By NJ Ayuk

Quota-related decisions made at OPEC's 35th meeting last June in Vienna delivered a call to action for African member states to step up production through the remainder of the year and into 2024.

Many of OPEC's African member states had been struggling to produce enough crude to meet the targets set for them last year. As a result, they found themselves accepting even lower quotas this year.

Decisions regarding production cuts for African members Algeria, Angola, Congo, Equatorial Guinea, Gabon, and Nigeria are summarized in the African Energy Chamber's (AEC) newly released outlook report, "The State of African Energy Q2 2023."

Our report also notes easing of the civil unrest that resulted in the exclusion of member state Libya from OPEC cuts for the time being.

OPEC's meeting, which included OPEC+ oil-exporting countries as well, resulted in a Declaration of Cooperation that delays further cuts to production targets until 2024 and continues voluntary cuts by nine member states until the end of 2023. Algeria and Gabon are the two African members among those volunteers.

The 2024 Targets and Expected African Production

OPEC's signed declaration calls for a significantly lower cumulative production target for African member states: about 4.33 million barrels per day (MMbbls/d) of crude oil.

A look at the targets of OPEC's two leading African oil producers — Nigeria and Angola — shows considerable reductions from the 2023 quotas set at the 33rd OPEC and non-OPEC Ministerial Meeting (ONOMM). Nigeria's 2024 target, 1.38 (MMbbls/d), represents a reduction of 360,000 barrels per day (bpd), and Angola's quota went down by 175,000 bpd to 1.28 MMbbls/d.

Despite these reduced quotas, it is not anticipated that either country will reach theirs in 2024; Nigeria is expected to hit 95% of its target, Angola 75%. Nigeria, although estimated to be capable of producing 2.2 MMbbls/d, has faced challenges such as oil theft, sabotage, and technical issues.

Angola, despite increased oil and gas activity in 2023, has still strained in recent months to produce more than 1.1 MMbbls/d, far short of its current 1.46 MMbbls/d target from OPEC.

Congo is also expected to fall short of its production target, at about 10% less than allowed, while Equatorial Guinea and Gabon will likely produce slightly over their target numbers of 70,000 bpd and 177,000 bpd respectively, avoiding compliance as in the past. Of the members in sub-Saharan Africa, only Gabon has achieved its target this year.

Algeria in the north is another high achiever, with production capacity that exceeds its 2024 OPEC target of 959,000 bpd. It has agreed to cut output by 96,000 bpd to comply.

Meanwhile, its next-door neighbor, Libya, achieved an average of 1.26 MMbbls/d for 2023 after recovering from drastic production outages during 2022 civil disturbances. OPEC cuts for 2024 have not been set for Libya, allowing the country to use oil reserves to assist with reconstruction efforts.

Crude production in several African nations has been stymied by lack of adequate investment, political unrest, and technical issues associated with older wells.

Following an assessment of the Declaration of Cooperation by IHS, Wood Mackenzie, and Rystad Energy, the 2024 targets for Nigeria and Congo may be revised based on their anticipated levels of production.

Strategies for a Better-Than-Expected 2024 and Beyond

The delayed OPEC production cuts clearly showcase an urgent need for African countries to up their current production numbers and prove that higher quotas are warranted, which would also increase African negotiating sway at future meetings.

The possibility of target modification "to equal the average production that can be achieved in 2024," particularly for Congo and Nigeria, was raised in a June OPEC announcement that followed the meeting. Angola was also mentioned as having production plans "subject to verification...before the end of 2024."

Acknowledging both the opportunity and the urgency, the head of geopolitics for London-based research firm Energy Aspects, Richard Bronze, stated that the deal "certainly creates an incentive for these three countries (Angola, Congo, and Nigeria) to try and demonstrate they can raise production before year-end, but we think they are unlikely to be able to manage it."

The time is now for African OPEC members to prove that they can achieve the higher output capability that warrants higher baselines.

The calls for government action that I and the AEC have stressed in recent years are more urgent than ever: African governments need to create the kind of positive, enabling climate that will encourage greater exploration and production. Good financial policies will help in that effort, as will ethical, transparent, and efficient governance.

