African Oil & Gas Remains an Excellent Opportunity for Investments
By NJ Ayuk*
Investing in African energy is smart today, and it will continue to be a savvy investment well into the future
The African Energy Chamber is countering yet another argument in the onslaught of calls for Africa to give up oil and gas production. This time, it’s the idea that oil and gas projects in our continent are worse for the climate than those in other regions of the world.The argument was a major point in a June 2022 article by global management consulting firm McKinsey. In “The future of African oil and gas: Positioning for the energy transition,” McKinsey states that “African oil and gas assets are on average 15 to 20 percent more costly to develop and operate and 70 to 80 percent more carbon-intensive than global oil and gas assets.” The “leave fossil fuels in the ground” crowd is taking these claims and running with them. Berlin-based nonprofit Climate Analytics, for example, used McKinsey’s assessment to support an argument for halting investments in African natural gas exploration. “If African countries invest in fossil fuel infrastructure, it risks locking in high emissions, burdening their economies with stranded assets, and potentially losing out on major economic opportunities to invest in renewable energy and green hydrogen – for both domestic use and exports,” Climate Analytics wrote, citing these same percentages from the McKinsey study. “New African LNG faces significant competitive pressures if not disadvantages from incumbent producers, or producers with intrinsically lower cost structures.” I have news for anyone making a case against the exploration and production of oil and gas in Africa: McKinsey’s negative assessment is flat-out wrong. Yes, certainly African oil and gas are expensive to produce. I understand that in African countries, the technology and knowledge are not necessarily where they need to be yet. That is going to impact the cost of operating here. All the same, our energy industry continues to offer opportunities for significant return on investment. As African Development Bank President Akinwumi Adesina recently told African Business, Africa still has a great deal to offer in terms of energy investments. “You’ve got 600 million people that still need energy,” Adesina said. “That’s a lot of investment that you can make. The infrastructure deficit is still about up to $108 billion a year. That’s a huge opportunity for investors. You’re looking at the issue of water and sanitation. You’re looking at digital infrastructure. Almost anything in Africa is an investment opportunity.” Investing in Africa’s vast natural gas supplies makes particularly good sense, Adesina added. “Why is there a crisis in Europe when the Russians turned off the gas? We believe that natural gas is important. It’s not, for me, an ideological issue. It’s a pragmatic issue. We have projects here that have to do with gas projects that will provide gas for African countries to be able to do energy, liquefied petroleum gas for cooking. They’ll also be able to have compressed gas for the transport system and then, of course, to have gas pipelines that will go all the way from Lagos to Morocco, to Europe. And Africa becomes an alternative and a viable source of gas diversification, market diversification for Europe.” Well said. Investing in African energy is smart today, and it will continue to be a savvy investment well into the future. As for the claims about African oil and gas production being significantly more carbon-intensive than in other regions of the world, they are unproven. The fact is, investing in African oil and gas makes sense for the environment and for companies’ bottom lines. The World Needs Africa’s Oil and Gas Listening to McKinsey, you’d think Africa’s oil and gas industry is a sinking ship. “As global capital pools for hydrocarbon projects begin to reduce, our analysis suggests the cost of oil and gas production in Africa is expected to rise, making African oil and gas projects potentially even less competitive in global markets,” McKinsey states. “Under McKinsey’s achieved commitments energy transition scenario, the replacement of approximately 60 percent of Africa’s current oil production could become uncompetitive by 2040. As oil majors shift toward lower-emission basins, Africa’s oil-producing countries could find themselves deprioritized for further development and facing an increased risk of stranded assets with significant oil and gas reserves remaining untapped.” Those forecasts could easily become self-fulfilling prophesies, leading oil companies to assume that investing in Africa is a dead end. What’s more, that kind of prediction couldn’t be further from the truth. As Rystad Energy’s chief analyst, Per Magnus Nysveen, put it during the African Energy Chamber’s Invest in African Energy Reception in London last January, Africa’s massive