Africa Oil Week 2017 featuring ministers from South Africa, Nigeria, Ghana, Mali, Côte d’Ivoire, Namibia, Equatorial Guinea and U.S. Secretary of Energy Rick Perry, along with independent oil companies including, Tullow Oil, ExxonMobil, Shell, Total, Eni Spa and Sasol.
Buhari’s audacity and the tragicomedy of ministerial officialdom
- Eight good years as quiescent though oligarchic petroleum minister;
- Was never in touch with reality and had no ideas what he wanted to do from the onset;
- Visibly known for motions but without tangible movement;
- With his fellow kinsmen, he held the Ministry of Petroleum Resources to himself, while his paid staff reeled out fictitious growth indices;
- Took the back and forth drama on petrol subsidy to its crescendo;
- Berated for his deliberate inefficiency;
- Why deregulating Nigeria’s downstream petroleum sector will remain an illusion;
- Why NNPC is Nigeria’s greatest problem;
- Hides under subsidy while perpetuating heinous financial blunders;
- Dangote’s 650, 000 bbl/d refinery not an end in itself, however a commendable milestone;
- Nigeria’s refineries must be up and running to check private operator monopoly;
- Other licensed operators must blaze the trail, resist intimidation, but build as little refinery as resources can allow;
Hear the Nigerian petroleum ministry directors led by Mohammadu Buhari as “Minister of Petroleum Resources” highlight the objectives, and of course, what the implications according to them were for “rebranding” an NNPC which had for decades been run as a private business enterprise than a national oil company by a few who have been holding the realms and instruments of political and economic governance in Nigeria since crude oil eventually became the only economic raison d’etre for the country’s existence.
Incorporated into the then Petroleum Industry Bill (PIB), in the relatively active national assembly formations of the previous political administrations in Nigeria, and with the passage into law hurriedly done, for reason of industry development expansion expediency perhaps, and or desperation for political relevance, by the Mohammadu Buhari-led and popularly known “transactional and rubberstamp” 9th Assembly, the new NNPC Limited the promoters argued, would aim at, “enhancing upstream production, expand gas processing and transportation services for domestic consumption and exports.
“We will also revamp and expand”, says the actors, “refining assets portfolio through greenfield projects with chemicals production integration and leverage equity partnerships.
“This will ensure (we) have sufficient capacity to meet local and international demand for premium energy products and services. “
Recall that Muhammadu Buhari had on July 19, 2022 unveiled the NNPC Ltd., in line, according to them, with the provisions of the Petroleum Industry Act (PIA) “to enable it run effectively and compete with its global peers and allow private investors own shares in the new company.”
“The NNPC Ltd. is now being structured to be run as a commercial venture. If run profitably, as it is expected to, it would declare dividends and profits to its shareholders, and hold annual general meetings
“For now, it could negotiate independent businesses and source for deals, and there will be more disclosures on how its operations are run. It will be independently run, and open its book more now to the public, like its peers – Brazil’s Petrobras, Saudi-Aramco and other publicly quoted national oil firms do.
“NNPC Ltd is part of the overarching objective of the Federal Government to commercialize and ultimately privatize its national oil company and achieve a private commercial venture which is self-sufficient and operates in accordance with commercial business principles …
“However, the template and the mode of transiting to a commercial entity will be communicated after meetings between the Ministry of Finance Incorporated and the Ministry of Petroleum Resources…” plus a lot more of those jingles of the typically homebred Nigerian politicians.
In the twilight of the oil boom which began with the country’s first crude oil export to Britain in February 1958, and her subsequent entry into the fray as a global player among a few pioneer members of the Organization of Petroleum Exporting Countries OPEC, founded in 1960 to “coordinate the petroleum policies of its members, as well as provide member states with technical and economic aid”, hopes were on the rising that a new era of national economic abundance, formidable political realignment, with a robust sociocultural cohesion was already a done deal. But it was not so, for everything that glitters is not usually gold afterall.
Over the years, Nigerians have sought, without success, explanations from the few who have been negotiating the revenue formula from the sale of Nigeria’s crude oil, the national and socioeconomic relevance of NNPC which came into existence as a national oil company of Nigeria in April 1977 and now as a limited liability company, “possessing necessary statutory backing to operate in different sectors of the global energy industry, pursue other commercially viable ventures, enhance liquid hydrocarbon production while creating new energy businesses to guarantee value to all its stakeholders.”
Nigeria has four major refineries, built at different times during the early days of the country’s oil and gas exploration and development. The old Port Harcourt Refinery for instance, built with an installed capacity to refine 60,000 bbl/d, was commissioned in 1965. In 1978, the Warri Refining and Petrochemical Company, with the capacity to refine 125,000 bbl/d was commissioned. Kaduna Refining and Petrochemical Company, with crude intake of about 110,000 bbl/d was commissioned in 1980. And the last – the New Port Harcourt Refinery, with an installed capacity of 150,000 bbl/d, was commissioned in 1989. The refineries put together has the total installed production capacity of 445,000 barrels of crude oil intake per day. But over time, Nigerians have demanded that politicians who controlled the realms of power provided acceptable explanations to why these refineries have remained unproductive despite huge sums of money politicians would always claim to have invested to enable rehabilitation periodically.
