Africa to Account for 6% of Global Upstream Investment By 2033 – Woodmac

By Ndubuisi Micheal Obineme

…says accelerating upstream investment, developing gas resources, and support for independent operators are key in ensuring the African continent receives a wider share of its abundant oil and gas resources for economic prosperity.

…Calls for a strategic approach in terms of providing incentives to drive more investments into Africa’s oil and gas project developments.

Despite being blessed with abundant oil and gas resources, Wood Mackenzie, also known as WoodMac, a global provider of data and analytics for the energy sector, has said that Africa will account for only 6% of global upstream investment over the next ten years, noting that the Continent’s production will drop from a projected 12.4 million Barrels of Oil Equivalents Per Day (BOEPD) in 2024, to 10.1 million in 2033 due to under-investment.

Woodmac’s report obtained by The Energy Republic disclosed that Africa has the third-largest remaining gas resource base by region.

Based on our findings, Africa holds the world’s largest production lifespan of technically recoverable gas resources, estimated at 673 years, which is ahead of Latin America (508 years) and Eurasia (296 years).

The need for upstream investment
To reverse this forecast, Woodmac’s industry experts outlined in the report that there is a need to increase upstream investment, gas resource development, and support for independent operators as well as reducing Capital expenditures (CapEx) costs on project developments, which are all imperative in ensuring the African continent receives a wider share of its abundant oil and gas resources for economic prosperity.

On the project development, they said cost inflation pressures will weigh on both the operators and lenders of African projects, as the government is likely to increase tax rates, which will exacerbate the problem.

They recommended a strategic approach should be adopted to ease taxes on new investments including renewables to help decarbonize Africa’s upstream industry.

However, they noted there have been significant developments in Angola, Cote d’Ivoire, and Nigeria, which are spearheading new production start-ups.

“Angola is also leading the way with four major greenfield Financial Investment Decisions (FIDs) that are expected.

“Given that African upstream carbon intensity is amongst the highest globally, investments also need to respond to regulations around sustainability, or risk international oil companies and lenders walking away,” they explained.

Developing gas resources
Historically, Africa’s major gas resources have relied on liquefied natural gas (LNG) exports for commercialization, which are defined by high costs, low returns, and long payback periods.

Speaking on this development, Woodmac’s experts said that alternative gas project developments are crucial for Africa’s gas-rich countries, and floating liquefied natural gas (FLNG) offers a different pathway to monetization, noting that it’s lower in terms of capital costs, combined with increased demand for quick-to-market LNG, which makes FLNG an attractive proposition for developers, investors, and off-takers.

In their words, “Africa is at the centre of the current boom with Cameroon’s GoFLNG project, and Mozambique’s Coral Sul FLNG setting the benchmark.

“Likewise, projects in Mauritania-Senegal, Congo, and Gabon are following suit. FLNG is also under consideration in Nigeria and Namibia and offers an alternative to Mozambique’s troubled onshore Rovuma project.

“However, FLNG is not without risks. Concerns over cost blowouts, scheduling delays, and security will need to be managed by developers. Moreover, despite its potential to boost power generation, developing gas for the domestic market will be challenging due to affordability and limited infrastructure”.

Support for independent operators
With international oil companies under increasing pressure to focus on low-carbon, low-cost opportunities, divesting from carbon-intensive assets in locations like Nigeria, Gabon, and Congo fits with their strategies, Woodmac experts said.

They highlighted that Independent operators (Indigenous Companies) are becoming increasingly active across the continent and require continued support to grow.

“Encouragingly, African governments are becoming increasingly supportive of local independents, providing favorable tax terms and marginal assets. Indeed, conducive regulatory environments lead to greater economic diversification and job creation.

“Moreover, a local ‘license to operate’ and partnerships with international investors are helping African companies access capital and the technical expertise required to develop assets,” they added.