Sub-Saharan Africa (SSA) nations that export oil will have dim prospects in 2020 following the oil price crash that has left many struggling to stay afloat.

An IMF projection for this year shows that growth in oil exporters will decline from 1.8 per cent in 2019 to −2.8 per cent. This is almost a 7 per cent downward revision from the 5.3 percentage points in October 2019.

Nigeria which is the largest economy in the region will see its GDP contract by −3.4 per cent, a reflection of the large drop in oil prices and the impact of containment and mitigation measures on economic activity.

The two SSA’s top producers- Nigeria and Angola- will see losses exceeding US$10B if prices do not rebound.

According to Kola Karim, CEO & Managing Director of Shoreline Natural Resources, African oil-producing nations are still not economically diverse if the effect of the covid-19 coronavirus pandemic on oil prices is anything to go by.

“Despite repeated actions taken by governments over the past decade to diversify their economies, especially following the 2014-2016 African recessions, not enough has been done. Economic crises in African oil-producing countries this year will be so severe they could reach double-digit economic recessions,” added Karim in an Invest Africa podcast.

He says that as countries like Nigeria, Angola, Gabon, Congo or Equatorial Guinea deal with unprecedented lows in oil prices and the struggle to keep their economies afloat, the current downturn could well be the historic turning point these economies need to seriously put diversification at the top of economic policies priorities.

Karim, however, clarifies that diversification does not mean the end of oil.

“Efficient diversification goes through better use of oil revenues to fuel other sectors of the economy, build a stronger industrial base and create jobs. But it also means diversifying national hydrocarbons output and increasing production, monetization and valorisation of natural gas,” he adds.

He says that for many African oil producers, successful economic diversification depends on their abilities to increase hydrocarbons production and make better use of flared and associated natural gas to generate power for industries, produce fertilizers for farmers and manufacture petrochemicals for their growing domestic markets.

Nigeria has Africa’s largest discovered gas reserves and the 10th biggest in the world with 188.8 Tcf of proved natural gas as at 2019 estimates,

Last year, Nigeria was the world’s sixth-largest LNG exporter with a 6 per cent global market share.

The West African nation was ahead of Algeria whose exports were valued at 3 per cent, Angola and Equatorial Guinea at 1 per cent each.

Interestingly, none of the 20.8 million tonnes of LNG Nigeria exported last year went to Africa. The country’s biggest share of exports at 54 per cent went to Europe, 37 per cent went to Asia while the rest was exported to the Americas and the Middle East.

Karim says that the only Nigerian gas targeted at the African market goes through the West African Gas Pipeline (WAGP) to Benin, Togo and Ghana. However, it is limited and often interrupted forcing these countries to rely on additional domestic or international sources of gas to fuel their power plants.

Looking forward, it is not all doom and gloom for the sector on the continent.

“The current situation in global and African energy markets is giving tremendous opportunities for Africans to take a strong position on economic diversification. In that aspect, Nigeria is the country that could take the lead position in becoming the African gas producing platform the continent needs,” stated Karim.

The African Energy Chamber (AEC) notes that unless the current crisis leads to serious gas-market policies and initiatives to monetize gas across Nigeria and Africa, oil dependence-related hardships will continue and only get stronger.

AEC adds that more needs to be done to monetize gas in Africa.

Already, this has started with several successful gas monetization projects across industries and beyond just electricity generation.

For instance in Benin City, Nigeria, NICPO has been developing a network of CNG outlets that take customers beyond petrol and diesel while offering them a domestic, more cost-efficient and cleaner fuel.

On a bigger scale, domestic gas is already being valorised in the Indorama Eleme fertilizers plant in Port Harcourt which is currently under expansion, and in the soon-to-be commissioned Dangote Fertilizers plant in Lekki.

Victoria Oil & Gas in neighbouring Cameroon has been supporting the development of a strong industrial and manufacturing base on the outskirt of Douala by connecting several customers to natural gas.

The Chamber notes that in the Gulf of Guinea, Equatorial Guinea is building a regasification terminal to process its own natural gas across several industries such as power and cement on its mainland. Further North in Abidjan, the government has been pushing for the procurement and deployment of CNG buses that also run on domestic natural gas. Success stories abound all around us, yet they need to be expanded and replicated for Africa to truly embrace the benefits of economic diversification.

For this ambition to be achieved, the development of enabling environments and sound market policies is crucial to facilitate investments into gas production and gas transportation and processing infrastructure.

“Nigeria has already taken the opportunity to maximize its gas with the West Africa Gas Pipeline. As an industry, if we are able not only to ensure stable gas supplies through that pipeline but also lay additional connections to North Africa and Europe through Niger, and to East and Southern Africa through the Central African Republic, then a country like Nigeria gives itself the opportunity to industrialize the whole continent through the production and export of its domestic gas while creating several thousands of jobs,” Karim added.

To enable this, governments need to give incentives to critical midstream infrastructure, along with market policies to support gas valorisation.

Karim says that diversification needs to become the new reality for Africa as it gets used to a post-covid-19 world where US$50/barrel is the new US$100.

Diversification needs to be the key priority in order to create a new hedge and natural buffer against future downwards cycles, he notes.

Karim challenges Nigeria to stand up and focus on gas to become the gas platform producer that the continent needs.

“This pandemic should afford us all the opportunity to view our countries from an internal point of view and prepare ourselves and our economies for the next big crisis,” he conclude