After a disruptive year, what next?
By Nyonga Fofang on January 27, 2017
With a year of political upheavals in the US and Europe behind us, but predictions of further disruption ahead, what is the outlook for companies in the African energy space?
It’s a new year, 2017, following Brexit, the US elections and gyrations in the oil and gas sector, among other sources of turmoil. Despite uncertainty, it’s time for African oil and gas firms to look forward.
Political disruption in the US and Europe
Clearly, the election result in the United States was a case of an American version of ethnic nationalism triumphing over hope, inclusiveness and liberal progressiveness. It was also a statement of the impact of new technology and globalization on labour markets, and a testament to the political power of social media. We now have a new US president with a pedestrian knowledge of Africa. What does it mean for the continent and what should we expect?
It’s also that time of year again – the season for planning the way forward through the coming 12 months. 2016 was a turbulent year politically, business-wise, and even socially. Europe and the USA, once beacons of stability, became poster children for political and economic risk. Previously fringe right wing groups are now moving to occupy the political centre in most of Europe. The implications are not yet clear.
African energy in uncharted waters
In the African energy space, 2016 was a disruptive year for big and small independent oil and gas operators due to collapsed oil prices and fallen revenue streams. 2017 is going to present most oil and gas companies with new challenges as the industry moves further into uncharted waters. Given the impact of last year’s overall performances in the sector, most African oil companies, from juniors to large corporations, will have to optimise their operations, rationalizing costs due to the need to realize value while contemplating new business opportunities.
“The markets are in for a rough phase as we move ahead, and lack of clarity in the regulatory environment governing the oil and gas sector will lead to more uncertainty.”
Most businesses will have to refine their business models, and start using progressive financial funding models based on efficient service delivery. Perhaps we will see increasing use of smart technologies, such as drones, which can be used to collect and assess data from problematic land assets or offshore rigs. There are certainly ways to reduce some of the prevailing high human and material costs entailed in oil and gas exploration.
Change has got to come
As per funding options going forward, rising oil prices will give investors some comfort. However, potential targets will be those companies that have used the downturn to rework their business models, fine-tuning operational efficiency, managing costs downwards, and embracing new technology like cloud computing.
Cloud-based infrastructure, aside from its low cost of entry, will also enhance value if utilized efficiently. However, given that the energy sector is highly sensitive in terms of information, politics and capital, the jury is still out in the African space on the speed with which cloud technology can be embraced.
During the recent West Africa Energy Assembly conference (January 17, 2017) in Lagos, Nigeria, the prevailing theme was regulatory environment and the impact of the new US president. According to most participants, the markets are in for a rough phase as we move ahead, and lack of clarity in the regulatory environment governing the oil and gas sector will lead to more uncertainty. Donald Trump’s policies will no doubt have an impact on supply and demand in the global oil industry. On the impact of the new president on Africa and its oil and gas sector, we’ll need a lot more information before making predictions. The business of oil and gas production in Africa is no way coming to an end; however, some dated modes of operating will have to change.