Coronavirus: Reforms by Angola’s Lourenço helped mitigate effects of COVID-19
Big oil-producing countries have faced a double-hit in recent months: the sudden drop in prices of oil and the economic impact of the global pandemic. In the case of Angola, which entered both crises with an already weakened economy, how are its prospects looking? The Africa Report speaks to Sergio Pugliese, the Executive President for the African Energy Chamber (AEC), to find out.
Sergio Pugliese is the Executive President for the African Energy Chamber (AEC) in Angola, overseeing the implementation of the chamber’s strategy and work agenda for the country.
The AEC is considered a progressive business network that promotes business and investment opportunities within the continent by connecting local corporations, foreign investors and ministerial parties. From local content development to universal electricity access, the AEC aims to place Africa at the forefront of global energy investment and transformations.
Pugliese spoke to The Africa Report about the effect of the drop in oil prices on Africa and the effects of COVID-19 on energy in Angola, and the role of OPEC.
TAR: How long do you think it will take for Africa to recover from the effects of the drop in oil prices during this pandemic?
Sergio Pugliese: The general sentiment of the oil market pre-COVID was bearish in nature. Prices were already unstable and OPEC had been meeting to try and find a solution to stabilize the price in the short to mid term.
The COVID-19 pandemic acted as an accelerant and quickly changed market conditions. One of the biggest effect was removing around 30% of demand from the market. African producers now produce oil that doesn’t have a consumer market, therefore, until the demand and supply gap closes, African producers will have to keep going. This could take between six to nine months to normalize.
Does the low oil price create additional dangers of piracy while the oil has to be stored?
Low oil prices tend to have a negative effect on economies, thus affecting people and their income. This always creates problems pushing acts like piracy to be more likely.
There is also the added danger of vessels lying idle as floating storage waiting for a market that will take the oil. This is an added danger.
Do you think that the oil situation will force African governments to shift their economies’ dependencies away from oil, or do you think things will revert when things go back to normal?
Economic diversification has been the recent narrative adopted by most African oil and gas producing or dependent countries. Most of these countries have advocated for using oil and gas revenues as a driver for diversification, other countries such as Ghana have taken advantage of the fact they were not an oil country and had already a semi diverse economy.
Right now the biggest opportunity for African countries is to look at putting in place legislation and policies that help mitigate the downturn in the short term, but long-term focus should be on finding ways to have a leveraging mechanism for future downturns.
Gas monetization and integration into local and regional markets could be a sound strategy. Other mid and downstream opportunities can also be considered, and industrial ramifications deriving for oil and gas.
Do you think consolidation among African oil producers is now likely and could this create a stronger industry in the long term?
This has been looked at and discussed before but never has there been a concrete plan. Organizations such as APPO (African Petroleum Producers’ Organization) and gas producers’ organizations among African nations explored integration and joint projects for maximization of returns and benefits from combining efforts, but there has not been much traction, as African nations have many more issues to consider before these come to fruition.
Most of the African producers’ economies depend mainly on oil, therefore anything that requires major change is always seen as a controversial move, hence there is much political pushback.
What we have to start doing as Africans is look at benefits for all and take that as the driver for exploring opportunities that add value for all. We have markets in Africa, but the modus operandi is always export to other continents. We need to start to look at Africa as a good market and develop solutions for that.
With regards to Angola specifically, what are the long- and short-term effects of COVID-19 on the energy sector?
Angola has undergone a big change politically since late 2017. This much anticipated change led by President João Lourenço introduced many positive reforms in Angola that we can argue have helped the country mitigate some of the negative effects of COVID-19.
Angola created an Oil and Gas Agency, the ANPG, headed by Eng Paulino Jeronimo, [who] took the role of concessionaire from Sonangol and has since been a driving force in creating a new and more transparent way for the government to attract and promote investment as well as manage the Angolan oil industry.
