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April 3, 2020

Covid-19 and low prices to impact upstream developments and FIDs in sub-Saharan Africa

By GlobalData Energy

The 2020 upstream outlook for Sub-Saharan Africa was already a mixed bag, and in the wake of the Covid-19 epidemic as well as the lowest oil prices seen in decades, the situation will only worsen.

The majority of projects expected to see FID in 2020 for Sub-Saharan Africa are considered at high risk of delay. Projects with high capital intensity or are the first for a country will have increased risk and will face increased hardship in reaching FID.

The South Lokichar Basin in Kenya, as well as deep-water Nigerian projects, were struggling to gain FID before the current low oil price scenario, which has made the projects even less favourable. Smaller companies such as Tullow Oil are already stretched and with the lower oil prices, FIDs on their projects will be more difficult.

These low oil prices will have large implications upon the oil and gas industry of Sub-Saharan Africa and globally as only extremely efficient and robust enough projects that can survive a price downturn, or can be sheltered from one will be able to go ahead this year.

Projects which are already under construction or have reached FID will contractually have to go ahead, however, will likely face disruption to their timescales, particularly for landlocked countries that require external supply chains which often come from China or Asia-Pacific where the outbreak of Covid-19 began.

The sub-Saharan Africa region, and in particular Nigeria, where the regulator has just asked for an offshore workforce restriction will see a drastic reduction in production and investment in the coming years as their fields age and cannot be replaced by new projects. This virus outbreak, along with the low oil process will only exacerbate these problems, especially as companies reconsider more risky projects in the region.

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The outlook for oil and gas projects for Sub-Saharan Africa in 2020 is bleak as the major producers (Nigeria and Angola) were already suffering with a production decline and with the current economic climate this decline is expected to continue for years to come.

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