Leaders in African energy risk management united in a webinar forum recently under the theme, ‘Navigating Risk: Increasing Threats in the African Energy Market under COVID-19’ to put forth strategies for mitigating physical, cyber and security risks, towards protecting employees and assets.
From regulatory uncertainty and political unrest to physical and cyber security attacks, the risk of investment in several African countries has been heightened by the onset of the Coronavirus Disease, not least of which has been the threat to stable energy demand.
“Global lockdowns have had severe impact on both prices and demand. This double shock – in which both prices and demand collapse – has implications for both oil producer and consumer countries,” said founder and President of SVB Energy International, Dr. Sara Vakhshouri.
However, the Managing Director, Inyani Intelligence, Shawn Duthie, said, “African countries are facing challenges to security of demand, since global consumption has been significantly hit. There are expectations that by the end of this year, demand will increase further and countries will start racking up their exports. But in the case of major African producers like Nigeria, we are seeing that they have not yet complied with Organisation of the Petroleum Exporting Countries production cuts.
“The big impact of COVID-19 has been government-imposed lockdowns. It is the economic hit that increases risk for all businesses. Lack of money means a lack of money for social services and social delivery.”
Reduced government revenues from crude oil exports due to drop in demand could also lead to changes in tax and regulatory frameworks that govern oil-producing countries.
Duthie added, “Looking at a more macroeconomic level, we might see new regulations that increase taxes or financial burdens, especially on foreign companies and large multinationals. This is a risk for a lot of places, especially high-risk countries such as Democratic Republic of Congo and Burkina Faso that do have natural resources.”
When it comes to the increased threat to asset protection faced by companies during COVID-19, the question remains whether the crisis has only shed light on, rather than created, existing breaches in security.
“With a situation like COVID-19, coupled with depressed prices, your assets are exposed,” said the Chief Executive Officer of Energy and Natural Resource Security, C. Derek Campbell. “You have human terrain gaps, cyber security gaps as well as indications and warnings of extremist groups looking at ways to attack infrastructure. As you have reduced manpower and lack of risk identification methods, you have invasion of sites. That’s at a tactical level.”
According to him, to mitigate potential threats to on-the-ground risk and security, regular risk assessment programmes must be conducted to identify weaknesses and prevent breaches in security from affecting returns on project investments.
Said Campbell, “Companies need to ensure that they have a consistent review and assessment programme using global standards. In addition to an initial assessment, it needs to be done periodically. As an operator, you need to be able to ensure resilience, so that you can maintain continuity of operations. If you cannot do that, then you cannot optimise and monetise the asset.”
This, he asserted, puts capital investments in upstream, midstream and downstream projects at risk. “That is impacted by depressed prices because your posture is down and you are not concerned about protection from physical and cyber risk, which ultimately impacts the financial risk.”
Sub-Saharan Africa has seen several physical and cyber attacks in recent months, from pirates and vandals to militants, suggesting a need to prioritise investment into the security of projects in the region.
“There are a number of recent attacks offshore Equatorial Guinea, in Algeria around 2011 and 2012 and consistent threats in Nigeria to operational networks in oil and gas, onshore and offshore,” Campbell noted. “When investors come in, they squeeze projects, charging a high rate of return. To mitigate financial risk, they squeeze the project and expect to get their returns in three years. But then, the operator cannot mature the project because they don’t have the cash.”