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Energy

African Energy Chamber: cheap oil risks postponing investments in Angola

The African Energy Chamber (CEA) has warned that low oil prices may lead to delays in the exploration of new wells in Africa and particularly in Angola and has advocated a new tax regime to attract investors.

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"Most of the projects that were ready for approval were planned at a price of $ 55 to $ 60 per barrel, so the fact that the price is currently around $ 40 means bad news, mainly because major investment decisions need the price in $ 45 to make a profit ['breakeven'], and some up to $ 60, "reads the report on Energy Outlook for Africa.

In the CEA report with technical support from Rystad Energy, sent this afternoon to investors, experts write that "ENI and ExxonMobil have already said that they will focus on developing projects with a breakeven price of less than $ 35 and the development of the Agogo well in Angola faces a delay due to its price of 45 dollars per barrel ".

In addition to this, the marginal wells Palas, Astraea and Juno operated by BP in Angola may also "be postponed due to the relatively high price of 'breakeven', BP's commitments in other parts of the world and the energy transition".

The delays resulting from the reduction in world demand for fuels due to the pandemic, in a context of prices already reduced compared to the average of recent years, had a very significant impact on oil-exporting countries, such as Angola or Equatorial Guinea, which depend on sale of this raw material to balance the budget and finance economic development.

"The current estimate is that the delays for these projects in Africa may imply a decrease of 200,000 barrels in the continent's daily production between 2021 and 2025", warn the analysts, stressing that "the impact may be even greater in the long term, with energy production to fall on average close to 1.1 million barrels per day between 2026 and 2030".

The document, which analyzes the main events in recent months, with special emphasis on the impacts of the covid-19 pandemic on the energy sector in Africa, also points out the reforms needed for the African continent to recover more quickly and harness the potential of these natural resources.

"It is time for bold tax reforms," ​​argues in the report, which points out that "most African producers perceive the challenges posed by their current tax regimes in the current price environment and are involved in approving appropriate amendments", exemplifying with new legislation in Nigeria and Angola, the two largest producers in sub-Saharan Africa.

Even so, they add, "changing tax regimes entails new challenges, causes uncertainty, distorts the expected revenue for the State, and it is difficult to agree on which tax parameters to adopt".

Despite these difficulties, they conclude, "in order to attract capital for possible projects in the future, African nations with oil resources have to adapt their tax regimes to a new model of more supply and less demand, because if they do not do so it can lead to resources lost and lost projects ".

In the document, CEA anticipates a slight drop in oil production in Angola, from 1.270 million barrels per day, to 1.260 million barrels in 2021, and also forecasts a drop in production in Equatorial Guinea, from 109 thousand barrels this year to 94 thousand in 2021, in contrast to what happens with gas, which will have a rise to the equivalent of 102 thousand to 106 thousand barrels per day next year.

The African Energy Chamber, based in Johannesburg, is a private entity designed to encourage investment in Africa, having launched the second annual report on the prospects for the evolution of this sector on the continent.