1.1 Africa Oil Corp Acquires Assets Offshore Nigeria
Africa Oil picked up 50% ownership interest in Petrobras Oil and Gas BV for about $520 million, with the remaining 50% retained by BTG Pactual E&P . To take advantage of the country’s vast deepwater exploration potential, Africa Oil Corp. showed up at the first-ever Nigeria Oil, Gas & Power Conference & Exhibition, where Nigeria’s future gas monetisation activities, downstream diversification, and marginal field licensing round were the subject of two days of discussions and deal-making.
1.2 Uganda to Develop Oilfields
In order to boost the burgeoning domestic oil industry’s expansion, the Ugandan Government plans to invest five billion dollars in the Tilenga and Kingfisher oil fields. The funding is expected to feed over 500 wells and construct two central processing facilities and a water plant. There were also plans to award exploration companies for five blocks by the end of 2020. In a webinar hosted by AOP and the African Energy Chamber, officials expressed optimism toward Total’s acquisition of Tullow Oil’s long-standing stake in the Lake Albert project for roughly $575 million. This deal brings much hope to the national oil and gas sector, first put in light upon discoveries in 2006.
1.3 The U.S. to Invest in Angola’s Oil and Gas
U.S. Secretary of State Mike Pompeo ratified that several American energy firms intended to invest about two billion dollars into Angola’s O&G projects during a meeting with the Minister of Foreign Affairs. Later this year, the Angola Oil and Gas Conference & Exhibition on June 15-16, 2021, tapped into bankable investment prospects within the country’s most lucrative sector. The two-day event pinpointed offshore oil and gas licensing, market entry, the ease of doing business and digitalisation and oilfield technologies, among other key topics.
1.4 Equatorial Guinea Grants Relief to Services Companies
Following the commencement of COVID-19, Equatorial Guinea’s Ministry of Mines and Hydrocarbons waived fees for oil and gas services companies operating in-country for a period of three months. The waiver was brought in to avoid job losses and grant relief to the sector – which acts as the chief private-sector employer – and served as one of the first actions to be taken in support of the domestic industry.
1.5 Mozambique’s LNG projects
The final investment decision (FID) by ExxonMobil for the Rovuma liquified natural gas project was postponed to 2021 due to COVID-19. The Area 1 project intends to extract natural gas for liquefaction from a deepwater block offshore northern Mozambique containing more than 85 trillion cubic feet (tcf) of natural gas.
Also, Total secured $15 billion funding for another LNG Project. The French oil giant clinched nearly $15 billion in senior debt financing for its Mozambique venture from financial institutions including Rand Merchant Bank, Standard Bank Group, and Société Générale SA, among others. The project is scheduled to produce 12.9 million tons of LNG per annum.
1.6 Angola Publishes Local Content Law
Angola published Presidential Decree 271/20, which endorsed a new legal regime for local content in the country’s oil and gas sector. The regulation promotes the use of national raw materials, encourages local entrepreneurship, and is anticipated to aid in the republic’s wealth creation and economic diversification.
1.7 Total Makes Second Discovery Offshore South Africa
Total and its partners (Qatar Petroleum, CNR International and South African consortium Main Street) made a new gas condensate discovery on the Luiperd zone located in Block 11B/12B offshore South Africa. The Luiperd-1X deepwater well was safely and efficiently drilled during the coronavirus pandemic and austral winter season. The discovery reconfirms this world-class exploration play with substantial follow-on potential as part of a joint venture operating Block 11B/12B.
1.8 Tema LNG Terminal Drives LNG-to-Power in Ghana
The Tema LNG facility in Ghana continued to gain financial traction by December 2020. The Emerging Africa Infrastructure Fund (EAIF) approved a $31-million loan with a 10-year term to a specialist floating LNG infrastructure provider. To date, more than $400 million have been committed to the project, of which $170 million had been utilised by then. The Tema LNG terminal will contribute to power generation solutions for the population, enabling current thermal power generators to transition from reliance on burning light cycle oil and heavy fuel oil to natural gas.
