Connect with us

Africa

We Need to Talk About Africa’s Energy Crisis: Why is Production Waning? Its Exploration, stupid

Published

on


    
                    
                
                    
                                                
                            
                                                        
                                Fluctuations in demand, price volatility and a global reduction in capital spending directed at fossil fuels have left many oil-dependent nations struggling.
                            
                            
                                                
                            
                                                            JOHANNESBURG, South Africa, January 21, 2022/APO Group/ -- 
                                                        
                            The final frontier for oil and gas exploration, a range of untapped resources awaiting exploitation and opportunities across the energy value chain represent key components of Africa's hydrocarbons market.  For years, resource-rich nations have been capitalizing on their resources, driving exploration and production alongside global players.  Now, production markets across the continent have begun to underperform, with countries like Nigeria missing production targets by a wide margin.  What will these production declines mean for the African continent and what can be done to mitigate this trend?  



Even in early 2022, Africa's producing nations continue to grapple with the effects of the COVID-19 pandemic.  Fluctuations in demand, price volatility and a global reduction in capital spending directed at fossil fuels have left many oil-dependent nations struggling.  While attempts to diversify economies, specifically through developments in natural gas, renewable energy and associated sub-sectors such as transport and logistics, have been seen in the short to medium term, oil remains a critical asset for many African countries. .

Africa's oil and gas resources are a boon to the continent's socio-economic development, yet production figures towards the end of 2021 represent a growing challenge.  Nigeria, for example, with more than 36 billion barrels of oil in place, has the potential to produce more than 2 million barrels per day (bpd).  However, during December 2021, the country was only producing 1.1 million bpd, resulting in an estimated loss of 2.4 million barrels for the month.  Similarly, despite production targets of 1.8 million bpd for 2022, during December 2021 Libya also underperformed, producing on average 1.06 million bpd.  However, this was largely attributed to blockades at key oil fields due to political conflict, and the country's production is starting to rise again.

The impacts of underperformance on African economies will be significant.  In particular, with Africa grappling with its own energy crisis, with more than 600 million people still without access to electricity, a decline in production could further exacerbate the crisis.  As Dean Foreman, Chief Economist at the American Petroleum Institute describes: “African crude oil and natural gas production adds value to the economy and is an engine for jobs, investment, economic growth and innovation.  When this production underperforms, as it has recently, producing nations across the continent lose these benefits and their position in the world oil market is weakened.  Additionally, nations that import refined petroleum products could end up with greater reliance and higher prices to attract products from global markets.”

On the other hand, poor performance in Africa could affect production quotes.  The Executive of the Energy Board, Abdur Rasheed Omidiya, expands on this notion and states that “the continued inability to meet OPEC's production quota means that OPEC may, at some point, revise down the quota for African countries and increase the source in other member countries, which will have a direct impact on the economy as Crude oil sales accounted for up to a third of some government budget revenues and 90% of export revenues.

These production trends, if they continue, will have a significant impact on refineries as well as domestic energy supply in Africa.  Omidiya describes the current situation as a
We Need to Talk About Africa’s Energy Crisis: Why is Production Waning? Its Exploration, stupid

Fluctuations in demand, price volatility and a global reduction in capital spending directed at fossil fuels have left many oil-dependent nations struggling.

JOHANNESBURG, South Africa, January 21, 2022/APO Group/ —

The final frontier for oil and gas exploration, a range of untapped resources awaiting exploitation and opportunities across the energy value chain represent key components of Africa’s hydrocarbons market. For years, resource-rich nations have been capitalizing on their resources, driving exploration and production alongside global players. Now, production markets across the continent have begun to underperform, with countries like Nigeria missing production targets by a wide margin. What will these production declines mean for the African continent and what can be done to mitigate this trend?

Even in early 2022, Africa’s producing nations continue to grapple with the effects of the COVID-19 pandemic. Fluctuations in demand, price volatility and a global reduction in capital spending directed at fossil fuels have left many oil-dependent nations struggling. While attempts to diversify economies, specifically through developments in natural gas, renewable energy and associated sub-sectors such as transport and logistics, have been seen in the short to medium term, oil remains a critical asset for many African countries. .

Africa’s oil and gas resources are a boon to the continent’s socio-economic development, yet production figures towards the end of 2021 represent a growing challenge. Nigeria, for example, with more than 36 billion barrels of oil in place, has the potential to produce more than 2 million barrels per day (bpd). However, during December 2021, the country was only producing 1.1 million bpd, resulting in an estimated loss of 2.4 million barrels for the month. Similarly, despite production targets of 1.8 million bpd for 2022, during December 2021 Libya also underperformed, producing on average 1.06 million bpd. However, this was largely attributed to blockades at key oil fields due to political conflict, and the country’s production is starting to rise again.

The impacts of underperformance on African economies will be significant. In particular, with Africa grappling with its own energy crisis, with more than 600 million people still without access to electricity, a decline in production could further exacerbate the crisis. As Dean Foreman, Chief Economist at the American Petroleum Institute describes: “African crude oil and natural gas production adds value to the economy and is an engine for jobs, investment, economic growth and innovation. When this production underperforms, as it has recently, producing nations across the continent lose these benefits and their position in the world oil market is weakened. Additionally, nations that import refined petroleum products could end up with greater reliance and higher prices to attract products from global markets.”

On the other hand, poor performance in Africa could affect production quotes. The Executive of the Energy Board, Abdur Rasheed Omidiya, expands on this notion and states that “the continued inability to meet OPEC‘s production quota means that OPEC may, at some point, revise down the quota for African countries and increase the source in other member countries, which will have a direct impact on the economy as Crude oil sales accounted for up to a third of some government budget revenues and 90% of export revenues.

