Impact of Covid-19 on African midstream segment

GlobalData Energy 11 December 2020 (Last Updated December 11th, 2020 10:08)

Impact of Covid-19 on African midstream segment
Several major midstream oil and gas operators with operations in Africa had to revisit their growth strategies and reduce overall CapEx for 2020. Credit: xfilephotos / Shutterstock.

The widespread consequences of the Covid-19 pandemic, leading to a weak global economic outlook, have hindered the growth of the midstream segment in Africa. Subsequently, several major midstream oil and gas operators with operations in Africa had to revisit their growth strategies and reduce overall CapEx for 2020. Delays in a few of the forthcoming pipeline and liquefied natural gas (LNG) projects in the region have become unavoidable in a bid to avert financial risks.

Uncertainty in the global LNG market and the severity and duration of the pandemic would hinder the signing of long-term LNG supply contracts in the near to medium term. LNG buyers have been shifting their preferences from long-term supply contracts to short-term contracts or spot purchases in the current scenario. It would likely impact the commercial operations or the start plans of some of the proposed LNG projects in Africa.

Global Oil and gas majors with operations in Africa such as ExxonMobil, Royal Dutch Shell, Total SE, and BP Plc have all reduced their overall CapEx by more than 20% for 2020. It has led to certain upcoming projects in the region getting stalled or delayed. Start years of some LNG projects such as Rovuma, Tortue FLNG Phases 2 and 3, and Mozambique LNG have been pushed.

The sector has undergone significant losses, pushing companies to take desperate measures such as reducing CapEx or delaying final investment decisions (FIDs). However, these can only be short-term solutions, and to be able to ensure future business sustainability, midstream companies need to work on long-term strategies to tackle any future challenges.