A girl walks on a gas pipeline running through Okrika community near Nigeria's oil hub city of Port Harcourt
Thu, July 21, 2022
By Noah Browning, Ron Bousso and Wendell Roelf
BRUSSELS/LONDON/CAPE TOWN (Reuters) - Europe's thirst for oil and gas to replace sanctioned Russian supply is reviving interest in African energy projects that were shunned due to costs and climate change concerns, industry executives and African officials said.
Energy firms are considering projects worth a total of $100 billion on the continent, according to Reuters calculations based on public and private company estimates.
African countries that currently have little or no oil and gas output could see billions in energy investments in the coming years, including Namibia, South Africa, Uganda, Kenya, Mozambique and Tanzania.
Namibia alone could provide around half a million barrels per day in new oil production, following promising exploratory wells in recent months, according to unpublished estimates by two industry consultants.
Africa as a whole could replace as much as one-fifth of Russian gas exports to Europe by 2030, based on estimates by the International Energy Agency (IEA). The Paris-based watchdog said an additional 30 billion cubic metres (bcm) of African gas a year could flow to Europe by then.
"As the world seeks to replace Russian oil and gas volumes ... the industry is now focusing on the advantaged barrels Africa has to offer," said Gil Holzman, CEO of Canadian oil explorer Eco Atlantic Oil & Gas, which holds interests in oil licenses in nearly 30,000 square kilometers offshore Namibia.
"The majors have been building larger positions ... competitively bidding for exploration, development and production acreage," he told Reuters by e-mail, citing activity in the oil basins off Namibia and South Africa.
European sanctions on Russian oil supply and reduced gas flows have sent prices soaring and driven up inflation to 40-year records in some countries. Benchmark Brent crude in March reached near a 15-year high of $139 a barrel.
Investment in African energy has yet to recover from a plunge in oil and gas prices in 2014, the IEA said in a June report, highlighting Africa's potential to ease the supply crunch. Global oil output is set to rise from the pandemic but is then forecast to ebb in the late 2020s, it said.
"We are in the middle of the first truly global energy crisis and we have to find solutions to replace the loss of Russian oil and gas," IEA executive director Fatih Birol told Reuters in an interview in June.
The IEA shocked the oil industry last year by envisioning no investment in new fossil fuel projects in order to meet net zero emissions goals by mid-century.
Companies and countries eyeing oil and gas investments in Africa are aware they must move fast to profit from untapped reserves before the global transition to low carbon technology renders many fossil fuel projects unviable, the executives and officials said, as domestic fuel and power demand also rises.
Last month, Tanzania signed a liquified natural gas (LNG) framework agreement with Norwegian state energy giant Equinor and Anglo-Dutch oil major Shell that accelerates development of a $30 billion export terminal.
Patrick Pouyanne, CEO of French oil giant TotalEnergies, said on a visit to Mozambique's capital Maputo in January that, if security improves, the company aimed to restart a $20 billion LNG project this year that was halted by militancy.
Pouyanne said in May that TotalEnergies needed to make up for declining output and sanctioned Russian supply and was speeding up activity in Namibia, a promising oil frontier.
"Now there is a lot of activity to try to force forward these projects," said Gonçalo Falcão of global law firm Mayer Brown, which advises firms in the African energy space, citing East African gas projects worth tens of billions of dollars. "There is clearly a sense of opportunity to reinforce them."
BIRTH OF VENUS
For new African oil, nowhere looms larger than Namibia.
Not yet a producer, Namibia has had top companies sifting through geographical data and probing its waters for decades until Shell hit in February an "encouraging" supply of light oil - the kind coveted to produce scarce gasoline and diesel.
Nearly two months into the Ukraine crisis, with oil prices near record levels, Shell launched a "back-to-back" exploration well at the site - meaning one well immediately following another - for the first time in the company's nearly 150-year history, according to two industry sources, who declined to be named as exploration continues.
Shell said the quick progress followed the "promising" results of the first well but cautioned in a statement to Reuters that, due to its climate commitments, it would only advance projects "with a credible path to early development ... (that are) resilient and competitive in low- as well as high-price scenarios."
TotalEnergies completed an exploration well in the nearby Venus prospect in March, which it called "significant", with a more advanced appraisal well due in the third quarter.
On Namibia, TotalEnergies told Reuters it will "still have to determine if the volumes are commercially recoverable ... (but) investments remain necessary to satisfy demand".
A senior Shell official, speaking to Reuters on condition of anonymity, estimated it will take around $11 billion to develop the two companies' blocs.
The discoveries could lead to oil production of around half a million barrels per day, according to projections by data firm IHS Markit and estimates from natural resources consultancy Wood Mackenzie shared with Reuters. Both firms cautioned the forecasts were preliminary.
Maggy Shino, petroleum commissioner at the Ministry of Mines and Energy told Reuters time may be running out as the global transition to clean energy looms: "There is a possibility for Namibia to be the last African giant."
"In the wake of the success in drilling off Namibia comes the Ukraine and Russian war ... what we are seeing (is) that currently more companies are looking to invest in Namibia in the search for hydrocarbons," she said, adding the country hopes to begin production from the Shell project by 2026.
