Oil and gas in Africa and the rest of the world: what's changed in 2023 ?

There's no denying that the Russian invasion of Ukraine has severely disrupted global energy markets. This geopolitical confrontation led to the imposition of Western sanctions on Russian oil and fuel exports, and the imposition of a price cap on russian crude by the G7 group.

This has also led to a reorientation of global oil trade flows. Asian countries such as China and India, for example, have begun to absorb far more Russian oil and fuel than before, and many European countries have begun to look for new suppliers or buy more from existing suppliers outside Russia in order to avoid sanctions.

Meanwhile, European buyers of Russian natural gas have also begun to look for alternative sources in 2022. They did so with a little less urgency, it's true, given that natural gas imports were never subject to sanctions. But they were still keen to find alternative suppliers, especially after Russian gas deliveries began to become irregular a few months after the start of the war.

These considerations prompted Italy, for example, to send representatives of the government and Eni, a partly state-owned company, to Africa for talks with Egyptian, Algerian and Angolan officials on extending the scope of existing supply contracts. These negotiations were crowned with success, as they enabled Eni to obtain commitments for the delivery of an additional 7.0 to 7.5 billion cubic meters of gas beyond the quantity initially planned for 2022, as well as additional volumes in subsequent years.

New ties with Europe?

The discussions also took place against a backdrop of speculation on how the reshaping of global oil and gas trade flows could benefit Africa.

The idea was that Africa could, with a little help, become a natural partner for Europe. The two continents had the advantage of relative geographical proximity (at least along the shores of the Mediterranean Sea) and existing infrastructure connections (such as the undersea pipelines linking Algerian and Libyan gas fields to Italy and Spain). Major European companies - such as British majors BP and Shell, France's TotalEnergies and Norway's Equinor, as well as Eni - already had significant greenfield and industrial land portfolios in Africa.

So (argued the proponents of this view), why not build on these pillars already in place and make Africa Europe's main supplier of fuel and energy?

But that's not how it happened.

New gaps between Africa, Asia and South America

Instead, Asian countries granted far more new exploration acreage to investors than African states after the conclusion of COP27, the 2022 United Nations Climate Change Conference, held in Sharm el-Sheikh, Egypt.

As noted by the African Energy Chamber (AEC) in its recently published African Energy Outlook 2024, Asia accounts for the largest share of post-COP27 exploration acreage concessions, equivalent to over 52% of the total offshore and nearly 45% of the total onshore. total. Africa is clearly lagging behind, accounting for 28% of the offshore total and just 5% of the onshore total.

There are also significant gaps between Africa and other regions of the world when it comes to recent oil and gas discoveries. As the ACS Outlook highlights, South America's deepwater plays have produced nearly 13 billion barrels of oil equivalent (boe) in new commercial discoveries since 2019, with 3 billion boe per year discovered in 2019 and 2020, 1.5 billion boe in 2021, 2.6 billion boe in 2020. boe in 2022 and 2.8 billion boe since the start of 2023.

In contrast, Africa's deepwater plays have produced around 7.65 billion boe of new commercial discoveries since 2019, with 2.9 billion boe per year discovered in 2019, 425 million boe in 2020, 1.135 billion boe in 2021, 1.94 billion boe in 2022 and 1.27. billion boe since the start of 2023.

What's more, South American deposits generally contain more oil than their African counterparts, the ratio being 80:20 in favor of oil in the former region, versus 65:35 in the latter. And since oil is generally more expensive than gas, South American discoveries are easier to monetize - and therefore more immediately valuable - than those in Africa.

This gap could prove somewhat smaller later in the decade, assuming that the transition away from fossil fuels accelerates. This shift is likely to have a greater impact on crude oil producers than on natural gas, which many African countries consider to be the best transition fuel available. (Nigeria, Africa's largest oil and gas producer, is one such country, and its "Decade of Gas" policy is designed to promote and expand the domestic use of gas for power generation and industrial use).

In other words, if global demand for crude oil declines as many energy consumers switch from oil products to renewable energies, investment in South America's relatively rich oil reserves will decline over time. However, investment in the relatively gas-rich areas of Africa will remain at peak levels for a longer period, as gas is a cleaner fuel than oil derivatives, and African states such as Nigeria will continue to use it for many years to come, even after closing the last power plant to use refined petroleum products.

Meanwhile, however, there is still a distance between Africa and the rest of the world in terms of what the continent can do to establish closer links with energy markets in Europe and elsewhere, and to expand the development of its own hydrocarbon resources. Relations between Russia and Ukraine could have helped to narrow this gap to a far greater extent, but other regions have instead attracted more attention.

It's an all-hands-on-deck moment

That said, I don't believe for a second that we should accept the lag in energy sector investment as an inevitable reality for Africa. Instead, stakeholders in the energy sector should see the findings of our report as a call to action. It's not too late to reverse the trend.

African governments must act immediately to make exploration and production in Africa more investor-friendly. Now is the time to offer tax incentives, speed up projects, make processes more transparent and do everything possible to minimize risk for investors.

Operators also have a role to play. They should work in cooperation with government administrations and implement measures to reduce unit costs, which would in turn lower equilibrium prices.

Swift action and cooperation will create a win-win situation that will enable African countries to reap the socio-economic benefits of their oil and gas resources, and businesses to capitalize on the significant opportunities offered by our continent's oil and gas.

For more information on these and other topics, download the African Energy Outlook 2024 at  www.EnergyChamber.org .