Africa’s Energy Future: $800 Billion Investment in Oil and Gas

A report by Wood Mackenzie reveals how LNG and oil projects are transforming the continent’s energy sector.

by Motoni Olodun

Africa is undergoing a massive transformation in its energy sector, with an estimated $800 billion investment in upstream oil and gas projects over the next 20 years. According to a report by Wood Mackenzie, a leading energy consultancy, liquefied natural gas (LNG), along with deepwater oil exploration, is a major theme of this investment.

The report, presented at the African Energy Week event in Cape Town, South Africa, highlights the potential and challenges of developing Africa’s abundant gas resources for domestic and export markets. It also examines the prospects and risks of oil production in traditional hubs such as Nigeria, Angola, and Egypt.

LNG: A Game Changer for Africa

LNG is a form of natural gas cooled to a liquid state for easier transportation and storage. It can be used for power generation and industrial applications and is a cleaner alternative to diesel and fuel oil. LNG is also a valuable commodity in the global energy market, with demand expected to grow by 3.4% per year until 2040, according to the International Energy Agency (IEA).

Africa has vast gas reserves, estimated at over 500 trillion cubic feet (tcf), mostly in Sub-Saharan Africa (SSA). However, only about 10% of these reserves have been developed due to various challenges such as security, infrastructure, financing, and regulation.

Wood Mackenzie projects that LNG exports from Africa will increase from just over 40 million tonnes per annum (mmtpa) in 2021 to over 80 mmtpa by 2035, driven by several world-class projects in Mozambique and floating LNG (FLNG) projects across five countries. FLNG technology allows gas to be liquefied offshore, reducing the need for onshore facilities and pipelines.

Mozambique is expected to become the second-largest LNG exporter in Africa by 2030, after Nigeria, with two onshore projects (Rovuma LNG and Mozambique LNG) and one offshore project (Coral Sul FLNG). However, these projects have faced delays and disruptions due to security issues caused by an Islamist insurgency in the northern province of Cabo Delgado.

Senegal and Mauritania will join the LNG club next year with the start-up of bp’s Tortue FLNG project, producing 2.4 mmtpa of LNG from a gas field that straddles the maritime border between the two countries. Other FLNG projects are planned or under development in Cameroon, Equatorial Guinea, Congo-Brazzaville, and Ghana.

Ian Thom, Upstream Research Director at Wood Mackenzie, said: “With abundant gas resources, Africa is exploring all opportunities to develop gas for domestic and export markets. The niche role that FLNG plays has gained traction in Africa due to its flexibility, quick time to market, and suitability for smaller volumes. We foresee more examples where FLNG could be applied to African resources, and we expect further growth in this area.”

Oil: A Declining but Still Important Resource

Oil remains a vital source of revenue and energy for many African countries, especially those that rely heavily on oil exports, such as Nigeria, Angola, Algeria, Libya, and Egypt. However, oil production in Africa has declined from a peak of 10.2 million barrels per day (bpd) in 2008 to 7.6 million bpd in 2021, mainly due to maturing fields, underinvestment, political instability, and environmental concerns.

Wood Mackenzie expects oil production in Africa to remain flat at around 7.5 million bpd until 2030 as new discoveries and developments offset natural declines at existing fields. However, some countries may see growth or decline depending on their resource potential and investment climate.

For example, Nigeria is expected to see a modest increase in oil production from 1.8 million bpd in 2021 to 2 million bpd by 2030, thanks to new deepwater projects such as TotalEnergies’ Ntokon discovery and Shell’s Bonga South West project. However, Nigeria faces challenges such as crude oil theft, regulatory uncertainty, fiscal terms, and security risks.

Angola is expected to see a sharp decline in oil production from 1.2 million bpd in 2021 to 0.7 million bpd by 2030 as its deepwater fields age and new investments dry up. Angola must attract more exploration activity and improve its fiscal terms to reverse this trend.

Egypt is expected to see a slight increase in oil production from 0.6 million bpd in 2021 to 0.7 million bpd by 2030 as it benefits from improved security and reforms in its energy sector. Egypt has diversified its energy mix by developing its gas resources and renewable energy potential.

Thom said: “With the global upstream trend firmly focused on advantaged resources, oil production will inevitably be affected in higher-cost and higher-emitting African assets. However, reserve growth or yet-to-find resources8 could still have some upside. TotalEnergies’ recent discovery at Ntokon in Nigeria is a great example of where new oil discoveries can drive incremental growth. Furthermore, the exploration success in Namibia underlines how deepwater exploration can generate strong investment opportunities.”

The Future of Energy in Africa

Africa is a continent of contrasts, with rich natural resources and high poverty and energy access challenges. According to the IEA, about 580 million people in SSA lack access to electricity, and about 900 million rely on traditional biomass for cooking. These energy deficits negatively impact health, education, and economic development.

To address these challenges, Africa needs to invest more in its energy sector, both conventional and renewable sources. The IEA estimates that Africa will need $2.6 trillion of investment in its energy sector by 2040 to meet its growing demand and achieve universal access to electricity and clean cooking.

Thom said: “Africa has a huge opportunity to harness its natural resources and human capital to create a prosperous and sustainable energy future. The $800 billion investment in upstream oil and gas is a significant step towards this goal, but it needs to be complemented by more investment in downstream infrastructure, power generation, transmission and distribution, and renewable energy. Africa must also improve its governance, regulation, and security to create a conducive environment for energy development.”

He added that Africa can also lead in the global energy transition by reducing its carbon footprint and increasing its share of low-carbon energy sources. He said: “Africa has abundant renewable energy resources, such as solar, wind, hydro, and geothermal, that can provide clean and affordable electricity for its people and industries. Africa can also leverage its gas resources to replace more polluting fuels such as coal and oil and to support the integration of variable renewables into the grid. Africa can also explore the potential of green hydrogen, produced from renewable electricity and water, to decarbonize hard-to-abate sectors such as transport and industry.”

Thom concluded: “Africa is at a crossroads in its energy development. It can either follow the path of the past or chart a new course for the future. The choice is clear: Africa must embrace its energy potential and opportunities and become a key player in the global energy landscape.”

Source: The Guardian Nigeria


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