Prioritizing speedy adoption and execution of measures to achieve these goals will bring what is most needed to boost African production numbers — increased interest from international oil companies and investors.

A united effort to awaken more investor interest in African oil should start now, as should cooperation among African members to present a more unified voice when the 36th OPEC meeting is held in November, 2023.

The OPEC - Africa Roundtable at the African Energy Week in Cape Town, will ensure Africa specific issues are addressed and as well as global energy security issues.

As S&P Global noted, this strategy would be "taking a page from their Middle East counterparts, who typically align their positions before contentious negotiations through pre-meeting consultations."

I encourage Africa's member nations to do what it takes to increase investment, production, and their influence at the OPEC table. You are stronger together.

NJ Ayuk is the Executive Chairman of African Energy Chamber

Despite having 620 trillion cubic feet of natural gas reserves, Africa's over reliance on wood-based biomass energy remains high, resulting in an increase in land degradation, deforestation and greenhouse gas emissions, and in over 900 million people across the continent living without access to clean cooking.

However, if fully optimized and exploited, the continent's natural gas resources present an opportunity for Africa to address environmental destruction, ensure clean cooking for its population while also guaranteeing energy security and economic growth.

With over 81% of households in sub-Saharan Africa relying on wood-based biomass energy for cooking, the World Health Organization has linked millions of deaths in rural Africa to indoor emissions resulting from the continued and increased use of biomass.

In this regard, countries such as Nigeria, Malawi, Ivory Coast, Kenya, Uganda and Zimbabwe, where biomass use is particularly high due to limited access to reliable electricity, could expand the exploitation of liquefied petroleum gas (LPG) to ensure clean cooking for the population while also improving energy access.

With over 600 million in Africa living in energy poverty, resulting in increased use of wood-based biomass to meet daily energy needs, expanding the continent's gas market will help accelerate electrification while reducing stress on the national grid.

South Africa has taken a bold move in this regard with the government recently approving the Department of Mineral Resources and Energy's LPG Rollout Strategy, designed to leverage LPG to diversify the energy mix for energy security, affordability and decarbonization reasons.

With Africa seeking to achieve universal access to energy, the continued reliance on wood-based biomass remains a threat to improving energy access. With the United Nations Environment Programme predicting that over 65% of the population in sub-Saharan Africa will still rely on wood fuel for cooking by 2050, the time for Africa to invest more in its gas market is now.

Furthermore, with the reliance on biomass, the continent's industrialisation and economic growth is limited. Biomass represents an inadequate energy resource to power industry, hence, the need for Africa to prioritize the development and expansion of its gas market to fuel its industries while improving energy access and championing its climate stewardship is clear, now more than ever.

The African Energy Chamber (AEC), as the voice of the African energy sector, strongly advocates for the scaling up of gas investment and development across Africa, recognizing the role the resource plays in improving energy access and security, while enabling emission and deforestation reduction.

"With the increased use of natural gas, the African continent is well positioned to achieve energy independence, security and decarbonization targets at the same time reducing emissions and the destruction of our forests. Africa needs to come up with new ways to fund and fast-track the exploitation of its gas resources to achieve this. Not only will gas help reduce emissions but also provides African governments with much-needed GDP to fund the growth of the overall economy," stated NJ Ayuk, the Executive Chairman of the AEC.

African Energy Week (AEW) 2022, Africa's the premier event for the oil and gas sector, which will take place from 18 – 21 October 2022, in Cape Town, will discuss the role of gas in Africa's energy future. Under the theme, Exploring and Investing in Africa's Energy Future while Driving an Enabling Environment, AEW 2022 will host panel discussions and high-level meetings to discuss how Africa can increase investments across its gas value chain to ensure energy security while addressing unsustainable energy practices.

Despite global capital expenditure having been on a downward spiral between 2014 and 2020- owing largely to COVID-19 pandemic spending trends and energy transition-related divestment in Africa – the African Energy Chamber (AEC) projects capital expenditure within Africa's oil and gas industry to increase in 2022 and beyond.