Taking the role of concessionaire away from Sonangol has allowed for the start of the also much anticipated reorganization of Sonangol and its group of companies. The main objective is to separate the core from non-core activities and businesses allowing Sonangol eventually to focus on increasing the Angolan share of production and even selling some capital of Sonangol in the Angola stock market for public acquisition.
The Ministry of Mineral Resources and Petroleum under the new leadership of Minister Dimantino has taken a central role in promoting these changes and driving a new narrative of a competitive and accessible industry open for business and quality investment:
There have been, as a result of these changes, a lot of new projects and opportunities announced and negotiated by the government that created a new momentum for Angola, however now somewhat dampened by COVID-19. These include refinery projects, the gas consortium, the offshore bid round, fuel storage project, among other promising and strategic ventures.
What did energy in Angola look like pre-pandemic? How popular is renewable energy, and do you think this will change in a post-COVID-19 world?
In terms of energy, speaking about power specifically, Angola is at the forefront and even at the global level in terms of power generation and transmission. The biggest opportunity lies in infrastructure and distribution at the consumer level, which needs to attract investment.
The AEC has been in conversations with the Ministry of Power to help promote investment in specific strategic areas that will help attract quality investment much needed.
There has been a surge in interest for renewable energy and investment in this area. The government has been looking at improving legislation that allows for more investment to flow. Main interest has come from the oil and gas companies such as ENI, Total and Equinor who are at the forefront of these investments around the world among the oil majors.
Having said this, the government of Angola has expressed in the past its openness to this and I am sure they are looking for investors to present their proposals.
Do you think that OPEC has played a useful role during the crisis from the point of view of African producers? Would some African countries be better off outside OPEC?
OPEC has played a very good role in managing the current situation and helping to protect the interest of its African members, but OPEC is a group organization where the sum of the parts is always more important than that of individual countries, and I believe the leadership of Secretary General Barkindo, has recently shown that cooperation and common benefit approach is always better than diverging and individualistic views. Now we are moving towards a more comfortable situation for all and prices should stabilize.
OPEC is a very good platform for African countries to be part of something bigger that affects not only countries individually but continents and the world. Being part [of OPEC] is always an advantage that countries have in my view understood and taken full advantage of.
You should always be part of the conversation, rather than sitting on the sidelines, when the outcome affects you. The African Energy Chamber has a good working relationship with OPEC, of which we are very thankful, as we advocate investment for their African members, it is important to stand with OPEC, who[m] as I have already said, has always looked after its African members.
How high do you think the bar for new exploration has now risen in terms of the level of costs needed to ensure profitability? Are there African players and projects that can still meet the bar?
It will take a while for prices to stabilize and rise again to values that everyone is comfortable with to make money, but crisis always bring opportunities and I am sure everyone is trying to look at the opportunities available to them in the current situation.
Angola offshore is expensive to drill but Angola has marginal fields that were not well exploited and we have vast onshore acreage not explored properly since the 1960s.
Onshore projects in Africa have gained more oxygen and can have a new life as focus from more expensive projects can start to shift to easier and cheaper options. Obviously, the strategic offshore projects will have to continue and IoCs and other operators have been and continue to streamline their operations to better manage the opportunity cost.
Do you think the coronavirus pandemic has put energy conversations on the backbench for the time being, or are they as important as ever?
Energy is always at the forefront; nowadays you cannot talk about most economies without talking about the effect of energy and energy policies whether directly or indirectly.
Energy affects people’s lives on a daily basis. We consume less, people are not flying or driving, as they are confined to their homes, but people’s lives are dependent on consumption and demand.
We have to find a balance where we all win, and we will come out of this situation alive.
We at the AEC are very aware of these effects and especially on African countries and have advocated and continue to advocate for investment to continue to come, for sentiment to remain positive and for nations to adjust their outlook and what they open to the outside and make it as attractive and as accessible as possible.
The world will overcome and Africa too! We have faith.