The energy crisis has underlined the dependence of the global economy on fossil fuels, and the call for more oil and gas supplies has been heard. Africa is ready to deliver. Last week, at Africa Oil Week in Cape Town, Mansur Mohammed, West Africa's upstream content manager, explored the opportunities and challenges for Africa's upstream industry.
Firstly, Africa has huge undeveloped resources, and no doubt more volumes yet to be found. In the decade to 2020, 61 billion boe of conventional resources were discovered in Africa, almost twice as much as in any other upstream region. Natural gas accounted for the bulk of these resources, much of which was not yet commercialised.
Exploration success has continued in the new decade with major deepwater oil discoveries. Baleine (Eni) in 2021 is the largest ever built in Côte d'Ivoire and is already under development; Venus (TotalEnergies) and Graff (Shell), both this year, open up a new play entirely in Namibia. These three giant discoveries contain the kind of low-cost, low-carbon barrels the world needs.
Namibia could indeed prove to be very large. WoodMac's current estimate for total reserves is 6 billion barrels; but the increase could be more than twice that depending on future assessment. TotalEnergies' second well on Venus is scheduled for next year.
Second, upstream investment in Africa is on a strong upward trend. These large new discoveries are feeding into a healthy existing development pipeline that could see spending double by 2025 from the regional lows of two years ago. With global spending showing few signs of growth, Africa is outperforming other upstream regions.
Moreover, investment is no longer dominated by Nigeria, Angola and Congo. Much of the future spending will be in Uganda, South Africa, Senegal, Côte d'Ivoire, Mozambique and, in all likelihood, Namibia.
Almost half of the planned expenditure beyond 2025 is for pre-IDF projects. Uncommitted investments cannot be taken for granted. Capital allocation is more vulnerable than ever to the vicissitudes of commodity markets; while IOCs are sticking to strict capital discipline so far in this bull cycle, preferring to return excess cash to shareholders rather than invest in growth.
Investors are primarily interested in maximising the value of projects. A big part of this is the process: minimising the time from discovery to first production and cash flow generation.
Thirdly, governments have an interest in speeding up the process. It is not just investment that can be channelled, but the share of government revenues. Upstream tax revenues in 2022 in the coffers of African producing countries will reach the highest level in a decade. Governments should aim to maintain and increase these revenues.
These include minimising bureaucracy to speed up the authorisation, licensing and approvals process; ensuring that the supply chain and service industry are fit for purpose; building investor confidence through transparency, reputation and good governance; and incentivising fiscal stability and clarity of terms for investors.
Fourth, the corporate landscape in Africa is changing. The majors continue to concentrate their global portfolios around advantageous assets - low-cost, low-carbon assets typically in the early stages of their life cycle - and to sell mature, higher-cost assets, including legacy positions in Africa. This is a structural change that has been happening for a decade and will continue. The good news is that there are buyers, mainly independents and indigenous players.
. "change of guard" should not be seen as a bad thing - we would say that opportunities are best left in the hands of those who want to make the most of them. The resurgence of upstream investment suggests that it is not holding Africa back.
Finally, how do Africa's rising upstream growth prospects fit in with the net zero targets? The question is timely as COP27 takes place in a fortnight on the continent in Sharm El-Sheikh, Egypt. We expect African countries, which together account for only 4% of annual global emissions, to state categorically that their priorities are to develop fossil fuel resources to drive economic prosperity and provide affordable access to energy for the more than 500 million people currently without electricity.
There is surely a win-win outcome. IOCs and other donors can help develop Africa's oil and gas resources, although most only invest in projects aligned with their own net zero targets. This helps Africa provide the low-cost, low-carbon oil and gas that the world wants. Nor should projects be limited to exports - the development of domestic gas and electricity markets should be part of national and IOC strategies.
The longer-term future lies in low-carbon energy. Many African countries have huge solar and wind resources, some have abundant hydroelectric potential and nature-based solutions such as forests and soil agriculture. There is an opportunity for Africa to build a low-carbon future around renewables, hydrogen, geothermal and CCUS, alongside the decarbonisation of fossil fuel developments.
The twin-track approach can stimulate economic growth, improve living standards on the continent and serve export markets.