The world economy and energy markets have been wreaked by the COVID-19 pandemic, with oil found to be particularly vulnerable. In response, affluent countries have accelerated the renewable energy transition through greening policy, economic stimulus and investment. COVID-19 has spurred the pace of energy transitions, according to PwC . Prompted by the COVID-19 global pandemic, the world is finally jolting its commitment to move towards a greener future by this mid-century, and the global energy transition is the cornerstone of this new normality.
This shift to renewable energy will continue to gain momentum throughout the current decade, led by policy shifts towards clean incentives as developed economies begin to “build back better”. The striking global oil demand slump, triggered by economic lock-down and a result of the downgrading of long-term global oil demand outlook, has left African economies under significant increased monetary and fiscal distress, especially those reliant on fossil fuels.
In this shifting scenario, however, there is an opportunity for the continent to take advantage of the inclusive energy transition and the new global markets taking shape. The energy transition provides an opportunity for African nations to address energy poverty, diversify their economies, create new employment sectors and capitalise o the investment incentives out of the developed world.
The buzz word ‘Net Zero’ and the energy transition are significantly transforming the energy and utility sector, with 2020 seeing the five biggest players in oil and gas having written down reserves by 87 billion American dollars, rapidly diversifying portfolios towards renewables and reformulating their business strategies. An illustration of this is BP setting out its strategy to achieve ‘net zero’ by 2050” .
The COVID-19 market disruption has given us a new perspective on the importance of a clean and sustainable environment, as well as insight into the future energy system. It has also permanently impacted our behaviour. This commotion and transformation are taking place against the backdrop of increasingly fragile African economies under fiscal pressure from both the immediate pandemics responses required as well as depressed markets and specific declines in fossil fuels production and exports.
The development and early adoption of transparent, regionally aligned national strategies and policy dialogue aimed at exploiting the global energy transition and harnessing the attractive wind and solar array across Africa may be an engaging and sustainable outcome for the continent.
3 AFRICA’S OIL AND GAS INVENTORIES
In 2019, the oil and gas industry faced a number of issues, namely a slowing global economy and talk of a possible global recession, the ongoing rise in shale production, the prospect of a deepening trade war, structural surplus of LNG production and concerns over security of supply with increased assaults on production sites.
African oil production saw a modest increase of 0.5% from 2019, amounting to 8.3 million barrels per day. This accounts for almost nine per cent of global production. However, in 2020, production registered a decline of ten per cent relative to the previous year driven by the demand slowdown for exports during the global pandemics. Africa’s proven oil reserves have remained deadlocked at 125.7 billion barrels of oil from 2019 to 2020. Almost 40% of these reserves are located offshore, while 59% are onshore . Proven gas reserves have also frozen at 527 trillion cubic feet between 2019 and 2020 — a third of these reserves are offshore. Production saw a slight increase of <1% from 2018 to 2019. But production declined by nine per cent last year due to COVID-19. Due to the oil price crash between 2014 and 2016, Africa has seen a significant decline in capital expenditure on production, totalling less than half for the period from 2014 to 2018. Africa's oil and gas sector exhibited a positive recovery in 2019. However, there has been a significant drop in CAPEX spending, with crucial projects shown in the following image being deferred by one to three years in the past few months. [caption id="attachment_12031" align="aligncenter" width="1080"] Figure 3. Major O&G projects in Africa. Source: https://www.theafricareport.com/27566/coronavirus-pandemic-puts-strain-30-major-african-oil-and-gas-projects/[/caption]
An EITI report stated that in 2017 Senegal produced approximately 17 million m3 of gas. Since then, there have been a few new developments and discoveries, and we expect production levels to increase by 2022. The Ministry of Petroleum and Energy has set up a Gas-to-Power strategy to produce cheap electricity using natural gas as feedstock. Petrosen also expects to see an increase in FDI into Senegal’s oil and gas sector moving forward .
