Anything that signals stability in the midst of the ongoing economic crisis throughout the world is welcomed.
This is why the information on African oil and gas capital expenditures in the upcoming Q2 2022 Oil and Gas Outlook Q2 report from the African Energy Chamber is such excellent news.
According to the research, CAPEX would remain stable in the foreseeable future.
Simply preserving the status quo is a success given that spending in the industry has been going up since peaking in 2020, climbing from a low of $22.5 billion to a forecast $30 billion in the first quarter of 2022.
But as the research notes, even better results may be on the horizon.
And not in some far-off time, but within the next several years.
The rate of CAPEX growth is anticipated to pick up significantly between 2023 and 2025, finally reaching $52.7 billion.
Even though the terminal year figure is slightly lower than initial projections, it is difficult to find fault when spending rises by such a large amount in just three years.
The main factor causing the increase is the increased demand for liquified natural gas on a global scale (LNG).
LNG is rapidly replacing energy sources that emit more greenhouse gases (GHG), and the European Union’s recognition of natural gas as a “clean energy” for sustainability and investment purposes hasn’t helped.
According to experts, the demand for LNG would climb by 90% from 2020 to 700 million metric tonnes annually (mpta) by 2040, nearly twice as much as it was in 2022.
The fact that the enormous new gas finds offshore of Africa coincide with the rapid increase in demand signals potential like never before. As they say, the timing is impeccable.
African CAPEX is driven by Sub-Saharan spending
Therefore, it makes sense that greenfield spending is increasing and will probably exceed predictions set a few months ago.
The bulk of projects that have received approval, according to the Q2 report, are in the sub-Saharan region, where Mozambique and Uganda are leading in terms of investment. (Of course, neither nation has been stationary up until this point.
For instance, the Coral South Floating Liquefied Natural Gas (FLNG) facility in the Rovuma Basin, the first LNG project in African deepwater, is now being completed in Mozambique.)
In addition, a number of other countries, including Congo, Senegal, and Mauritania, have increased their greenfield investments as they get ready to compete in the LNG market.
Two important projects are already scheduled to begin in 2022 or 2023: the massive Marine XII Fast LNG facility in Congo and the Greater Tortue Ahmeyim FLNG Phase 1 facility on the maritime border of Senegal and Mauritania.
While the expansion of the market today is incredibly advantageous for new producers, we cannot ignore the nations that have been active in the global natural gas/LNG trade for many years, such as OPEC members Egypt, Algeria, and Nigeria.
They are among the top ten producers in Africa, a region that will export 50% of its gas flows as LNG abroad during the coming few years.
Between 2022 and 2025, Egypt, Algeria, and Nigeria are anticipated to produce 80% of all the gas in Africa.
The top-10 gas producer Libya will not export LNG.
It’s also crucial to remember that, in the wake of Russia’s conflict with Ukraine, Europe has been looking to Africa’s resources as a potential replacement for Russian gas.
There are plans for a Nigeria-Morocco gas pipeline project that will send Nigerian gas to 15 countries in West Africa, meeting a critical need for local supplies, and then go through Morocco to Spain. This project will ease transportation.
The project is still in the early stages of engineering.
In addition, the decades-old, $13 billion Trans-Saharan gas pipeline project, which was designed to transport African gas to Europe, seems to be making progress once more.
Algeria, Niger, and Nigeria launched a task force for the project and a body to revise the feasibility study for the pipeline during a two-day meeting in June.
The 4,128-km pipeline will begin in Nigeria and conclude in Algeria, connecting to already-existing pipelines that go to Europe once it is finished.
Environments that Facilitate
Without a doubt, more money must be invested in low-carbon technologies if the world is to reach its net-zero goals.
While we may someday rely heavily on renewable energy, that time has not yet come.
Natural gas and LNG, and particularly African natural gas and LNG, are increasingly seen as a bridge to an expedited energy transition in the absence of a fully developed sector to completely replace fossil fuels.
Africa also needs additional investment if it is to have a significant impact on the shifting of gas supply sources.
Participation in upstream projects is required to take advantage of fresh discoveries while also minimizing stranded gas and infrastructural gaps along the whole value chain.
International oil companies (IOCs) should focus on this newly discovered competitive opportunity now.
And it holds true despite the efforts of environmentalists to weaken financial commitments to the oil and gas industries in Africa.
African governments are attempting to develop IOC-friendly settings modeled on best practices from other producing nations in order to raise the stakes.
A prime example may be found in Senegal, which has improved its regulatory environment and is promoting international investment in its most recent natural gas finds.
The Comité D’Orientation Stratégique (COS PETROGAZ) was established by the government to control sector activities and guarantee both transparency and sound administration.
President of Senegal Macky Sall oversees the organization directly.
The Institut National du Pétrole et du Gaz (INPG), often known as the National Petroleum Institute, was created in Senegal.
The goal of INPG is to hire and train tens of thousands of local workers, including engineers, geologists, and technicians, to play an important part in the industry.
Senegal thinks that this would create local businesses that will eventually take the lead in the country’s energy transformation in addition to reducing the dependency on expensive foreign labor.
Additionally, the nation has given equitable revenue sharing from its energy industry top priority.
Senegal’s agenda allows IOCs to make money from their participation while the government sets aside a fair amount of the earnings for its own purposes, such as addressing immediate needs for healthcare and education and making investments for future generations.
These programs have already increased IOC interest and increased foreign direct investment (FDI).
In reality, FDI increased by 39% to $1.5 billion between 2019 and 2020, the year that work on offshore oil and gas resources started.
Optimistic Futures
The truth is that even if we are in a strategic position where we can use our resources for export, we still have a growing internal need for LNG and natural gas.
The number of our inhabitants who lack access to power, for instance, is increasing rather than decreasing, and continental energy consumption is only increasing despite efforts to address this situation.
In fact, it is predicted that Africa will require 30 percent more energy than it does now by 2040.
Africa’s abundance of gas resources is a blessing for us.
The continent is home to more than 5,000 bcm of untapped natural gas reserves, according to the International Energy Agency (IEA). By 2030, the IEA estimates that these resources might produce an additional 90 bcm of gas annually.
That’s a lot of energy for manufacturing, electricity production, and fertilizer feedstock, not to mention domestic consumption, which currently makes up two thirds of the continent’s output.
By doing this, we can eradicate energy poverty and provide opportunities for girls and young people.
However, that will also necessitate investments in processing, pipelines, and gas-powered generation facilities.
Fortunately, the capital investments being made in the African oil and gas industry today can activate revenue streams that will enable the construction of those pipelines, processing centers, and power plants.
In essence, they are laying the groundwork for a future that is better in every way.