Africa stands by fossil fuels push to underpin growth
Africa and its upstream operators show no signs of tempering their quest for oil and coal despite growing pressure over climate change and a wider industry shift towards more costly renewables and lower-carbon natural gas.
Licensing rounds for access to swathes of virgin exploration acreage across Africa were touted at a leading annual industry event in Cape Town last week.
As in years past, the message from regional governments was clear — developing their own natural is key to economic growth and leaving reliable fossil fuels in the ground is simply not an option.
“We have set a number of objectives and one is a security of supply. That is what we need for the economy to pump…that objective is not negotiable,” South Africa’s energy and mining minister, Gwede Mantashe, said on the sideline of Africa Oil Week.
“We want to supply energy at a cost-effective level because if it is too expensive I can tell you that it becomes a ‘nice to have’ but people do not access it.”
Improving access to and lowering the cost of energy is seen as a key plank in alleviating poverty in the world’s most energy-deficient continent. With nearly half of Africans still without a power supply and few domestic gas grids, clean, low carbon energy is seen as a luxury rather than a necessity.
According to the International Energy Agency, some 70% of Africans lack access to clean cooking. The resulting household pollution from burning traditional biomass is a major cause of premature deaths.
MIXED EXPLORATION APPETITE
Cameroon, Cote d’Ivoire, Gabon, Kenya, Liberia, Republic of Congo, Sierra Leone and Uganda were among the countries showcasing their latest drilling prospects at the Africa Oil Week event.
Even war-torn Somalia is banking on a new exploration drive to unlock new resources despite more than three decades of civil conflict. The East African country is offering 15 offshore exploration blocks which it believes could hold a combined 30 billion barrels of oil.
“We all share the common objective of facilitating the crucial investments that will power Africa’s economies, build communities and shape societies,? Somalia’s energy and mining minister, Abdirashid Ahmed, told the event.
But political and other ‘above-ground’ risks often mean not all African states are attracting as much interest as hoped.
Land-locked Uganda wants to replicate its decade-old, billion-barrel Lake Albert oil discovery. But the find still lies undeveloped due to a dispute over fiscal terms and last week Uganda was forced to extend a new licensing round due to a dearth of bids.
The Republic of Congo, OPEC’s newest member and third-largest producer in sub-Saharan African, received no bids this year for five blocks on offer in its onshore Cuvette Basin. It has 15 blocks on offer under an open-door policy.
MORE LIFE FOR COAL
In South Africa, even coal is seen as a key natural resource that needs to be exploited to keep the lights on and meet power demand growth in one of Africa’s largest and most developed economies.
The continent’s biggest coal producer, South Africa will still see coal account for three-quarters of Africa’s coal production in 2040, down from over 90% today, according to the IEA.
In Mozambique, coal output is seen tripling over the next two decades, however, offsetting some of the South African declines.
South Africa last month laid out its energy strategy for the next decade, in a plan which foresees coal still contributing almost 60% of the country’s energy, compared with 77% currently.
“We recognize that coal must disappear, which it will over time, but it won’t be soon,” Mantashe told the Africa Oil Week event.
Noting that South Africa operates on 16 coal-fired power plants and its sitting on “vast deposits” of coal, Mantashe said new power sector investments will be directed at more efficient coal technology rather than replacing coal plants.
SHIFT TO GAS
Spurred on by more than 120 Tcf of gas discovered off Mozambique and Tanzania in recent years and more recent finds off West Africa, oil majors have been bulking up on gas-focused offshore exploration acreage in Africa waters. The shift towards lower-carbon gas developments remains a clear trend.
ExxonMobil, Shell and Total have been the most active over the past year, picking up blocks off Mauritania, Mozambique, Namibia and South Africa. BP, Eni and Equinor have also expanded their African exploration footprint since early 2018 to a lesser extent.
But for explorers and independents unable to raise the high capital costs needed for large LNG export projects, finding more oil continues to drive drilling plans.
Africa-focused explorer Tullow Oil for one continues to target oil over gas despite the looming threat of future stranded assets as oil demand peaks and as climate fears escalate.
“Tullow believes, as an African-focused company, there is a unique window of opportunity that can ensure that African countries get to enjoy the use of their natural resources to continue to develop their economies,” CEO Paul McDade told the event.
The continent’s paucity of power and gas networks means independents like Tullow see drilling and developing ‘transition’ fuels like natural gas at scale commercially unattractive.
For the same reason, Africa’s dependence on oil looks tough to shake off unless trillions of dollars are sunk into power grids over the coming decades.
“The reality is, on the African continent, there is still a very big reliance on fossil fuels which we can’t necessarily get away from,” said Shirley Webber, the head of natural resources at African banking group Absa.