The oil and gas industry is still experiencing volatility; however, there are positive signs on the horizon. Over the past few years, the significant change in Africa has been the investment decision by operators to progress in Mozambique. Mozambique is currently receiving considerable attention and has excellent growth potential.
Broadly speaking, in short to medium term, Fugro sees opportunity in Mozambique, Senegal, Mauritania, Ghana, and possibly Angola. In the longer time, we hope that South Africa will gain traction and provide more growth opportunities. It was unthinkable twenty years ago to consider an off-grid natural gas network. Africa can now construct it using our innovative and efficient technologies, which operate as effectively in large producing countries as well as countries interested in importing gas or monetising modest gas reserves.
Others see that South Africa has a disproportionally large fleet of trucks on the road relative to its economy. For instance, Renergen foresees a phase two ‘blue sky’ scenario covering just 0.7% of the demand coming from trucks alone. So, the market is massive, and every litre of diesel that is replaced with LNG has the potential to reduce carbon up to 90%.
Despite challenging market conditions all along 2020, exploration activity restarted in Africa, with the Southern Africa region holding potential in previously unexplored territories. Namibia has received attention from an exploration standpoint, with Total’s Venus delayed due to Covid-19 but due to start in 2020 and Exxon increasing its offshore acreage. ReconAfrica is one of the junior players active in Namibia; formed in 2015 due to a quest conducted by a group of geoscientists and investors who had been looking at source rock opportunities worldwide.
The search led them to Namibia, where they observed a high-resolution aeromagnetic survey over lands of interest within the government database that had not yet been interpreted. Upon data analysis, the team realised they had discovered a large, deep (up to 30,000 feet) sedimentary basin. ReconAfrica immediately licensed 25,000 sq km over the entire new Kavango Basin within the Namibian border and proceeded to bring in a group of investors with expertise in geoscience, finance, and petroleum regimes.
Although Namibia does not have commercial discoveries producing oil and gas yet, its mining experience could give it a regulatory framework and a solid understanding of the extractive industries. The government took it seriously as the Namibian Ministry of Mines and Energy (MME) declared drilling an essential service during the pandemic.
5 THE ROLE OF ENERGY POLICIES
While the energy transition has been a major worldwide disruptor this decade, data suggests that it has had a significant beneficial economic impact and created additional opportunities. Africa can greatly benefit from technological initiatives and learning curves that are funded mainly by the developed world. Despite most countries having ‘greening’ policies in place, implementation is largely lacking, domestic market momentum is low, and governments can’t afford the level of investment or incentives being implemented elsewhere.
Remarkably, some countries have taken steps to implement some form of elementary energy transition policies, plans or strategies. South Africa, Kenya, Algeria, Egypt, and Morocco have been the most hands-on with progressive and clear policies, yet all remain short of their original renewable energy installation targets. Countries such as Algeria, Gabon, Egypt, Angola, and Uganda have updated fossil fuel legislation and regulations over the last three years concerning local content, transparency, government revenue, fiscal measures and other reforms. However, they haven’t always been in line with a broader national energy policy that includes clean energy growth. Various oil and gas exporting countries, specifically Nigeria and Angola, focus heavily on policy accompanying regulation and taxation of the oil and gas sectors, which has detracted from progressing renewable energy policy.
In general, O&G exporting countries do not have acceptable energy transition policies in place and are still largely directing hydrocarbons for domestic power and continued exports. Fast-tracked adoption of low-carbon energy could be the economic game-changer for many African countries. Renewable energy industries have been publicised to have a positive and inclusive economic impact. This provides prospects for developing economies to diversify through, among others, leveraging their natural resources, including wind and solar arrays, but also new-age minerals.
Significant progress has been made in some African countries in terms of policy and planning frameworks. On the other hand, the main issue is exponentially expanding the volume and speed of execution, which raises concerns about the economics of renewable energy in African markets and governments’ shrinking financial capacity. Perhaps a more ‘fair transition’ would be a deeper investment stimulus and focused support for clean energy in Africa by the developed world. This would help hasten positive global climate response, support equitable, sustainable Africa economic growth and thus create a win-win for all citizens.