With nearly 700TCF of discovered natural gas resources
and significant oil resources from onshore and offshore fields, Africa has the
potential to supply itself with oil and gas as well as to export LNG around the
world. While some Big Oil companies are focusing on moving away from
hydrocarbons and investing more in renewables and decarbonization, that leaves
a vacuum in financing for potentially profitable oil and gas projects in places
like Africa. That vacuum could likely be filled by China and Russia, both of
which have invested heavily in African mining and energy projects. For China,
it is more about securing supply of minerals and oil and gas. For Russia, it is
now about profit and working with countries, friendly or neutral, to help the heavily
sanctioned country to become less economically isolated.
As can be seen from the graph below African
upstream oil and gas capex peaked in 2014 at just of $70 billion. Conventional
onshore resources and deepwater offshore resources have garnered the most
investment, followed by offshore conventional shelf resources. LNG terminals
have been developed in offshore plays lacking infrastructure and local demand.
WoodMac notes
that oil majors have largely divested their stakes in mature fields on the
continent due to lower profit margins and high emissions intensity. Buyers have
mostly been National Oil Companies (NOCs), local companies, and private equity.
New large gas discoveries, particularly offshore, offer potential to further develop
both domestic supply and LNG for export. Big deepwater discoveries offshore
Namibia by Shell and TotalEnergies, the Graff and Venus fields, are especially notable.
Of course, these deepwater developments take time to evaluate and bring to
market. With well developed deepwater plays offshore Angola and some offshore
Gabon and Nigeria to the north it appears that offshore west and southwest
Africa is set to continue being a major oil and gas production area. However,
it is offshore East Africa that has garnered the most attention in recent years
due to large gas discoveries offshore Mozambique. Overall, the oil and gas
potential onshore and offshore is vast and offers the best opportunity by a
very wide margin of getting modern energy access to the people.
World Oil
reports that new oil discoveries offshore Angola and fiscal policy improvements
have resulted in increased investment in the region. Angola recently became the
highest oil-producing country in Africa at 1.06 million barrels per day
surpassing Nigeria and Algeria both at just under 1 million barrels per day. While
the upstream sector is thriving, the downstream sector is behind with only one
oil refinery operating in the country. Despite Angola’s reserves of 9 billion
barrels of oil and 11TCF of gas, the country still imports 80% of its oil due
to lack of refinery capacity. The good news for the country is that Italy’s Eni
is helping to expand the refinery capacity of the exiting refinery and there
are plans to build several more refineries. These are expected to begin
refining oil in mid-2024 through 2026. Eni and TotalEnergies are also working
on floating production and offloading so they can sell oil to Europe,
offsetting Russia’s former market share. Expansion of the downstream sector in
the country all the way down to the gas station level is also expected to bring
more jobs to Angolans. New business opportunities to bring refined products to
nearby countries, mainly through existing pipelines, are also in the works. These
improvements are supported by better energy policies in the country as World
Oil reports: “To attract investment and further encourage production, the
Angolan government has implemented extensive reforms, including simplifying
control mechanisms, offering fiscal incentives for the development of marginal
oil fields, establishing regulations for well abandonment and decommissioning,
and enacting the country's first natural gas law.” This type of model for
supporting these industries should be applied to other countries as well.
Lack of Financing Can Make It Harder to Develop
Domestic Fossil Fuel Resources that Can Provide Better Access to Affordable
Energy and Electricity
Lack of
investment in some African countries has led to wasteful situations. Nigeria
hosts abundant oil and gas resources yet has very high gas flaring rates due to
lack of natural gas infrastructure. Such infrastructure needs investment
dollars and some of that cash can and should come from other countries and
international investors like it does in other places. To deny investment
dollars to needy countries and to countries needing some help to develop their
own abundant domestic resources is both hypocritical and unfair. Nigeria offers
a clear opportunity for building infrastructure: pipelines, power plants, and
processing facilities. Reduction of flaring is a co-benefit that can reduce
greenhouse gas emissions. African oil and gas projects need full access to
financing.