According to the organization's Q1 2022 report, The State of African Energy, capital expenditure within Africa's oil and gas sector will reach $30 billion in 2022 after a decline from $60 billion in 2014 to $22.5 billion in 2020. This provides an opportunity for both mature and emerging hydrocarbon producers to establish investor-friendly regimes to attract capital and accelerate project development continent-wide.

At the current expected project sanctioning levels, upstream spending towards 2025 is expected to see an increase. Deferred projects and the projects originally slated for investments from 2022 onwards will together have the potential to contribute to a significant growth potential. Should the projects materialize, the potential expenditure may increase to almost US$49 billion by 2024. Investments related to onshore projects represent the single greatest category with investments reaching over US$68 billion during the 2022 – 2025 period. Big investments are also expected in Uganda and Kenya related to the greenfield onshore development of Lokichar basin. This greenfield development may be one of, if not the last, big conventional onshore project in the world. Subsea tiebacks will take the second spot in 2022 – 2025 cumulative spending and are likely to be more and more common as it makes commercial sense to piggyback smaller hydrocarbon accumulations on existing infrastructure. This category also includes the off­shore related part of Liquefied Natural Gas (LNG) developments which further boosts this category in light of the mega-projects expected in Mozambique.

Years 2020 and 2021 showed that the African oil and gas industry was one of the hardest hit in the aftermath spurred by the COVID-19 outbreak. The initial after-effects of the demand vacuum and price crash caused by the pandemic led to production sanctions imposed on the African OPEC member nations. The initial reaction from the operators included delays to the projects with high breakeven prices, reduction of capital and operating expenditure, and cashflow neutral forecast at lower oil price curves. However, as the region saw a few project sanctions, 2022 – 2025 forecast now shows a relatively increased spending. To be noted, Q4-2020 versus Q4-2021 capital expenditure comparison showed a contraction of about US$33.5 billion during the same period.

"Africa's oil and gas industry is set to see an influx in investment in 2022. Despite COVID-19 pandemic and energy-transition-related financial restrictions in 2020 and 2021, the sector will see an uplift in 2022, with capital expenditure expected to increase to $30 billion this year. This marks a critical opportunity for African producers to ramp up production, spur exploration and get sizeable projects off the ground," stated Sergio Pugliese, President for Angola at the African Energy Chamber

Meanwhile, a number of upcoming major projects in Africa are driving the majority of the greenfield expenditure in the short term. The majority of the volumes are to be sanctioned

and developed are natural gas with projects like the Area 1 LNG project in Mozambique and the Greater Tortue Ahemyim Floating LNG project offshore Senegal-Mauritania leading the list. Other projects include the TotalEnergies-led Tilenga project in Uganda; the Sonatrach-led AT (Isarene) project in Angola; the TotalEnergies-led Cameia-Golfinho project in Angola; and the Eni-led Quiluma/Maboqueiro project in Angola.

Despite the anticipated increase in capital expenditure within Africa's oil and gas industry in 2022, the continent's full energy potential is yet to be exploited. In this regard, and with an objective to ensure the continent is well-positioned to develop all of its resources, the AEC's annual conference, African Energy Week (AEW) 2022 - taking place from 18 to 21 October in Cape Town – represents the most suitable platform for discussions on Africa's energy future. Through collaborative panel discussions and industry-advancing investor summits, AEW 2022 will host conversations on how African hydrocarbon producing countries can boost investment to unlock the continent's full oil and gas energy potential.

While Africa looks to accelerate the development of its significant oil and gas resources – particularly as the continent struggles with the impacts of the COVID-19 pandemic and energy poverty crisis – significant investment is needed in the upstream and midstream sectors.

Rather than abandon fossil fuels in the name of the energy transition, Africa needs to ramp up exploration in order to revitalize production and ensure energy security.

The African Energy Chamber spoke to John Hamilton, CEO Panoro Energy, about the reasons Africa's production is declining, what can be done to turn this around, and the role gas monetization and development will play in the continent's energy future.

