Around 8% of the world’s oil production originated from Africa in 2020, according to Statista. In the same year, the continent produced close to 330 million metric tons of oil. 6.9 million barrels were produced daily, which was the lowest amount since 2000. The large deposits of oil, however, might spur other African countries to become new producers as it continues to be the key economic engine in producing nations. The hydrocarbon industry has further demonstrated its potential concerning natural gas, whose reserves reach 600 trillion cubic meters. (Faria, 2021).
Statista reports that the production of crude oil and natural gas is spread over Africa but is strongly concentrated in the West and North. Nigeria, located on the West African coast, is the continent’s biggest and more mature oil producer, accounting for nearly one-third of total output in 2020. Angola, Algeria, Libya, and Egypt are the next four largest African oil producers. Furthermore, these five nations are Africa’s leading producers of natural gas. In 2020, they accounted for more than 90% of the continent’s output. The five countries’ oil refinery capacity varies greatly, ranging from 833 thousand barrels per day in Egypt to 80 thousand barrels per day in Angola (Faria, 2021).
According to Julia Faria, the largest African oil and gas producers in West and North Africa accounted for around 9% of global oil exports in 2020. Nigeria topped crude oil exports that year, selling more than two million barrels of oil per day on the worldwide market. Following Algeria, the country exported enormous amounts of natural gas, around 36 billion standard cubic meters. Algerian natural gas exports totaled 42.5 billion standard cubic meters for the same period. As a result, fossil fuels are critical to the economy of producing countries. For example, crude oil and natural gas made for approximately 7% of Nigeria’s GDP and contributed 19% to Algeria’s GDP (Faria, 2021).
Although Julia observes that new resources are discovered regularly, they are not allocated evenly; in fact, 38 of 53 African nations are presently net oil importers (AfDB, 2009) Aside from the traditional major production countries, several African countries have emerged as prospective contenders. Africa has around 15 planned liquids projects as of 2020. The major one is in Uganda which has a resource volume of 945 million barrels of oil equivalent. Furthermore, Africa has accounted for nearly 40% of worldwide gas finds in recent decades. Mozambique, being the third-largest holder of natural gas reserves in the area, has a potential future in the industry (Faria, 2021).
Oil and gas, as the lifeblood of industrialized nations, are vital sources of energy that support socioeconomic growth and maintain energy security. Oil and gas can eliminate energy poverty while supporting emerging nations in their embrace of renewable energy, serving as the cornerstone for the world’s energy and economic growth. Africa, positioned as the world’s final frontier for hydrocarbon exploration, has increased its oil and gas exploration efforts in recent years, with important finds marking the start of a hopeful decade for the continent (Goosen, 2021).
The oil and gas business in Africa is entering a new phase. As the globe strives to speed its transition away from fossil fuels, demands on the continent’s oil and gas producers are increasing. According to a McKinsey study, most are very vulnerable to the global energy shift because their economies rely on oil and gas income, but their reserves are both more expensive to develop and, on average, more carbon-intensive than oil and gas from other areas (Leke, et.al 2022).
Simultaneously, the continent’s energy consumption threatens to outpace supply. Rapid population development and industrialization are predicted to generate substantial energy demand increases across the continent over the next two decades, notably for fossil fuels. According to McKinsey modeling, African energy consumption in 2040 might be roughly 30% more than it is today, compared to a 10% growth in worldwide energy demand (Leke, et.al 2022).
While these dynamics provide issues that must be addressed, they also provide a clear opportunity for the continent to take stock and reevaluate its energy strategy. If African oil and gas producing countries take steps to create enabling environments, improve access to available capital pools, and attract the right skills and capabilities, they will be able to meet the energy needs of their developing populations while also establishing a strong position in a new energy landscape (Leke, et.al 2022).
The continuous invasion of Ukraine, which has had far-reaching human, societal, and economic consequences across nations and industries, adds another layer of complexity. According to our research, European gas prices have grown more than thrice in the last year. Since the beginning of the war, the European Commission has established a strategy to make Europe independent of Russian fossil fuels by 2030 by accelerating renewable energy and diversifying natural gas supplies. This might lead to greater demand for oil and gas from African countries with the reserves and infrastructure to supply that need (Leke, et.al 2022).
The global push toward sustainability and away from fossil fuels is becoming clearer. According to McKinsey’s “current trajectory” energy transition scenario, global oil demand might peak in 2027, with worldwide gas demand peaking in 2040. The transition might be accelerated if leading countries meet their net-zero targets through tailored actions. Global oil consumption might peak as soon as 2024 under this “achieved commitments” scenario, whereas global gas demand could peak around 2030. (Leke, et.al 2022).
