The Challenge of Sustainability in Africa’s Oil and Gas Industry.

10
May

The Challenge of Sustainability in Africa’s Oil and Gas Industry.

Africa’s share of global oil production hovers around less than 10% of global output despite new discoveries in recent times. Proven oil reserves on the continent are estimated to be about 8% of the global total. This can be explained by reduced exploration and appraisal activity with recent downturn in the global oil prices. Despite this, Africa boasts eight of the top-20 discoveries in 2015 and 9 out of the top 20 discoveries in 2016 regardless of the fact that average discovery sizes are on the decline worldwide. As observed by PwC (2016) report on developments in Africa oil and gas industry, “ensuring a sustainable development of the industry in the future is increasingly challenging in a more complex global market, and the longer-term backdrop has changed”.

Given the lower price of oil and the uncertainties about output curtailment by the Organisation of Petroleum Exporting Countries (OPEC) and the increasing production and export by the United States (US), hydrocarbons are no longer as profitable to produce as they were in the recent past. According to a report by the Paris-based International Energy Agency (IEA) on “Oil 2019- Analysis and Forecasts to 2024, the US shale revolution is triggering a rapid transformation of the global oil markets. It added that the US accounts for 70% of the total increase in global capacity to 2024, adding a total of 4mbd (million barrels per day) following a spectacular growth of 2,2mbd in 2018.

The report further stated that “as a result of its strong oil production growth, the United States will become a net oil exporter in 2021, at its crude and products exports exceed its imports. Towards the end of the forecast, US gross exports will reach nine mbd, overtaking Russia and catching up on Saudi Arabia. The transformation of the United States into a major exporter is another consequence of its shale revolution with the second phase of that revolution coming. The result is that it will see the US account for 70% of the rise in global oil production and some 75% of the expansion of Liquid Natural Gas (LNG) trade over the next five years”. The implications of these developments will be very profound for the sustainability of the oil and gas industry in the existing and emerging African producers because of the fact that the United States have been a key market for their products.

Another challenge for the sustainability of the oil and gas industry in Africa is the fact that although global demand for affordable, reliable energy will continue to grow for the foreseeable future, the world is fast moving towards a low-carbon energy ecosystem. It is clear that the momentum to replace fossil fuels with cleaner energy sources, sooner rather than later, is gathering pace. Consequently, oil & gas companies would be well-served to review their long-term strategies, recognizing the possibility that oil could suffer a similar fate to coal in the coming decades.

Nevertheless, Africa represents the new frontier for energy in many ways. For example, 70% of households in sub-Saharan Africa do not have access to electricity! Now is the opportunity for oil & gas companies in Africa to reinvent themselves to deliver this much needed commodity in a lower-carbon form. The move to green would be one potential scenario for the ‘new energy future’. Natural gas-fired power stations are one option for providing cleaner energy in Africa as it currently flares 1.2 trillion cubic feet (Tcf) of gas per year. That equals nearly half the continent’s gas consumption, so there is no shortage of resources. Gas-to-power solutions would be an excellent way to monetize the numerous gas discoveries made on the continent recently.

The African continent will continue to offer significant opportunities in the oil & gas sector, even if delayed by the current low oil price environment. The current opportunity for host governments that want to attract oil & gas investors and projects lies in offering an attractive enabling policy environment by reforming their regulatory, fiscal and licensing systems. There seems to be an increased level of realisation on the part of some governments and policymakers that they have to play their part in enabling projects to go ahead as soon as possible so as to promote sustainable growth in the industry.

To address the sustainability of Africa’s oil and gas industry, the challenges facing the industry needs to be tackled frontally. One of the key issues, that African governments can immediately address, is the lack of skills and expertise particularly for exploration and production companies operating in the industry as they require to comply with national industry participation and local content obligations contained in production sharing agreements and legislation. Many oil and gas producing countries in Africa have embraced or are promoting the use of local content policy frameworks to enhance the contributions of the oil and gas industry to national industry participation, employment generation, local value added and inclusive economic growth.

The motivation for local content policy is the increase in globalization and protectionism. Resulting from this is the need for African countries to leverage on their oil and gas resources to create development linkages for sustainable economic development through local content policies. The challenge, then, is how can local content policies and regulatory frameworks support sustainable employment generation, skills development and national industry participation in the African oil and gas producing countries? As a result of these challenges and the realisation of the need for sustainable development of the oil and gas industry in Africa, AMETRADE, a London-based B2B trade and investment promotion company focusing on Africa region has over the past ten years been facilitating conferences, workshops and training programmes in key existing and emerging oil and gas countries in Africa including, Congo, Ghana, Senegal and Mozambique. The objectives of the conferences are to bring national stakeholders together with international companies and institutions with a view to sharing common experiences, challenges and proffering workable and appropriate solutions for a sustainable development of the oil and gas industry in Africa.

Specifically, AME Trade Ltd is organizing the Africa Oil & Gas Local Content & Sustainability Summit in Accra Ghana from 10 to 11 October 2019 immediately after the Congo’s International Oil & Gas Conference and Exhibition from 1 to 3 October 2019, to discuss global developments in the oil and gas industry and the sustainability of local content policies and frameworks in the African producing countries. Drawing from international and national experiences in the implementation of local content policies and strategies, the conferences will proffer best practice solutions for a sustainable national industry participation and domestic value addition through local enterprise, contractor and supplier value chain development.

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