What will this production underperformance in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the continent as a whole?

Production underperformance is not necessarily a term I would use. Generally, reservoir performance and well productivity has met or frequently exceeded expectations which is a reflection of the high-quality petroleum geology much of the continent is blessed with. The underlying issue is more about investment and development activity not offsetting a natural depletion curve and the risk of substantial oil volumes being left stranded in the ground as the global energy transition plays out, potentially depriving future generations of the benefit these resources can deliver.

What it means for the continent, and more specifically the producing countries, really starts with how it emphasises a present lack of economic diversification and high dependency of governments on oil production for revenues and more specifically foreign currency.  Economic diversification is going to be key for the oil dependent economies in Africa. Accelerating the safe and responsible development of current production together with the considerable discovered but undeveloped oil resources and future discoveries from exploration efforts will help provide the means for these economies to grow and diversify for long term prosperity and better balance.

What do you feel are the primary reasons influencing production decline in Africa?

The majority of assets are still held by large companies with intense competition for capital across global portfolios. A pivot towards global gas and alternative energy solutions, with added pressure from shareholders and providers of capital to accelerate decarbonisation strategies, means that a diminishing number of upstream assets secure growth investment capital each year. This means that on a fundamental level, assets that will not attract growth capital under current ownership need to transfer into the hands of companies that will prioritise fresh investment to maximise economic recovery and grow output.

Access to capital is also a major factor. This affects the industry as a whole globally, with banks and equity investors having been reluctant to fund hydrocarbon projects over the past few years. For Africa specifically, this global trend is felt perhaps more acutely given that financing is even more scarce.

What can be done to turn this around?

It is encouraging that in several instances fiscal terms are being implemented specifically to allow commercialisation of smaller (marginal) fields that may have been sub economic under previous terms. However, this needs to be applied alongside a more rigorous "use it or lose it" policy to prevent incumbent asset owners holding assets with little or no prospect of developing them. License renewal events should also be seen as an opportunity to assess and if necessary, adapt fiscal terms to help ensure mature brownfield developments are not overlooked and field-life can be extended where possible and economic recovery maximised.

On access to financing, this is an issue that all stakeholders need to continue to make efforts to promote the importance of energy investment on the continent. Success stories need to be heard. All encouragement should be given to governments and international companies to promote responsible and sustainable projects that benefit both energy security imperatives and the need for a return on capital. 

What would you recommend as an industry approach to low carbon gas monetisation and financing in Africa?

Its less about an industry approach – but instead a unified and aligned approach between all stakeholders. It is most obvious that there is no shortage of gas in the ground, but to develop the upstream source there has to be a midstream business to receive and process the gas, a pipeline network to transport the gas to customers, bankable GSA's in place with power and industrial users with sufficient reliable demand, a pricing structure that supports the gas value chain, currency convertibility where tariffs are not paid in USD and ultimately a paying customer base for the end products be it domestic power supply or manufacturing output. Wrapped around this is access to capital – both from domestic and international capital markets – and development of clear policies and incentives by host governments to attract the required investment and development.

Gas development is the abundant and logical transition fuel for African economies to address energy poverty and benefit from the multiplier effect that access to reliable power yields.

What should new independents consider while entering a changing African energy sector?

Speaking from an international E&P perspective it is an immersive industry and you have to commit to being a physical presence in your chosen market.  Developing the relationships in country with host governments, regulators, partners, service providers and a multitude of other stakeholders is equally as important as identifying an asset.  You can not work in Africa remotely.

Is it time for Model Gas/LNG Production Sharing Agreement?

It is not uncommon for gas resources to sit outside current contract terms.  Where this is the case the agreement of gas terms would certainly facilitate acceleration of development in some cases. Projects and markets vary greatly so a "one size fits all" model agreement is probably not the solution. It links into the earlier comment about a unified approach between all stakeholders – contract terms being a key element of that.