Natural Gas in Particular Offers Cleaner Affordable
Energy
Natural gas in particular can offer baseload electricity to the continent with adequate investment in drilling, pipelines, and power plants. The resources are there. As noted, countries like Nigeria need investment to take advantage of natural gas being lost to flaring. That is happening slower than it should. Reuters reported in November 2022 that "Africa holds about 13% of the world’s natural gas and 7% of its oil but has the world’s lowest per capita energy use." It was also noted that the whole continent of Africa makes up only 3% of global energy consumption and less than 3% of global greenhouse gas emissions. The gas is there to provide baseload power. Investments should offer very good returns in time, but upfront capital is sorely needed. Energy demand is expected to grow as well at a rate of about three times the global average. Unfortunately, it was also noted: “U.S. climate envoy John Kerry has cautioned against long-term oil and gas infrastructure investment in Africa, urging countries to turn to renewables instead.” I believe he is clearly wrong here. While it is thought that Africa, North Africa in particular, has 60% of global solar resources and only 1% of solar generation. The costs to develop those variable resources would be astronomical compared to baseload and energy dense more oil and gas resources. Solutions like hydrogen are not viable either in the near term. Africa has a clear need to industrialize and oil and gas are the most promising energy resources to enable that.
Leapfrogging to Renewables is Not Even Remotely Feasible
in the Near Term
While North Africa
and places near the Sahara Desert offer some of the world’s best solar
resources, those resources are not near high population areas and areas of
wealth and consumption. Soiling, or dust accumulation on the panels there lowers
output unless those panels are cleaned frequently. Other places in Africa have
decent wind resources. Kenya and a few other African countries have abundant
geothermal resources. There are yet some opportunities for developing
hydroelectric resources as well. No doubt, the most economical of these
resources will be pursued. However, these will not be nearly enough to power
the continent at levels needed to bring it from a state of energy poverty to
one of energy adequacy. Energy poverty ensures the continued economic poverty
of the people. In addition to power generation resources, the continent needs energy
infrastructure including power transmission lines to bring it up to modern energy
system standards. Renewables alone are clearly not a solution to African energy
poverty. The continent needs the most economical resources and the most locally
available resources. Those are most often fossil fuels. There is abundant
untapped oil and gas potential. Along with the estimated 700TCF of discovered natural
gas resources there are significant undiscovered natural gas resources as well
as discovered and undiscovered oil resources. As we will see in the next section
there is a missed opportunity and ceding of market share to countries like Russia
who have little to no interest in decarbonization and climate change
mitigation.
Russia and China Involvement in African Oil & Gas
and Mining Projects
A roundtable
in June of this year hosted by the African Energy Chamber and Russia’s Gazprom discussed
African oil and gas projects and collaboration between African countries and Russia.
Representatives of Mozambique, South Africa, and Nigeria called for more
natural gas investment and more Africa-Russia cooperation. I believe this is a
missed opportunity for non-Russian companies who may be ceding opportunities to
Russia, possibly in some cases I suspect, on the basis of emissions intensity of
some of the projects. The theme was ‘The Benefits of Natural Gas for the
Population and the Economy.’
Energy security
and economic prosperity for the continent were major focuses of the roundtable
as should be the case. LNG and gas-to-power were also discussed. Mozambique recently
exported their first cargo of LNG. Nigeria has significant natural gas
resources but has been slow to develop them due to lack of investment and poor policy.
The Petroleum Industry Act (PIA) in 2021 and their ‘Decade of Gas’ initiative
should be helpful in bringing more investment. They stated that they believe
Gazprom has good intentions in developing Nigerian gas. African leaders focused
on calls by overly zealous decarbonization advocates to move away from natural
gas, instead calling for more access to affordable energy, natural gas in
particular, for the continent. The roundtable served to strengthen further the
bilateral trade and cooperation between Russia and African countries. The opinion
was expressed that gas was not a transition fuel but a destination fuel. Russia’s
Gazprom is sanctioned along with the rest of the Russian economy due to the brutal
invasion of Ukraine. African countries have notably been hesitant to join those
sanctions, although likely mainly for economic reasons. I believe we should continue
to encourage African countries to be wary of their Russian relationships and to
do more in condemning Russian aggression rather than remaining neutral.
Unfortunately, by emphasizing renewables and decarbonization rather than emphasizing
development of more affordable domestic fossil resources, financial
institutions and other investors have lost market share to countries like
Russia and China. The end result is more companies working in Africa having far
less interest in lowering carbon emissions and pollution than would have otherwise
been the case. Thus, I believe that approach has essentially backfired.
