How should Africa deal with the $40 barrel?

Author:Ford, Neil
Position:An African Business Special Report
 
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There are many in the oil and gas industry who believe that the current price of crude, at around $40 per barrel, is here to stay. What are the implications for African exporters and net oil importers? We focus on this aspect of the industry in this Special Report. We also report on the latest developments in the Kudu gas project. Report written by NEIL FORD.

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The current oil price boom has obviously proved something of a mixed blessing for African economies, with the majority--the net importers--losing out, while the net exporters benefit from higher revenues.

Yet the benefits for both current and potential producers may extend far into the future if the present high price of oil is sustained. Africa possesses many oilfields that are not commercially viable to develop at a price of $20-$30 per barrel of oil, but if the $40/pb is here to stay then a whole host of oil companies would be prepared to undertake development.

Many of the areas liable for development are deepwater and ultra deepwater fields where production costs have already fallen sharply over the past decade, largely because of technological breakthroughs.

The use of floating production storage and offloading vessels (FPSOs) is already becoming routine in the region but one new advance of particular use in the Gulf of Guinea is the introduction of subsea "trees", which allow the phased development of deepwater fields.

Deepwater development has become almost commonplace over the past few years. According to analysts Infield Systems, 185 deepwater fields around the world, with estimated reserves of 40bn barrels of oil equivalent (boe) are scheduled for development over the next five years.

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Just 81 deepwater fields were brought on stream over the previous five-year period. Increased focus on deepwater development should have a massive impact on African oil production given that much of the Gulf of Guinea--the heart of the African oil industry--comprises very deepwater acreage.

VERY DEEP DEVELOPMENT NOW VIABLE

The current high level of oil prices could also open up a great deal of Gulf of Guinea ultra deepwater acreage--generally defined as maritime territory lying in excess of 1,500 metres of water.

Offshore oil reserves often lie many hundreds of metres below the seabed and so the overall distance from sea surface to reservoir can be 3,000 metres, which poses particular problems both for oil exploration and actual production.

The success of deepwater operations and further technological advances in offshore production seem to have convinced the oil industry that ultra deepwater production can be commercially viable if prices remain high.

Around the world, a total of 27 ultra deepwater fields containing 5bn boe are slated for development over the next five years on the back of investment of $10.7bn. Only 15 ultra deepwater fields were developed in the five years to the end of 2003.

Angola is one of the most important deepwater arenas in the world. Total national production is likely to increase from an average of around 930,000 b/d in 2003 to 2m b/d by the end of the decade as the result of the country's many massive deepwater developments.

The Jasmin field, developed by French firm Total, and ExxonMobil's Xikomba scheme both entered production at the end of last year, as the billions of dollars invested by the majors over the past few years finally began to pay dividends.

Total's Girassol deepwater field on Block 17 has been in production since 2001 and now the Jasmin, Tulipa, Dalia and Lirio discoveries are expected to push production on the field much higher than the current level of 230,000 b/d.

British giant BP has also invested heavily in Angola and the Cobalto, Cromio, Galio, Paladio, Platina and Plutonio deepwater fields on its Block 18 are in the process of being developed via an FPSO as part of the Greater Plutonio project.

US firm ExxonMobil is in the process of developing what may be the biggest ever oil project in sub-Saharan Africa. Production on each of the three phases of its Kizomba scheme on Block 15 could reach 250,000 b/d...

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