Ensuring Future Generations Benefit from Africa’s Oil and Gas Resources
Most assets are still held by large companies with intense competition for capital in global portfolios.
JOHANNESBURG, South Africa, February 8, 2022/APO Group/ —
While Africa seeks to accelerate the development of its significant oil and gas resources, particularly as the continent grapples with the impacts of the COVID-19 pandemic and energy poverty crisis, significant investment is needed in the upstream and downstream sectors. midstream. Instead of ditching fossil fuels in the name of energy transition, Africa needs to speed up exploration to revitalize production and ensure energy security.
The African Chamber of Energy spoke to John Hamilton, CEO of Panoro Energy, about why Africa’s production is declining, what can be done to reverse this, and the role gas monetization and development will play in the future. energy of the continent.
What will this low yield of production in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the whole of the continent?
Poor production performance isn’t necessarily a term you’d use. Overall, reservoir performance and well productivity have often met or exceeded expectations, a reflection of the high-quality oil geology that much of the continent has been blessed with. The underlying issue is more about investment and development activity not compensating for a natural depletion curve and the risk of substantial volumes of oil becoming stranded in the ground as the global energy transition unfolds, which could deprive future generations of the benefit these resources can provide.
What it means for the continent, and more specifically for producing countries, really starts with how it emphasizes the current lack of economic diversification and the high dependence of governments on oil production for revenue and more specifically foreign exchange. . Economic diversification is going to be key for oil-dependent economies in Africa. Accelerating the safe and responsible development of current production along with the considerable discovered but undeveloped oil resources and future discoveries from exploration efforts will help provide the means for these economies to grow and diversify for long-term prosperity and a better balance.
What do you think are the main reasons influencing the decline in production in Africa?
Most assets are still held by large companies with intense competition for capital in global portfolios. A shift to global alternative energy and gas solutions, with added pressure from shareholders and capital providers to accelerate decarbonisation strategies, means that a diminishing number of upstream assets secure growth investment capital each year. This means that, at a fundamental level, assets that will not attract growth capital under current ownership must be transferred to companies that will prioritize new investment to maximize economic recovery and increase production.
Access to capital is also an important factor. This affects the industry as a whole globally, as banks and equity investors have been reluctant to finance hydrocarbon projects in recent years. Specifically for Africa, this global trend is perhaps most acutely felt as funding is even scarcer.
What can be done to turn this around?
It is encouraging that in several cases fiscal terms are being implemented specifically to allow the commercialization of smaller (marginal) fields that may have been sub-economic under previous terms. However, this must be applied in conjunction with a more stringent ‘use it or lose it’ policy to prevent owners of titular assets from holding assets with little or no prospect of developing them. License renewal events should also be seen as an opportunity to assess and, if necessary, adapt fiscal terms to help ensure mature brownfield developments are not overlooked and that the useful life of the field can be extended where necessary. possible and maximize economic recovery.
Regarding access to financing, this is an issue in which all actors must continue to make efforts to promote the importance of energy investment in the continent. Success stories must be heard. Every encouragement should be given to governments and international companies to promote responsible and sustainable projects that benefit both the imperatives of energy security and the need for a return on capital.
What would you recommend as an industry approach to low-carbon gas monetization and financing in Africa?
It is less of an industry approach, but rather a unified and aligned approach among all stakeholders. It is more obvious that there is no shortage of gas in the subsoil, but to develop the upstream source there has to be a midstream business to receive and process the gas, a network of pipelines to transport the gas to the clients, GSAs financeable in place with industrial and energy users with sufficient reliable demand, a pricing structure that supports the gas value chain, currency convertibility where rates are not paid in USD, and ultimately a customer base that pays for end products , whether it is domestic power supply or manufacturing production. Involved in this is access to capital, both from domestic and international capital markets, and the development of clear policies and incentives by host governments to attract needed investment and development.
Gas development is the abundant and logical transition fuel for African economies to address energy poverty and benefit from the multiplier effect of access to reliable energy.
What should new independents consider when entering a changing African energy sector?
Speaking from an international E&P perspective, it is an immersive industry and you need to commit to having a physical presence in your chosen market. Developing in-country relationships with host governments, regulators, partners, service providers and a host of other stakeholders is just as important as identifying an asset. You cannot work in Africa remotely.
Is it time for a model gas/LNG production sharing agreement?
It is not uncommon for gas resources to fall outside the terms of the current contract. When this is the case, agreement on gas terms would certainly facilitate the acceleration of development in some cases. Projects and markets vary widely, so a “one size fits all” model deal is probably not the solution. It ties in with the previous comment about a unified approach among all stakeholders, with the terms of the contract being a key element of that.