The African Energy Chamber spoke to Impact Oil & Gas CEO, Siraj Ahmed, about increasing oil production across the African continent, low carbon gas monetization and pending deals that should be concluded at the upcoming African Energy Week, taking place in Cape Town on 18-21 October

Despite being blessed with abundant oil and gas resources, Africa's production has been on the decline, representing a challenge for the continent as it moves to initiate a COVID-19 economic recovery and address energy poverty.

With exploration restricted due to reduced capital for fossil fuel projects and the transition away from hydrocarbons, the continent needs to act now if it is to reap the benefits of its oil and gas resources.

What will this production underperformance in Nigeria, Libya, Angola, The Republic of the Congo, Equatorial Guinea and African countries mean for the continent as a whole?

These countries are heavily dependent on the export of oil and natural gas, so production underperformance will inevitably have an impact on their economies, both in terms of access to cheap energy and revenues into the treasury. This in turn could have a destabilizing effect on these countries. Temporary underperformance can, however, be managed, but persistent underperformance would be far more damaging, holding back development and the ability of these countries to invest in the energy transition.

In modern society, technology drives progress, but technology requires power – whether a smartphone, tablet, laptop, or other gadget designed to make life easier. Nations that fail to invest in energy will be left behind and will lack the economic growth to fund development. This is an issue for health and social care, progress in living standards and access to opportunities.

In the short term, reduction in supply means higher oil prices, which leads to higher inflation and higher inflation hits the poorest the hardest. These countries have the means and ability to turn this around, so the underperformance need only be temporary.

What do you feel are the primary reasons influencing production decline in Africa? What can be done to turn this around?

Leaving aside the recent impact of COVID, global issues such as the energy transition, compounded by important country-specific issues, are driving a decline in production. At the heart of the challenge is a lack of investment in exploration and the question of what countries must do to attract this investment.

The pool of both equity and debt capital for oil and gas projects is on the decline, largely (but not exclusively) due to pressure to meet the energy transition. With an ever-decreasing supply of global capital for such projects, funders can be selective about where capital is invested and, therefore, competition is stiff and the threshold to secure it is high.

Countries in Africa must provide a stable and competitive framework for investment. This applies not only to countries with existing production, where infrastructure-led exploration (ILEX) can provide lower risk additional resources, but also to counties with frontier exploration potential. It is these higher risk, but higher resource, new frontiers with the opportunity to make large scale economic impact, that have the greatest challenges to attract capital.

A stable and competitive framework for investment requires policy certainty; transparent decision- making processes that enable projects to be progressed quickly (pace is intrinsically linked to value); competitive and stable fiscal terms; and a stable legal framework. Often Governments are too quick to tighten fiscal terms immediately after early discoveries, thereby introducing significant hurdles for subsequent exploration. Fiscal terms and the opportunity to participate in new licensing rounds must remain competitive to attract risked capital.

Norway has been producing oil since the 70s. It recently announced the award of 53 new licenses, of which Equinor picked up interests in 26 blocks, and announced that it plans to drill 25 exploration wells during 2022. By comparison, South Africa, where Impact has a large footprint, has only seen two exploration wells during the last 10 years. Norway operates a model that enables and incentivises exploration, which has put Norway in the top 15 oil producers globally and allowed it to create a sovereign wealth fund worth over a trillion dollars.

Much of Africa's production is in shallower waters and is rapidly maturing. Declining production requires investment in exploration. It is important, therefore, to incentivise frontier exploration alongside ILEX opportunities, and maintain a suitable fiscal framework. A one size-fits-all fiscal framework will limit exploration to smaller, near field exploration opportunities.

The demand for energy is only growing, whilst there is a rapid and concurrent reduction in investment in exploration and production. This reality, and the consequences of it, are reflected in current global oil and gas prices and the apparent economic and geopolitical turmoil it is causing. It is unlikely that the demand trend will reverse soon, so Africa should invest to reverse its growing production shortfall.

What would you recommend as an industry approach to low carbon gas monetisation and financing in Africa?

Natural gas is a relatively low carbon energy source when compared to oil or coal, therefore it is an obvious transition fuel that could meet the energy needs of Africa from its own resources. However, this must be done quickly since the transition period is not indefinite.