STILL CONTENDERS
The efforts are an echo of the initial decades of the post-colonial era when European governments and energy majors like Total, Shell and Eni worked in closer tandem to put Arab North Africa and a gaggle of Sub-Saharan states on the energy map.
Renewed European thirst for gas looks set to help push African output to a peak of nearly 500 billion cubic meters by the late 2030s, according to consultancy Rystad, up from 260 bcm in 2022.
Less sanguine, the IEA projects a peak of natural gas output in its "sustainable Africa scenario" under 300 bcm in 2024. It forecasts oil output will peak this decade at around 6 million bpd of oil in 2022 - down from over 10 million in 2010, indicating a longer life span for gas projects than oil.
More than half of Italian oil major ENI's production comes from Africa and over half its investment in the last four years was there. Its drive to boost output there since the oil price rise sparked by the Ukraine war has dovetailed with initiatives by Rome.
Eni CEO Claudio Descalzi together with senior government delegations travelled to Algeria, Gabon and Angola in April and inked agreements to boost exports to Europe.
"Africa now has a huge opportunity. Following the recent crisis in Ukraine, the global context of the energy markets and supply were radically changed -- not for a matter or years but for decades," Eni's Chief Exploration Officer Luca Bertelli told the Africa Energies Summit in London in May. "Momentum should be captured now".
Top European gas importer Germany stepped up efforts to court Senegal with a state visit by German Chancellor Olaf Scholz in May, offering help to tap vast gas resources, though no concrete project was agreed.
"The first thing Germany and Europe can do is buy our gas," said Abd Esselam Ould Mohamed Salah, ministry of petroleum, mines and energy of Mauritania - which shares a vast gas field with neighboring Senegal that is due online next year.
"We welcome the increased interest we are seeing from European countries and companies in developing our resources, which is in our mutual interest," he told Reuters, citing sales of offshore exploration blocs.
(Reporting By Noah Browning and Ron Bousso in London, Wendell Roelf in Cape Town, Andreas Rinke in Berlin, Helen Reid in Johannesburg and David Gaffen in New York; Editing by Daniel Flynn)
Europe Does A Complete U-Turn On African Oil And Gas
Editor OilPrice.com
Wed, July 20, 2022
European governments are scouring the world for natural gas as they seek to reduce their overwhelming and increasingly uncomfortable dependence on Russia's Gazprom.
Besides the United States, which has done its best to supply as much LNG as possible to its European allies, several African countries have emerged as potential sources of additional gas supplies. But they are not exactly happy about it.
"The gas here goes to Bonny and Europe to power homes and industries but we have no benefits from it," one local community development activist from the Niger Delta told Bloomberg recently. "Nothing comes to us."
The comment was part of an in-depth analysis by Bloomberg on Europe's mad dash for gas that has seen Nigeria, for example, send millions of tons of LNG abroad while local communities use illegally made fuels and wood to stay warm. Nigeria is far from the only one.
Mozambique is one of the biggest LNG hopefuls in the world, and the current energy security anxieties of European leaders have made it even more important. But Mozambique is a troubled country. It is suffering extremist attacks on civilians that have, in addition to the tragedy of human deaths, delayed the development of the country's gas reserves.
Yet there is a much bigger problem with Europe and its thirst for African hydrocarbons. Hypocrisy.
For years, new oil and gas field development and pipeline construction projects across Africa have suffered setbacks because of Western banks and governments' unwillingness to fund new hydrocarbon projects as the crusade on carbon emissions gathered pace.
Now, suddenly, the tables have turned with a deafening crash. The G7 is suddenly all for new oil and gas investments abroad after committing to suspend these just last November at the COP26. And Europe, that same Europe that has been advising African countries to focus on renewable energy and keep the oil and gas in the ground, is now asking for gas.
The International Energy Agency has joined the discourse, too, adding urgency to the continent's hydrocarbon development outlook. In a report released last month, the IEA said African gas producers had limited time to commercialize their resources, saying these producers needed to act quickly because the world would only need gas for a while before going low-carbon.
Apparently, the large-scale development of African gas resources was not at odds with Paris Agreement targets, according to the IEA's secretary-general, Fatih Birol. He told Reuters back in June that "If we make a list of the top 500 things we need to do to be in line with our climate targets, what Africa does with its gas does not make that list."
He also said that if African countries with gas reserves turned all of these reserves into production, this production could reach 90 billion cubic meters per year by 2030, of which two-thirds could be used domestically and the rest exported.
That would be 30 billion cubic meters for exports, equivalent to what the United States and Qatar, taken together, can supply annually to Europe. For context, Russian gas exports to Europe totaled 158 billion cubic meters last year.
Of course, to do that, energy companies and other funding providers would need to strengthen their walk-back on emission reduction commitments. They will probably do just that, on the basis that 'it's only for a short while", as Germany's government said when it decided to restart coal plants.
But there are environmental concerns about the long-term viability of gas production in Africa itself.
