Africa’s energy resources in the spotlight as oil summit opens in Cape Town

Around 25 of the continent’s ministers descended on Cape Town on Monday for the opening of Africa’s leading oil and gas event, Africa Oil Week.

The conference opened with an announcement by Senegal of the launch of an oil and gas licensing round for three offshore blocks, while climate change activists Extinction Rebellion staged an ‘oil spill’ at the venue, to protest the oil industry’s impact on the environment.

This year’s summit comes at an exciting time for the African oil industry, analysts say. Over the last decade a spate of new oil and gas finds in East Africa and along the Indian Ocean seaboard have captured the attention of large international oil companies (IOCs) and boosted investment in infrastructure and exploration technology on the continent.

“Renewed optimism has returned to Africa’s oil and gas industry on the back of a rebound in prices and increased investor interest,” says Andries Rossouw, Africa energy utilities and resources leader at consultancy PwC.

Africa is now overseeing an oil industry recovery since the oil price crash in 2014, he says. “The industry has restructured itself and is more competitively placed in terms of efficiency and operational performance.”

The outlook for the continent’s industry is also sunny, with oil and gas firms targeting “cautious growth” in areas less vulnerable to external shocks, “while maintaining their cost and operational targets,” Roussouw adds.

Big oil player 

Vast oil and gas discoveries over the last decade from West Africa to east Africa’s India Ocean seaboard, and a new wave of LNG projects, are positioning the continent as a big oil and gas player, Boris Ivanov, the founder and managing director of global oil exploration and production firm GPB Global Resources, tells African Business. 

The discovery of Mozambique’s natural gas deposits in the Rovuma Basin in 2010 has since been billed as the biggest natural gas find in recent decades, and has already unlocked three large-scale LNG projects.

These projects, together with project expansion phases and additional exploration, have the potential to position Mozambique as the third largest LNG producer in the world after Qatar and Australia by 2030, PwC’s Africa oil & gas review, released on the first day of Africa Oil Week, reports.

“At the same time, the scale of the discoveries in Kenya and Uganda has left Total, Tullow, and CNOOC considering investment in a multibillion-dollar pipeline on the east coast, although talks have recently stalled over a tax dispute”, Ivanov says.

Kenya sold its first ever shipment of oil last month for $12 million, but full production isn’t expected to start until 2022, with a new oil pipeline planned for next year.

Despite east Africa’s growing power potential, stalled work on a multibillion-dollar Ugandan pipeline in a row between the government and its three foreign partners, raises questions over excess optimism in the region’s market, Ivanov says.

“Investing in local infrastructure and creating an appealing fiscal and regulatory regime that aligns with the long-term interests of private companies are not overnight ventures.”

“This ability to execute across the entire value chain requires good governance and will remain the biggest challenge to the development of Africa’s energy market.”

Rush to renewables

Decarbonisation driven by the environmental sustainability agenda is shifting the energy mix to greener solutions, and positioning gas ahead of coal as the world’s number two fuel by 2030, Ivanov says.

“New emissions standards to be announced by International Maritime Organisation in 2020 are likely to spark a demand for IMO-compliant products, and tilt supply away from sulphur-rich Middle East crude,” he says.

In contrast, the high quality of Africa’s resources and its strategic location on the crux of all major global energy import markets of Europe, US, and Asia make it prime for exploration and production.

“This has already attracted the super-majors to African shores. BP has begun exploration off the coast of Cote d’Ivoire where Tullow has also been granted a licence, while ExxonMobil has entered Ghana, Namibia and set up an offshore site in Mauritania.” 

“If a supply crunch does emerge and keeps prices high, IOCs would need to raise investment into new production, making the case for investing in African exploration and production grow even louder,” he says.

Despite having 15% of the world’s population, the continent still only consumes 3% of the world’s energy, and population growth is likely to outpace even large investment into that economic area.