Powering African countries through the use of domestic gas has a number of advantages: importing LNG and/or oil has a much higher carbon footprint than utilizing domestic gas; it enables a just transition away from coal in countries such as South Africa where 80% of its electricity is generated from coal; and it provides a cleaner alternative to firewood and charcoal, used by more than 60 percent of families in sub-Saharan Africa for meal preparation and to meet other energy needs, due to the absence of affordable alternatives. This is damaging to health and a significant contributor to forest degradation.

Natural gas should form part of a wider energy mix that embraces other low carbon energy sources. The role of the oil and gas industry in Africa can and should be broader than exploration and development of oil and gas resources. We are increasingly seeing agreements between Governments and IOCs to collaborate on investment in a multi-energy strategy that supports development of renewable projects alongside major oil and gas projects.

For example, as part of the recent Final Investment Decision for the Uganda-Tanzania crude oil pipeline, the Kingfisher and Tilenga oil projects in the Lake Albert region of Uganda and TotalEnergies signed a deal to explore opportunities to develop renewable energy projects. Initiatives such as this bring expertise as well as finance to the continent.

What should new independents consider while entering a changing African energy sector?

Africa has historically provided great opportunities for independents. Indeed, it has benefitted from their nimble and aggressive strategies and their ability to raise capital for higher risk, early entry projects. Companies such as Kosmos, Tullow, Ophir, Cove and Far (for example) have been at the forefront of major, play-opening discoveries in Senegal, Mauritania, Ghana, Mozambique and Tanzania, leading the way for majors in frontier opportunities.

The role of independents in the sector is changing, however. The new Africa focused independents are chasing production (ILEX, mature and marginal fields), but the billion-barrel, play-opening exploration opportunities remain in frontier, high risk areas.

Although there is no longer the space for standalone explorers to build greenfield exploration portfolios - there is neither the time nor the capital to support such strategies - independents can still play an important role in accelerating growth in countries with play-opening discoveries, by pushing out the play- to the riskier limits.

What pending deals do you believe should be completed and announced at African Energy Week in Cape Town

• News around the development of the Block 11b/12b gas discoveries and how this might fit into the South African plans for its strategic energy mix.
• The finalization of South Africa's Upstream Petroleum Development Bill.

Impact is a pure exploration company with a strategic focus on large scale, mid to deep water plays of sufficient size to be of interest to major companies. Impact currently invest in African Oil and Gas blocks including Namibia, South Africa and the AGC Profond block in Guinea Bissau and Senegal.

With production declines presenting newfound challenges for Africa, stakeholders are pushing for enhanced exploration to help mitigate this trend. Despite global calls to transition to renewable energy sources, Africa still needs its oil and gas reserves if it is to meet its development goals and make energy poverty history by 2030.

In an exclusive interview with the African Energy Chamber, Tim O'Hanlon, Senior Advisor for the Oslo-listed energy and power company, Panoro Energy, provides critical insight into Africa's changing energy sector.

What will this production underperformance in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the continent as a whole?

For the individual countries involved it is definitely a significant setback and a direct blow to their economies since they have probably been too slow at diversifying away from oil and gas and investing the windfall resource revenues of the last decades into more sustainable sectors like agriculture, industry and services. But for the majority of Africa's 54 countries with little or no production, I honestly don't see much impact, one way or the other. 

What do you feel are the primary reasons influencing production decline in Africa?

Oil production is falling across the Continent for a number of reasons but mainly due to lack of exploration for new reserves to maintain production profiles, a lack of investment in existing fields and civil strife. The last point is easiest to understand.

The required investment – which normally flows in from outside the Continent - quickly dries up when Governments are unable to provide a secure and safe working environment. Thereafter, frontier exploration spending is always discretionary for IOCs and is the first to be cut when oil prices collapse as they did in 2014.

Even today, with the oil price still below 2014 levels, IOCs are facing an overnight and extreme (I would say often hysterical) pressure, mainly from "sorted" Western society, to halt all future exploration, particularly for oil. For the same reason, even some mature producing African projects are being starved by their IOC operators of the capital required to maintain or improve production - normal good housekeeping if you like.