"It's difficult to predict how long this opportunity will be there, especially in the context of the energy transition, the world moving away from the fossil fuels," Silas Olan'g, Africa co-director of the Natural Resources Governance Institute, a New York-based environmental NGO, told NPR recently. "I think they are kind of misleading most of the governments," he said.
The situation is pretty complicated. On the one hand, some, notably the leaders of African countries with oil and gas reserves, feel that these countries deserve the chance to exploit these reserves the way Western countries did, which was instrumental in their evolution into developed economies.
While a year ago, the West would have frowned at this argument, now it is in the West's interest to support it wholeheartedly, so it gets a piece of the gas—and oil, why not—pie.
But on the other hand, there are environmentalists in Africa, too, and they are concerned that the continent's gas-rich countries may be going into a trap of stranded gas assets. It is difficult to argue with this concern when so many think tanks active in the same area as the NRGI are warning about such stranded assets.
Of course, the current U-turn being made by Europe and the U.S. appears to counter the argument of stranded assets and suggests that gas-rich African countries such as Nigeria, Senegal, Angola, and Equatorial Guinea have sufficient time to monetize their resources. If the U-turners are willing to provide the money for it.
By Irina Slav for Oilprice.com
Editor OilPrice.com
Wed, July 20, 2022
European governments are scouring the world for natural gas as they seek to reduce their overwhelming and increasingly uncomfortable dependence on Russia's Gazprom.
Besides the United States, which has done its best to supply as much LNG as possible to its European allies, several African countries have emerged as potential sources of additional gas supplies. But they are not exactly happy about it.
"The gas here goes to Bonny and Europe to power homes and industries but we have no benefits from it," one local community development activist from the Niger Delta told Bloomberg recently. "Nothing comes to us."
The comment was part of an in-depth analysis by Bloomberg on Europe's mad dash for gas that has seen Nigeria, for example, send millions of tons of LNG abroad while local communities use illegally made fuels and wood to stay warm. Nigeria is far from the only one.
Mozambique is one of the biggest LNG hopefuls in the world, and the current energy security anxieties of European leaders have made it even more important. But Mozambique is a troubled country. It is suffering extremist attacks on civilians that have, in addition to the tragedy of human deaths, delayed the development of the country's gas reserves.
Yet there is a much bigger problem with Europe and its thirst for African hydrocarbons. Hypocrisy.
For years, new oil and gas field development and pipeline construction projects across Africa have suffered setbacks because of Western banks and governments' unwillingness to fund new hydrocarbon projects as the crusade on carbon emissions gathered pace.
Now, suddenly, the tables have turned with a deafening crash. The G7 is suddenly all for new oil and gas investments abroad after committing to suspend these just last November at the COP26. And Europe, that same Europe that has been advising African countries to focus on renewable energy and keep the oil and gas in the ground, is now asking for gas.
The International Energy Agency has joined the discourse, too, adding urgency to the continent's hydrocarbon development outlook. In a report released last month, the IEA said African gas producers had limited time to commercialize their resources, saying these producers needed to act quickly because the world would only need gas for a while before going low-carbon.
Apparently, the large-scale development of African gas resources was not at odds with Paris Agreement targets, according to the IEA's secretary-general, Fatih Birol. He told Reuters back in June that "If we make a list of the top 500 things we need to do to be in line with our climate targets, what Africa does with its gas does not make that list."
He also said that if African countries with gas reserves turned all of these reserves into production, this production could reach 90 billion cubic meters per year by 2030, of which two-thirds could be used domestically and the rest exported.
That would be 30 billion cubic meters for exports, equivalent to what the United States and Qatar, taken together, can supply annually to Europe. For context, Russian gas exports to Europe totaled 158 billion cubic meters last year.
Of course, to do that, energy companies and other funding providers would need to strengthen their walk-back on emission reduction commitments. They will probably do just that, on the basis that 'it's only for a short while", as Germany's government said when it decided to restart coal plants.
But there are environmental concerns about the long-term viability of gas production in Africa itself.
"It's difficult to predict how long this opportunity will be there, especially in the context of the energy transition, the world moving away from the fossil fuels," Silas Olan'g, Africa co-director of the Natural Resources Governance Institute, a New York-based environmental NGO, told NPR recently. "I think they are kind of misleading most of the governments," he said.
The situation is pretty complicated. On the one hand, some, notably the leaders of African countries with oil and gas reserves, feel that these countries deserve the chance to exploit these reserves the way Western countries did, which was instrumental in their evolution into developed economies.
While a year ago, the West would have frowned at this argument, now it is in the West's interest to support it wholeheartedly, so it gets a piece of the gas—and oil, why not—pie.
But on the other hand, there are environmentalists in Africa, too, and they are concerned that the continent's gas-rich countries may be going into a trap of stranded gas assets. It is difficult to argue with this concern when so many think tanks active in the same area as the NRGI are warning about such stranded assets.
Of course, the current U-turn being made by Europe and the U.S. appears to counter the argument of stranded assets and suggests that gas-rich African countries such as Nigeria, Senegal, Angola, and Equatorial Guinea have sufficient time to monetize their resources. If the U-turners are willing to provide the money for it.
By Irina Slav for Oilprice.com
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