan Africa’s upstream more attractive.
Of course, the same argument applies to other regions, but some of the countries in sub-Saharan Africa had been making good progress in drawing in investment. These countries can continue to pull in the dollars as long as they stay on that path. From an M&A [mergers and acquisitions] perspective, the current market may suppress deal-making. Producing assets will be generating substantial cash flow right now, a disincentive to sell.
Furthermore, the current high prices and extreme market uncertainty in the near to medium term make asset valuations and closing the buyer-seller gap very tough.
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