Tranches of mature producing assets are becoming available as the industry consolidates and as certain IOCs even recede from the Continent altogether. This exodus is sadly accelerated by certain African Governments being a bit slow to react to these market forces by easing fiscal terms as they should in response to the deteriorating investment climate for IOCs.

What can be done to turn this around?

All is not lost. Firstly, it is very encouraging to see some of the Majors – notably TotalEnergies and ENI – holding their nerve and sticking with the Mother Continent notwithstanding the background noise. While they are understandably shedding certain non-core mature producing African fields, they are also still drilling the occasional frontier wildcats and it is paying off.

ENI has just had a whopper of an oil discovery in Ivory Coast, TE a major gas discovery in SA and both continue to invest in the massive projects up the East African coast from Mozambique to Uganda to Egypt.

And good luck to them I say. Secondly, the existing crop of experienced Africa-focused E&P players (Perenco, Trident, Panoro, Tullow, Assala...) together with their African brothers (Seplat, Oando, XXXXX, YYYYY...) are being joined by an emerging group of impressive start-ups (Baobab Energy Africa, Boru Energy, Afentra and others) ready and able to replace any exiting Majors and inject new life into mature assets. With the right fiscal incentives, these NewCos will extend into exploration and add the desperately needed new barrels to the African pot.

What would you recommend as an industry approach to low carbon gas monetization and financing in Africa?

It would probably be futile to try craft an industry-wide approach here. Our African E&P industry is adept at dealing with challenges, whether from Mother Nature or the societies they serve. Ever pragmatic, commercially driven and science-based, both large and small IOCs are already quietly embracing the Energy Transition imposed upon them by Climate Change.

Gas is fast becoming the new oil for explorers and its monetization less of a headache than it was before. When we started Tullow back in 1986 our first project was, by chance, gas for power generation in Senegal. But this was the exception back then when a gas discovery could get a geologist fired being akin to a dry hole in the pursuit of oil.

It is all change now with many of Africa's then "stranded gas reserves" on production today serving domestic power needs or the international LNG market. Once nearly impossible to finance, gas developments are now much more bankable and even dedicated gas exploration is being given the green light by shareholders.

The morally bankrupt notion that tiny-carbon-footprint Africa should leave its enormous gas reserves undeveloped and "stay poor" while Europe remains plugged right in to existing African gas production has been given short shrift by Africans.

What should new independents consider while entering a changing African energy sector?

While on the one hand it seems like all change these days, on the other hand nothing much has changed for any independent entering the African energy sector. This is because presumably, as savvy actors, they will already know that change is just about the only constant in our game.

The new paradigms of "less oil please" or "more gas please" or "your project must be carbon-neutral" are just the latest set of problems to solve for what are at the end of the day professional problem solvers. They will already by technically top-drawer, risk-tolerant and alert to the sometimes extreme above and below-ground challenges but still excited by the immense rewards available in Africa for the tenacious.

And I don't just mean shareholder returns here but the type of satisfaction derived from being able to add sometimes billions of dollars to the economies of developing African nations by just doing you day job to the best of your abilities - just as we did at Tullow back in the day...

Is it time for Model Gas/LNG Production Sharing Agreement?

I am not aware of any gas projects lying idle and undeveloped across Africa due to the absence of standardized Gas PSAs or similar. Gas monetization has always been more complex than oil. Even small quantities of gas can be worth a fortune if you find some close to a hungry gas grid or near worthless if found in a remote area even in large quantities. On the other hand, oil fetches much the same price in Chad, Chile or China! But this additional complexity in financing gas development projects is an equal burden for both the host Government and the gas-finder IOC.

It is always just about finding the equitable balance of risk and reward for these actors who are well-used to thrashing out such agreements. If it is not happening it often simply means the host Government has an inflated opinion of the value of their gas project and the lazy capital has simply flowed elsewhere.

As Senegal’s first oil and gas projects are under-development and the first production is expected within two years, the African Energy Chamber conducted this week a working visit in Dakar to promote investment into the country and support local content development and capacity building.

