Africa Looks to Energy Future

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It has been a tough few years for the energy sectors of many sub-Saharan African countries. But upstream and downstream, in the oil and gas sectors, all look set to stage a recovery from recent historic lows. And momentum is finally building to address the financing problems that have hobbled clean energy development on the continent.

The great fear of African producers was that the energy transition would kill off any prospect of an oil recovery. Transition pressures remain very real, and a major renaissance for Africa’s oil sector is not on the cards. Investors are looking to exit mature onshore areas in Nigeria, Equatorial Guinea and Chad. But a short term bounce back looks more than possible for oil, with gas prospects even brighter. Oil governance is improving in key countries. Refining is set for a major boost, with Nigeria’s new 650,000 barrel per day Dangote plant due on stream early next year. And longer term, the continent is well placed to become a clean energy superpower.

Annus Horribilis

African oil output has been in structural decline for well over a decade, with last year’s 7 million b/d some 31% down on its 2007 peak. Hemorrhaging capacity in Nigeria and Angola has driven the slump, with the last 12 months a real wake-up call for the West African heavyweights. Last summer, Nigerian output dipped below 1 million b/d for the first time in a generation, and in March, maintenance and technical problems saw Angola's output hit a 20-year low.

But participants at the recent Opec seminar in Vienna were bullish on prospects for fast-tracking growth. Nigeria is looking at hitting capacity of 1.7 million b/d by November, according to the oil ministry’s permanent secretary, Gabriel Tanimu Aduda. “Trust me, we are putting in place every machinery that we can to ensure that we max out on production,” he said on the seminar sidelines. For the Republic of Congo, also known as Congo-Brazzaville, “the expectation for the next year is to have more than 400,000 b/d,” an addition of over 100,000 b/d, its energy minister, Bruno Itoua said. Both countries are also pushing major gas developments.

Talk is cheap, especially where capacity growth is concerned. Nigeria's 1.7 million b/d target is ambitious, but its output has already recovered to over 1.2 million b/d. Overall, upstream activity is up. Last month, Baker Hughes’ African active rig count went over 100 for the first time since April 2020. This compares to an average active rig rate of 82 for last year, and 69 in 2021.

Reforms and Refineries

There have recently been some welcome changes in oil sector management, spearheaded by Nigeria. Just days after taking office on May 29, Nigerian President Bola Tinubu scrapped the country’s long-standing gasoline subsidy. This should curb demand growth, stifle smuggling and relieve the state budget of a major burden. Tinubu also pledged an end to the opaque crude-for-products swaps mechanism, used to supply the domestic market.

In Angola, the government has shown more flexibility with investors lately. TotalEnergies in May signed a heads of agreement for its long-stalled development of offshore blocks 20 and 21, involving projected output of 70,000 b/d. Of course, the emergence of Namibia, which should start to bring on Phase 1 output of up to 200,000 b/d from 2027, is set to be the biggest brake on African upstream declines.

Downstream, Dangote should prove transformational for Nigerian product balances when it comes on stream. It should be joined by Ghana’s 40,000 b/d Sentuo refinery, also due on stream in the first quarter of 2024.

The energy transition has made oil and gas financing in Africa an increasingly serious challenge. And to counter this, the African Petroleum Producers Organization (APPO) and the Africa Export Import Bank (Afreximbank) are planning to create an African energy bank, dedicated to funding oil and gas projects on the continent. They are looking to launch the bank by year-end, with an initial capitalization of $5 billion, APPO Secretary General Omar Farouk Ibrahim said in Vienna.

Afreximbank has increasingly come under fire for funding fossil fuel projects and will migrate its oil and gas department to the new energy bank, Ibrahim said. He encouraged others to join the project, arguing that Africa needed to be more financially self-reliant. “We have been conditioned into believing that our salvation lies with some external power.”

Multi-Speed Transition

Pretty much every African producer, or potential producer, insists that a fast-track transition away from fossil fuels should not be imposed on them. “We will not have one [energy] transition, we will have [many energy] transitions, depending on situations or countries' areas, developing countries, importing or producing countries,” argues Itoua.

Nevertheless, for a variety of reasons — cost, diversification, green hydrogen exports, and the ability to free up more fossil fuel for export — many African producers are also interested in pursuing clean energy options. Solar photovoltaic and hydrogen might dominate energy conference discussions, but for the Republic of Congo, hydropower is the key clean energy, says Itoua, noting the Democratic Republic of Congo, just to the south, has potential many times the 28 gigawatts targeted by the Republic of Congo.

So far, however, clean energy investment has flopped in Africa, with the continent reportedly accounting for just 0.6% of the $434 billion in renewables investment in 2021. Last year, African solar capacity stood at 1.2% of global capacity, with African wind less than 1% of the total, according to the latest Statistical Review of World Energy. And finance is the key reason for this failure. Higher interest rates threaten still more deadlock, but change is coming.

A major conference in Paris last month delivered tangible deals for the Ivory Coast and Zambia and pledged major reforms of multi-lateral lending institutions to unlock the billions needed. There remains a lot of work to be done. But a broad consensus is emerging that the energy transition simply cannot happen without the Global South, which will require root and branch reform of international financing mechanisms.

Being on the front line of climate change adds urgency to Africa's green energy plans. Drought and demographic pressures are creating stress across the whole Sahel, threatening violence and mass migration, warned Niger President Mohamed Bazoum in Paris.

Africa's Lost Decade
 201220222022 vs 2021 (%)2022 vs 2012 (%)
Oil Production ('000 b/d)9,2717,043-3.5%-24%
Oil Consumption ('000 b/d)3,5904,1635.216
Oil Exports ('000 b/d)7,3265,630-10.00-23
Of which West Africa4,7243,557-9.3-25
Refining Throughput ('000 b/d)2,2141,9121.0-14
Natural Gas Production (Bcm)206.7249-3.920
Natural Gas Exports (Bcm)93.688.8-7.3%-5%

Rafiq Latta is a senior correspondent with Energy Intelligence’s Middle East team. A version of the article originally ran in Energy Compass.

Conventional Oil and Gas, Offshore Oil and Gas, Renewable Electricity , Low-Carbon Policy
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