It’s Time For An Oil And Gas Boom In Africa
By Felicity Bradstock - Aug 13, 2022, 4:00 PM CDT
There are plenty of promising oil and gas opportunities in Africa, but the global transition away from carbon-intensive energy sources makes it a controversial issue.
With global demand for oil and gas having spiked since Russia’s invasion of Ukraine, now could be the time for African nations to make their case.
In order to convince investors of the potential, oil nations in Africa will have to decarbonize operations, develop low-carbon infrastructure projects, and also invest in renewables.
Several African countries have been gradually boosting their oil and gas output over the last year, as demand for fossil fuels continues to rise. While many countries in the West are curbing their fossil fuel operations, the African region is offering major oil firms the opportunity to develop new, low-carbon oil operations in largely untapped areas. But will governments that want to develop their oil industries be able to successfully make their case at COP27? Several leaders of African countries are expected to present the case for new fossil fuel projects to go ahead across the continent at the next global climate summit in November, according to media sources. Africa is offering the world access to vital gas resources at a time when many countries are facing energy shortages and rising prices. In addition, Africa’s largely unexplored oil reserves could provide the world with the low-carbon resources needed to bridge the gap in the renewable energy transition. But with many world leaders aiming to reduce their dependence on fossil fuels to support the battle against climate change, it is uncertain whether these leaders will convince the rest of the world of the need for African oil and gas.
A five-page document by the African Union highlighting support for the development of oil and gas operations across most African states will likely be presented at COP27, according to the Guardian. In the document, the Union says: “In the short to medium term, fossil fuels, especially natural gas will have to play a crucial role in expanding modern energy access in addition to accelerating the uptake of renewables.”
But not everyone is happy about the stance of the African leaders, with a coalition of African NGOs calling their actions “shameful” and “unacceptable”. Environmentalists highlight the significant potential for the development of large-scale renewable energy projects across the African continent, which is already being hit hard by climate change. Many worry that the actions taken at COP27 could lead to a future of Africa becoming reliant on fossil fuels, rather than being part of the global green transition.
However, rapidly increasing oil and gas prices have recently led many countries to reassess their stance on oil and gas, with several boosting output to meet demand. As the E.U. and U.S. strengthen sanctions on Russian energy, many governments are having to turn elsewhere to fill the gap. In addition, the E.U. announced as part of its climate change strategy this year that the region would continue to rely on natural gas as part of a cleaner energy transition, as it moves away from coal and crude oil.
This is not the first time Africa is presenting its potential as a new oil region to the rest of the world. Following several fossil fuel developments in the last few years, many African leaders have stated their support for the industry. The argument mainly centers around the idea that many highly-developed countries have already profited from oil and gas, leaving Africa behind, and now is the time for the region to profit from its resources and develop its economies.
So how can the African region position itself to ensure that it profits from its natural resources at a time when the world appears to be moving away from new fossil fuel projects? McKinsey research suggests that many of Africa’s current oil and gas operations are more expensive than the global average, making energy firms reluctant to invest in the region. However, their study suggests that three dimensions could help Africa better position itself in the oil and gas market over the coming decades.
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Firstly, the region must work to decarbonize operations while improving cost efficiencies. To ensure that Africa remains attractive for energy investment, the region must reduce the emissions produced in its oil and gas operations. This can be done through the introduction of carbon capture and storage (CCS) technologies. The region has the potential to massively reduce its flared gas and other waste to be recycled and reused in other projects, such as in the production of grey hydrogen. In addition, state governments must enhance their energy industry legislation and regulations to improve the cost competitiveness of operations, with a focus on inefficiencies and insecurity.
Secondly, Africa should increase its energy supply through lower-carbon infrastructure projects. Many oil majors are walking away from their existing oil projects in favor of low-carbon alternatives. As long-explored basins are drying up, a plethora of oil and gas firms are looking to untapped regions to develop more favorable low-carbon operations in areas with greater longevity prospects. Investment in gas projects, including gas pipelines, processing infrastructure, and liquified petroleum gas (LPG), will also support the global renewable energy transition, as demand for natural gas is expected to remain high for decades to come.
And lastly, countries across Africa must increase their investment in renewable energy projects. As African states see their oil wealth grow, they must invest in renewable energy projects alongside oil and gas operations to eventually shift their reliance away from finite fossil fuels.
The African region has great potential to develop its fossil fuel industry at a time when demand remains high and the world is facing shortages of both natural gas and oil. If done effectively, the region could become more self-sufficient, as well as export energy to the rest of the world to help develop its national economies. However, with the world moving away from oil and gas in favor of renewable alternatives, it is uncertain whether African leaders will be successful in their attempt to convince representatives at COP27 of the need for African oil and gas.
By Felicity Bradstock for Oilprice.com