Led by Executive Chairman NJ Ayuk, the African Energy Chamber’s delegation advocated for local content as a pillar of the industry’s sustainability efforts and offered all its support to continue pushing and financing Senegal’s initiatives to build capacity and build a new generation of Senegalese oil & gas workers and managers.

“Oil companies have an unmatched ability, and a profound responsibility, to support H.E. Macky Sall’s bold vision in shaping an economy that works for all Senegalese and preserves their freedoms,” said NJ Ayuk.

The team met with H.E. Macky Sall, President of the Republic of Senegal; H.E. Mouhamadou Makhtar Cissé, Minister of Petroleum and Energies, Ousmane Ndiaye, Permanent Secretary of COS-Petrogaz; Aguibou Ba, Director General of the National Institute for Petroleum and Gaz (INPG) and the majority of the oil and gas operators and service companies.   

“Moving closer and closer to becoming a large-scale producer of oil and gas, Senegal’s story is an inspiring one. And, as a hotspot for oil and gas development, it is only fitting that the nation cements market-driven local content frameworks that are rooted in capacity building and are driven by the determination to transform practices in its energy sector,” declaired Nj Ayuk.

“That is why initiatives such as the INPG are important in ensuring that industry revenue benefits the state while also guaranteeing employment for citizens. The INPG is a true social contract bringing the private and public sector together to plan for a prosperous future for Senegal,” he added.

The Chamber’s working visit coincided with that of US Secretary of State Mike Pompeo, during which state-owned SENELEC and GE signed an agreement for the development of 300MW of gas-to-power capacity, the modernization of Senegal’s power plants and the creation of a maintenance centre in Senegal.

In line with the US’ interests to increase cooperation with Africa, the Chamber reiterated the industry’s call for continued improvements in the ease of doing business and better operating environments for foreign investors.

“President Trump dispatching Secretary of State Pompeo and US companies to Senegal is a brilliant move. US companies understand that investing in Senegal is good business and a sustainable corporate strategy.

President Macky Sall’s government has built on positive trends to maximize foreign investments. This includes a commitment to transparency, improving safety and security, strengthening the macroeconomic environment, investing in quality education and skill development in science, technology and innovation, and avoiding the Dutch disease,” added Ayuk.

Last year, the African Energy Chamber and Centurion Law Group hosted a local content forum in Senegal, calling attention to local content development in the country. The ongoing visit serves as a follow up and a showcase of the Chamber’s continued commitment to the growth and development of African economies through ensuring that Africa’s natural resources benefit Africa’s people first.

“Senegal’s emergence as a key player in the oil and gas industry has been remarkable and, as this growth continues to surge, it is important that local communities have a seat at the table, It is also important that we continue to create an enabling environment investors and the oil sector. Cutting unnecessary red tape and fast-tracking project approvals will give the energy operators a boost,” said NJ Ayuk.

“This, however, is a goal that is achievable only through the collaboration of the private and public sector. Local content is value creation and it is pertinent that Senegal put in place policies and frameworks that will see its people benefit from its hydrocarbon industry,” he added.

Last month, Woodside Energy got the green light for its $4.2bn Sangomar oil project, Senegal’s first offshore oil venture where the first production is expected in 2023, with a capacity to reach 100,000 bopd. The Phase 1 development concept for the Sangomar field is a stand-alone FPSO facility with subsea infrastructure. 

Meanwhile, works are ongoing at the Greater Tortue Ahmeyim FLNG project, whose phase 1 will see the commissioning of a 2.5 mtpa facility by 2022. This month, Kosmos Energy, BP, Petrosen and SMHPM signed an agreement with BP Gas Marketing for the supply of 2.45 mtpa of LNG over 20 years.

The MSGBC Basin has become sub-Saharan Africa’s hottest exploration frontier. Senegal is currently holding a licensing round to further attract investment into its acreages and boost existing reserves. The round is expected to generate tremendous interest from foreign investors and further confirm Senegal as a new African energy leader.