These production trends, if they continue, will have a significant impact on refineries as well as domestic energy supply in Africa. Omidiya describes the current situation as a “double-edged sword, as shortages may affect the supply of crude oil with the current increase in demand pushing the price of crude oil higher”. This is good news and bad news for a country like Nigeria, which should normally earn more foreign exchange from oil sales, but now has to deal with paying more subsidies as there is a positive relationship between international commodity prices and how much they pay. the Nigerians. get the product at the pump.”

One of the main reasons contributing to the decline in production across the continent is the lack of adequate investment in the upstream market. COVID-19, coupled with the global push for an energy transition, has led many international investors to withdraw from hydrocarbon projects, diverting capital towards green energy. Valuable as it is for the renewable energy market, this move has proven disastrous for oil and gas-dependent African nations.

Sebastian Wagner, Managing Director of DMWA Resources, attributes the decline in production to a combination of factors, stating that “2021 brought with it multiple divestments in the African upstream sector, which have affected production ever since. Additionally, the impacts of the pandemic are still being felt as multiple shutdowns caused inconvenience restarting oil wells. Over the years a disturbing trend has emerged. There has been a decline in investment in oil and gas exploration and development, which has affected infrastructure and hampered oil and gas production.”

So what should be done to mitigate this trend? Wagner notes that, “in anticipation of becoming a major supplier and reviving crude oil production, African governments and policymakers can counter the pressure by attracting more investment to the upstream sector.” Consequently, the solution lies in the upstream market. Recent developments around the world have not only emphasized the need for increased capital spending on African exploration, but have also reaffirmed the role that oil and gas continue to play in the global energy space. Europe’s energy crisis, for example, and the European Union’s decision to label gas green could represent both a challenge and an opportunity for African markets. While the new label could usher in a new wave of investment in Africa, the fallout from Europe’s crisis poses a new challenge.

Foreman explains by stating that, “The indirect short-term effect of Europe’s energy crisis has been to increase the prices of natural gas and other energy commodities, and without government intervention in the markets that could have a chilling effect on potential investments that the current cycle is likely to need to resolve itself Longer-term planning across the African continent could have beneficial effects, both in developing greater resources for African consumption and exports and in potentially positioning some producers as key future suppliers to Europe The energy crisis in Europe could motivate the parties to develop African resources, raising their position in the market as a counterweight to supplies from Russia and global liquefied natural gas (LNG) which could be relatively cheaper. expensive to develop and transport.

Meanwhile, the need for accelerated investment in Africa has never been more prominent. “The struggle to increase production stems from years of underinvestment in the upstream oil and gas sector with aging infrastructure magnified by the recent pandemic and not requiring new investment in fossil fuels. The government and oil and gas operators need to find a new way to stimulate investor confidence and appetite with 3C: certainty and consistency in regulatory policies and laws, and competitiveness in business friendliness,” says Omidiya.

The polarizing and misleading campaigns by powerful Western groups like Greenpeace against Shell’s 3D seismic survey off the wild coast of South Africa are misguided. Science does not support their misleading claims and Shell’s blockade harms South Africa and many poor people. Exploring the energy reserves of oil and gas in South Africa does not harm the country. South Africa is a net importer of oil and gas and is dependent on foreign countries. Its energy security, development and energy improvement must be prioritized. When a leading and responsible explorer is demonized, it sends the wrong message to investors, creates a volatile market and hurts everyone. Namibia has shown amazing maturity when it comes to Shell’s work in the country and is to be commended. We are confident that Shell’s exploration well in the Orange Basin, off the coast of Namibia, will be successful. The Graff-1 well is located in Block 2913A in the Orange Basin, where Shell is the operator and its partners are QatarEnergy and the Namibian National Oil Company, Namcor.

Consequently, as a whole, Africa must ensure a conducive and attractive environment for investment. There is no need to wait until October’s African Energy Week in Cape Town to find solutions. Despite the progress made to date in this area, more can be done to attract global players and international investors to the African market. In line with this, the African Energy Chamber (AEC), a leading voice on energy in Africa, strongly believes in the role and value that oil and gas play in Africa’s economies. Many changes are needed to give oil and gas companies the incentive to explore in Africa during the current recession. But we cannot stop there. We need to consider other weak points that discourage foreign operations in Africa and find ways to eliminate those challenges as well. So why not remove this obstacle? Trading with trusted explorers would help them avoid unnecessary delays and red tape. Making these changes would still allow them to emphasize their own priorities, and could also make COIs more likely to continue exploring within their borders.

“Exploration, Exploration and Exploration. You can’t produce oil and natural gas if you don’t explore. You can’t let radicals stop scouting campaigns and you can’t let bureaucrats kick out companies with poor regulations like CEMAC‘s forex rules. Let’s face it, look at Algeria, where oil and gas production rates were already declining in 2019, before the pandemic, largely due to repeated project delays caused, among other challenges, by slow government approval. . During four licensing rounds, Algeria saw minimal interest from investors,” said NJ Ayuk, CEO of the African Chamber of Energy.

Nigeria is also known for the slow pace at which it sanctions exploration projects. Even before COVID-19, its slow movement on this front contributed to a decline in oil production over a 10-year period,” Ayuk concluded.

As the year begins and new opportunities arise across the continent, the ACS remains committed to helping African producer states accelerate project activities, improve production and usher in a new era of socio-economic growth and well-being.

NNN is a Nigerian online news portal that publishes breaking news in Nigeria, and across the world. We are honest, fair, accurate, thorough and courageous in gathering, reporting and interpreting news in the best interest of the public, because truth is the cornerstone of journalism and we strive diligently to ascertain the truth in every news report. Contact: editor @ nnn.ng. Disclaimer.

Advertisement

Recent Posts