AS the world continues to grapple with the Covid-19 pandemic, Africa’s natural resources producers have been urged to keep the sector competitive and create jobs.
In its Africa Energy Outlook 2021, the African Energy Chamber acknowledges that the continent’s production of oil and gas is expected to increase next year but warns that industry
industry stakeholders have to reform the sector to deal with uncertain markets that are projected to see a cut of $30bn on capital expenditure.
The report explores the forces shaping the continent’s energy market in the wake of the shocks caused by Covid-19 in 2020, and analyses the projected recovery on the back of the global energy transition.
The pandemic notably came at a particularly difficult time for the African energy sector, which was already facing a stiff challenge from a competitive American shale industry.
Delays to major projects because of regulatory uncertainty, and increasing global attention to decarbonisation have compounded the problem for the African oil and gas sectors.
Apart from the spending cut of $30bn, the Chamber has identified a further $80 billion of investment whose approval will depend on improving market conditions, ‘along with bold policy and fiscal reforms from African regulators.’
Nj Ayuk, Executive Chairman of the African Energy Chamber, notes: ‘It goes without saying that Africa has witnessed its fair share of difficult times this year.
‘Even though oil and gas activities have taken a hit, optimism surrounding African projects, fiscal regime and investments still exist but requires all of us as stakeholders to do more. ‘There has always been opportunity in drastic and unprecedented times, which gives us a lot to look forward to,’ added Ayuk.
The positives include South Western Africa expecting to emerge as the next energy frontier on the continent on the back of high-impact wells coming up in 2021 and 2022; and increased oil and gas production on the continent, as OPEC’s sanctions ease due to a rise in oil output from Libya and increased gas production from Algeria and Egypt.
The report highlights the expected outcome of post Covid-19 strategies to the African energy sector in 2021 and beyond.
It also assesses Africa’s competitiveness compared with other regions, and highlights the opportunities that continue to emerge and exist across the entire energy value chain.
‘We look forward to this report serving as a basis for sound decisions towards a thriving energy industry in Africa,’ said the Senior-Vice President at the Chamber, Verner Ayukegba.
Specifically, on the gas front, the Chamber noted this sector was less exposed than that of oil to the shocks of 2020 because Covid-19 hit the transportation industry – which uses more oil than gas – the most.
However, the global gas market was nevertheless already facing a glut of LNG before Covid-19, causing even more depressed prices as the pandemic’s impact on demand started to manifest in early 2020.
Some areas, including West Africa, are able to take advantage of these low prices.
Ghana’s Tema LNG project is the first offshore LNG hub in sub-Saharan Africa and will soon be able to supply Ghana and its neighbours with cheap, reliable gas, competing with irregular and more expensive local supply options.
The Outlook noted that there may now be an opportunity to stimulate more domestic gas consumption in Africa, emphasising the economic and development benefits that large-scale infrastructure investments like the Tema LNG plant can have on their country and the wider region.
It explained: ‘Expanding infrastructure to displace diesel, increased use of gas in the power mix and gas for industrial purposes are all initiatives that would benefit from the current low cost of gas.
‘Thankfully, African officials and regulators have increasingly seized the importance of natural gas and pushing for its adoption across industries, especially in key hydrocarbons market in West, Central and Southern Africa.
‘Nigeria for instance has declared 2020 the Year of Gas and adopted a new gas transportation network code this year, and Senegal embarked this year on a gas pipeline network project to construct a 155km national gas grid,’ the Outlook added.
‘Monetising gas makes even more sense in Africa given the continent’s very high flaring intensities.
‘While Africa benefits from conventional and easy to extract hydrocarbons, the inability to prevent gas flaring nevertheless catapults the continent to the overall least carbon efficient continent at about 31 kilogrammes CO2 emitted per barrel of oil equivalent produced,” according to the Outlook.
‘Only stronger monetisation of gas at home could justify using Africa’s gas reserves for industrial and power generation purposes instead of burning and wasting them.
‘In doing so, Africa would not only reduce its carbon intensity, but also become more attractive to global investors seeking to allocate capital to the least carbon intensive projects possible,’ the Outlook added.