Institutions and investors should have been prioritizing domestic fossil
production all along. It may not have been great for their decarbonization
portfolios, but it is good for African economic prosperity, a very clear need
on a continent with abundant energy poverty and economic poverty.
Only 17 African
heads of state attended the July 28 Russia-Africa summit in St. Petersburg. In
2019 43 heads of state attended. Kremlin spokesman Dmitry Peskov said this was
due to the West’s “absolutely unconcealed brazen interference.” This is
true but we can only hope that even fewer heads of state attend. Russia’s push
for an alternative influential group of mostly authoritarian nations and
sympathetic “friends” should be countered by all democracies. The Ukraine
invasion has caused African food prices to spike, and a new spike is occurring due
to Russia’s suspension of the Black Sea grain deal. Russia has bombed and
burned Ukrainian agricultural land and grain silos and has threatened to attack
civilian ships in the Black Sea. Apparently, Putin wrote an essay welcoming the
attendees, pointing out the ills of Western colonialism in the region. It would
be sad indeed if he convinced them that Russia actually cares about their well
being compared to the so-called West. While there is no doubt there was a
history of colonialism on the continent, one would be hard pressed to think
that Russia has no history of colonialism. Russia’s precursor the Soviet Union
was probably the most brutal and imperialistic regime in modern history and
lots of conflicts in recent times are the result of the Soviets “Russianizing”
parts of conquered countries formerly part of the Soviet Union. In a similar
manner occupied Ukraine is being further Russianized. The recent coup in Niger was
enabled with the aid of Russia’s Wagner Group and I just read people supporting
the coup are waving Russian flags in the street. Veneration of Russia is rampant
in Mali and the Central African Republic as well. Russian lies and propaganda
have a very wide reach around the world, unfortunately. Also unfortunate is the
fact that Russian influence and support on the continent is not likely to wane
anytime soon.
China is less
involved with African oil & gas but very much involved with African mining.
China’s investments in Africa in this regard have led to economic and
infrastructure improvements on the continent. They have also financed many
African projects which means many of these poor countries have higher than desirable
levels of Chinese debt. There are environmental issues as well. Cobalt mining
in DR Congo is one of the best known. China and Russia are not known for dedication
to environmental mitigation. As I have noted in another blog
post, there are human rights issues associated with Chinese green mineral
ventures around the world.
References:
Africa
upstream oil and gas: one last hurrah? Gail Anderson and Martijn Murphy. Wood
MacKenzie. June 21, 2023. Africa upstream oil and gas: one last
hurrah? | | Wood Mackenzie
Natural
gas takes center stage at African Energy Chamber – Gazprom roundtable. World
Oil. June 23, 2023. Natural gas takes center stage at
African Energy Chamber-Gazprom roundtable (worldoil.com)
Graff
and Venus: game-changers for Namibia’s upstream industry? Wood MacKenzie. March
16, 2022. Graff and Venus: game-changers for
Namibia’s upstream industry? | Wood Mackenzie
A new
decade rich in promise for African oil & gas is dawning. Chege Publishing.
2019/2020. A
new decade rich in promise for African oil & gas is dawning. | Chege
Publishing
Africa
Lines Up 428 Oil And Gas Projects. Financial Fortune. June 3, 2021. Africa
lines up 428 oil and gas projects | Business News Africa
(financialfortunemedia.com)
AEC,
Gazprom Kickstart International Roundtable on Natural Gas. African Energy
Chamber. June 22, 2023. AEC,
Gazprom Kickstart International Roundtable on Natural Gas | African Energy
Chamber
Ukraine
live briefing. Washington Post. July 26, 2023. Ukraine
Live Briefing. Washington Post. July 26, 2023 - Bing News
Opinion:
Angola’s large-scale oil and gas comeback. NJ Ayuk, African Energy Chamber.
World Oil. July 25, 2023. Opinion:
Angola’s large-scale oil and gas comeback (worldoil.com)
Africa
must use its gas reserves to drive the economy, industry officials say. Alex
Lawler. Reuters. November 1, 2022. Africa
must use its gas reserves to drive the economy, industry officials say |
Reuters
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