With Africa rich in oil and gas, it’s alarming that nearly 500 million people, or one-third of the continent, lack electricity access. To end this energy poverty, investments in Africa must increase, ensuring that the continent reaps economic benefits.
Recent significant oil discoveries in Namibia, final investment decisions in Angola, and several start-ups in 2022 suggest progress. However, the challenge remains: can numerous African projects secure the necessary financing?
According to a report by African Mining Market, Africa’s vast natural gas reserves play a dual role. They’re essential for export revenue growth and vital for domestic economic expansion, presenting an opportunity for the continent to realise its low-carbon energy aspirations. The question arises: can Africa capitalise on its gas assets economically?
As major global oil companies reduce their African presence, domestic independent operators rise to the forefront. Yet, with challenges surrounding financing, carbon emissions, and dominant national oil companies, the question persists: can these independent operators thrive?
As the African Oil Week approaches, scheduled for October 9–13, 2023, in Cape Town’s International Convention Centre, Wood Mackenzie explores optimising Africa’s oil and gas resources.
Financing the Development of Africa’s Oil and Gas
Africa’s oil and gas resources face a significant financing challenge. While African upstream investment is making a comeback, the continent is expected to represent only 6% of global upstream investment over the next decade. Consequently, Africa’s oil production might drop from 12.4 million boepd in 2024 to 10.1 million boepd in 2033.
Three actions can reverse this trend:
- Lowering costs and improving project delivery. African nations like Angola, Cote d’Ivoire, and Nigeria lead positive developments, but battling cost inflation remains crucial.
- Governments should resist raising taxes during times of high oil prices. Instead, offering tax incentives for renewable energy projects would demonstrate a commitment to a diversified, low-carbon future.
- Addressing sustainability regulations is crucial. High carbon intensity in Africa’s upstream sector deters investors. Without tackling emissions from flaring, production, and methane leakage, more International Oil Companies might pull away.
Pioneering Gas Development Pathways
Traditional onshore Liquid Natural Gas (LNG) export projects in Africa have been cost-intensive. Hence, alternative gas resource development methods like floating LNG (FLNG) have become more appealing. With its lower capital costs and quick-to-market potential, FLNG finds favour among developers.
Africa remains at the epicentre of this shift. Countries like Cameroon, Mozambique, Mauritania/Senegal, Congo, and Gabon have embraced FLNG, with Nigeria and Namibia considering it. Despite the potential, FLNG has its risks: cost overruns, schedule delays, and security concerns.
Furthermore, developing domestic gas markets remains a significant challenge due to affordability issues and infrastructural limitations.
African Independent Operators on the Rise
African independent operators are confidently developing their resources. These entities actively acquire assets from International Oil Companies divesting from Africa.
Three factors drive this trend:
- Maturation of the Majors’ African portfolios. Divesting from high-carbon, costly assets aligns with their strategies.
- Supportive African governments. Favorable tax terms for new and marginal assets boost the rise of African independents, leading to economic diversification and job creation. For instance, Nigeria’s Dangote refinery is set to revolutionise the regional oil products sector.
- Even with financing challenges, African independents manage local challenges better than International Oil Companies. Local partnerships and international investors help access both capital and technical expertise.