Despite these challenges, the transition to a low-carbon future has the potential to create significant opportunities for African oil and gas-producing countries; several options exist for them to potentially strengthen the resilience and sustainability of their resource bases and build robust positions in the future energy businesses. The pace and urgency of the steps necessary, as well as the levers to pull, will be heavily influenced by each country’s reliance on oil and gas earnings, as well as its position on the global hydrocarbon cost curve (Leke, et.al 2022).
Making the proper strategic choices and coordinating their implementation in a setting that promotes fiscal discipline and avoids macroeconomic distortions is the primary issue for utilizing oil and gas resources. This should be backed up by proper institutional capability and engagement in oil and gas income management at the national and local levels. Because oil is a finite resource, it is critical to decreasing corruption, promoting intergenerational justice, and negotiating more advantageous and transparent contracts with oil firms (AfDB, 2009).
Regional collaboration is critical in tackling the development difficulties posed by changes in international oil markets. Collaboration can take various forms, such as infrastructure development, but efforts to channel oil profits so that they can be utilized to address the continent’s development needs are especially critical (AfDB, 2009).
The African Development Bank, in collaboration with the African Union and other partners, will step up its efforts and continue to collaborate with African governments to develop and implement strategies for optimal utilization of oil and gas resources to accelerate the continent’s growth and development. The Bank is especially dedicated to assisting nations in utilizing oil and gas resources to better the lives of the poor through increasing investment in health, agriculture, education, physical infrastructure, and other non-oil areas (AfDB, 2009).
African oil and gas producing countries should employ a variety of levers to increase the cost competitiveness of their resource bases. First, national governments should consider improving their fiscal regimes to optimize their resource supply curve position. For example, Nigeria recently approved the Petroleum Industry Act, which included a fiscal structure meant to increase the basin’s cost competitiveness. Host governments should also take steps to minimize running expenses, such as addressing regional insecurity. African producing nations should also examine legislative levers to enhance the cost environment, such as ensuring that local content laws strike an acceptable balance between increasing local-industry capability and lowering prices. Finally, African oil and gas producing countries might take steps to enhance the overall ease of doing business, such as simplifying permission processes and increasing contract enforcement, which could assist to lower operational costs (Leke, et.al 2022).
Looking worldwide, there is also the possibility of increasing demand for African natural gas supplies, after the announcement by the European Commission 15 of a plan to make Europe independent of Russian fossil fuels by 2030, following the invasion of Ukraine. This need might be addressed by investing in gas-export infrastructures, such as LNG export terminals or continental gas pipeline projects to provide African natural gas to European and other worldwide clients (Leke, et.al 2022).
African oil and gas producing countries should potentially consider investing in renewable energy projects to assist assure energy resiliency in the future. Given the enormous need for power in many African nations, various alternative energy sources, including solar and wind energy, have promising futures. Renewable-energy technologies have seen remarkable cost reductions since 2009. Over the last decade, installation and operating efficiencies have decreased, with shorter lead times in both solar and wind energy. Blue and green hydrogen are emerging technologies with low unit prices that have the potential to be exported to European demand markets in the future. Namibia’s government has announced intentions to build a 300,000-ton green hydrogen project to deliver green hydrogen (hydrogen produced by electrolysis of water using renewable energy) and derivatives to regional and worldwide markets (Leke, et.al 2022).
African oil and gas producing countries may potentially be able to generate major new carbon-abatement revenue streams from their natural ecosystems. For example, conserving, sustainably managing, or restoring Africa’s abundant natural ecosystems might provide a 1.2 gigatonne Carbon dioxide abatement potential every year. Such new economic potential would very certainly need the assistance of several stakeholders. Market modifications may also be required. A carbon price, for example, would be a major facilitator in the case of blue hydrogen (hydrogen created from natural gas via the steam methane reforming process) (Leke, et.al 2022).
While the pace of the energy revolution is unknown, there is little doubt that the world is heading toward a low-carbon future. To prepare for this, African oil and gas producing states will need to change their strategy, taking into consideration the specific difficulties and possibilities at stake in each environment. We suggest three main acts that might be considered in charting a route toward the future energy landscape: A favorable climate might facilitate the development of renewable energy initiatives. Utilize accessible capital pools, Attract and develop the talents required for the energy future (Leke, et.al 2022).
As the globe prepares for COP27, African oil and gas producing states have a chance to be proactive in the fast-expanding global energy industry. Operating in higher-cost, higher-carbon basins has become increasingly difficult in the face of increased demand from stakeholders and authorities alike. Furthermore, as African economies seek to industrialize to fulfill the requirements of fast-rising and urbanizing populations, an increase in energy consumption might leave several nations confronting energy supply issues. While these problems are real, so are the opportunities. If successful, a strategy shift of this magnitude may unleash enormous wealth for the continent while minimizing the dangers of climate change and helping to create a greener and more affluent future for all Africans (Leke, et.al 2022).
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