petroleum resources represent tremendous opportunity. He noted that sub-Saharan Africa alone holds 140 billion barrels of oil equivalent, of which only one-third is developed, and two-thirds of Africa’s undeveloped resources are natural gas. Rystad has projected that Africa’s greenfield upstream spending will not falter during the coming decade; it will boom, reaching $37 billion by 2025 and $50 billion by 2030. One reason for that is that Africa’s resources are desperately needed, both in our continent and around the globe. And that reality isn’t going to change any time soon. That’s why Rystad and the African Energy Chamber have been calling for a robust energy mix of ongoing oil and gas exploration and drilling combined with investments in renewable energy sources. “We need as much as 65 million barrels by 2030 from wells that have not been drilled yet,” Nysveen said. Indeed. I would add that, while some major international oil companies (IOCs) have been divesting their African resources in pursuit of less carbon-intensive resources, increasing numbers of independent oil companies are grabbing up the majors’ assets. Why would they do that? Because they recognize the opportunity Africa represents and understand that it is possible to produce oil and gas here sustainably. IOC’s will play a major role at African Energy Week in Cape Town this October. Look at independent oil and gas company Afentra, which has been amping up its exploration activities in Africa by taking over assets from global oil majors. One of its priorities is to produce gas responsibly, maintaining best practices to protect the environment. By doing that, Afentra CEO Paul McDade said, the company also creates a pathway to obtaining capital. “I talked to a lot of capital providers,” McDade told Energy Voice. “The conclusion was that capital was available and that public markets were the best way to go. To access that capital, though, you have to really understand investors’ ESG concerns. “Any new company needs to look at the whole concept of ESG. We’re going to work with governments to legitimize mature production and keep producing,” McDade continued. Low-Carbon Energy Production Right Here in Africa What I find most frustrating about McKinsey’s article is the blanket statement that, on average, production in our continent is significantly more carbon-intensive than in other parts of the world. Carbon intensity generally is measured in three areas: greenhouse gas (GHG) emissions related to day-to-day company operations, such as commuting to work sites; GHG emissions that result from energy that is purchased, such as electricity; and emissions created during upstream, midstream, and downstream activities such as drilling, transporting, and storing oil and gas. And the factors that impact carbon intensity vary, from gas flaring practices to power generation at oil and gas company facilities. Not only are sweeping statements about African carbon-intensity unhelpful, they’re also inaccurate. Many African states are working to mediate carbon emissions through efforts ranging from participating in carbon-offset projects and anti-flaring initiatives to developing less carbon-intensive means of transporting oil and gas, like pipelines. We also should look at the increase of liquefied natural gas (LNG) projects in Africa. LNG production is considered significantly less carbon-intensive than that of other fossil fuels, a fact that should be taken into consideration. Look at Mozambique, the site of several major LNG projects. Not only will the LNG production there have a minimal carbon footprint, but the companies responsible for those projects are going above and beyond to operate sustainably. ExxonMobil, for example, has announced plans to implement carbon capture technology at its Rovuma LNG project, and the company has said it would also work closely with TotalEnergies, responsible for the Mozambique LNG Project, to make both of their projects more affordable and cleaner. Then there is the MSGBC region, which encompasses Mauritania, Senegal, Guinea-Bissau, The Gambia, and Guinea-Conakry. Its natural gas industry is a picture of both economic opportunity and low-carbon production. Oil companies there are actively pursuing decarbonization solutions, including carbon capture and storage as well as technologies that enhance production and reduce emissions. And these are only two examples. The reality is, despite McKinsey’s claims, Africa’s oil and gas industry is not at death’s door. It is not inexpensive to operate here, but ROI is sizeable here as well. And investing in African oil and gas is not a blow to the environment. The carbon-intensity of oil and gas projects in our continent, as in regions around the world, is complex and varied. Giving up on African oil and gas investments would be a grave mistake and a lost opportunity.
*NJ Ayuk is Executive Chairman of the African Energy Chamber