How global energy dynamics are shaping the outlook for African exploration
Despite having 15% of the world’s population, the continent of Africa still only consumes 3% of the world’s energy. Given that the primary purpose of energy is to promote a better quality of life and improve economic opportunities, there’s little doubt the energy sector has so far failed to meet the needs and aspirations of African citizens.
The story of the global energy market has been one of several years of increasing demand and a reduction in investment amidst a weakening global economy. It’s what many experts and consultants think may lead the market into a long-awaited supply crunch. This will require oil companies to either increase production or rely on dwindling reserves. As the FT notes, some companies would need to raise investment into new production by as much as 20% to avoid a supply crunch. A challenge that is further exasperated by the necessary transition many companies are keen to make towards a cleaner energy portfolio.
Meanwhile, a host of new finds continues to stimulate debate about Africa’s emergence in upstream development and its role in addressing an under-supplied market. The sheer scale of the discoveries in Kenya and Uganda had left Total, Tullow, and CNOOC considering investment in a multibillion-dollar pipeline on the east coast, while Kenya has just sold its first ever shipment of oil last month for $12 million, with full oil production expected to start in 2022, after a new oil pipeline is built next year.
Of course, investing in local infrastructure and creating an appealing fiscal and regulatory regime that align with the long-term interests of private companies are not overnight ventures. The ability to execute across the entire value chain requires good governance and will remain the biggest challenge to the development of Africa’s energy market.
Yet, hosts of new finds across Ghana, Senegal, and South Africa, huge Chinese investment into Niger and Chad, as well as the major energy producers Angola and Nigeria continue to eagerly present the continent’s case. It’s a case that is further strengthened by the abundant renewable energy that African countries have the potential to harness. An International Energy report has even suggested that by 2040 renewables could provide more than 40% of Africa’s power. Foreign investment into the continent and subsequent economic growth could provide a model that allows the region to remain a committed exporter to global markets, without neglecting the energy requirements of the region itself.
As the while, the new emission standards to be announced by International Maritime Organization in 2020 are likely to spark a demand for IMO-compliant products, curb the use of ships and disproportionately affect Middle Eastern crude oil which is high in sulphur. Comparatively, the high quality of Africa’s resources and its strategic location between all the major energy import markets of Europe, America, and Asia make it prime for production.
After 9 years of presence in Africa, we have already visited 48 of the 54 countries. In our personal experience from operating across the continent, we’ve found reliable and strong partners who have the knowledge, strategic vision, and appetite for the type of investment that can harness this growth. If a supply crunch does emerge and keeps prices high, it’s this rationale to invest in exploration that will reshape the outlook for Africa’s energy market.