Mohammadu Buhari, Nigeria’s petroleum minister from 2015 until 2023, and recorded as the longest-serving petroleum ministry official in the history of Nigeria’s petroleum industry was, like many argued, an enigmatic character with enormous power to turn into any color at the slightest opportunity. He was appointed minister of petroleum in 1977 following the establishment of NNPC, and by virtue of this official ministerial appointment the first premier chairman of the state-run oil company – NNPC. He was reported to have superintended over the construction of oil storage depots and pipelines across the country, and had, according to news sources, delivered on his duties at the Port Harcourt refinery “profitably”, records which provided him with the opportunity “to take firm hold and control of the country’s oil assets.”
His emergence as president and minister of petroleum in 2015 many believed, provided him with yet better opportunities to address avalanche of problems bedeviling the Nigerian petroleum industry – issues around petrol subsidy – whether it has any human face truly, or a conduit pipe through which monies were siphoned by the Nigerian political class – as he was repeatedly captured to have called it a “scam” of the past regimes as well as the Goodluck Ebele Jonathan-led administration to perpetually stagnate the economy and impoverish the people. He was also quoted to have maintained his position, in the build-up to 2015 elections, by asking the Jonathan administration to “stop stealing from Nigerians and allow them to enjoy the relief that has come to consumers of petroleum products globally.” Also recall that in one of his responses during the fuel scarcity in the country in March 2015, Buhari insisted that Dr Goodluck Jonathan and his predecessors were so negligent to the plight of the people that they never deemed it imperative to fix the refineries thereby provide succor to the teeming Nigerians who were only dependent on fuel imports, reminding Nigerians that two of the four refineries in the country were built specifically under his watch as petroleum minister in the 1970s.
“The countless man hours that will be spent at petrol stations today, will reduce our productivity as a nation. This should not be so”, Buhari was quoted to have said. “In my time as NNPC chairman and Petroleum Minister in the late 70s, 2 of our 4 refineries were built, and domestic consumption catered for. But over the last several years our refineries have declined, and we are at the mercy of imports.”
He has been holding key positions in the petroleum ministry since the 70s to have acquired so much knowledge to understand how best to deal with petroleum industry related issues such as subsidy. So, as sustained as his argument was on approach of the election year of 2015, he was able to invoke some level of sympathy in the Nigerian people who really wanted an end, at all cost, to Dr Goodluck Ebele Jonathan’s era, then believed to be characterized by mediocrity, inefficiency and profligacy. And he actually got his way through, as his Pyrrhic victory over the incumbent would have, no doubt reinvoked a popular belief of the biblical “Daniel at the judgement seat” in the citizens. Meanwhile, and like it is also a popular saying to “trust the devil you know than the angel you do not”, the eight-year reign (2015-2023) of Mohammadu Buhari – his back and forth stance on petrol subsidy, with all the associated hikes in petrol pump price and related products, only reawakened a sense of conviction and regret in the same Nigerians that although Goodluck Jonathan was the devil perhaps every Nigerian knew, he was also and truly the angel Nigerians should probably have known they never knew.
More than forty-something years after, four major refineries with total refining capacity of 445, 000 bbl/d of crude have become shadows of themselves, as equipment decay, outright neglect and poor maintenance became the greatest challenge of what could have reduced or even put an end to fuel importation palaver while contributing significantly to the country’s socioeconomic growth.
On crude oil pipelines, it was rather tales of woes, lamentations, blame and horse trading, among those who superintended over the country’s oil and gas operations. This has been so over the years even as governments failed in their duty to identify the vandals who have made merchandise from the collective national and natural endowment, raising concerns of governments’ complicity. Even as one of Buhari’s key campaign promises prior to 2015 election, he was still unable to deliver even after eight whole years, as there was general belief that crude oil theft became more volatile under his regime, despite his views to the contrary.
Mohammadu Buhari’s change of promise from reviving the country’s moribund refineries and possibly set up new ones “to achieve self-sufficiency in access to refined products” than the continuous importation of petrol at prices usually determined by the international market forces was, like many argued, an affront on the sensibilities and collective psyche of the millions of Nigerians who pressed for his victory in 2015. It will go down in history that before taking office in 2015, he and his party, the APC repeatedly criticized past governments for failing to solve Nigeria’s perennial petroleum sector problems which incidentally became worse within his eight-year reign as president and minister.
It is also worrisome that over the years, Nigeria has failed to capitalize on oil price booms that have helped cushion other exporters from the impact of inflation, with millions more Nigerians currently facing poverty while the Nigerian politicians bask in the euphoria of financial recklessness, intellectual idleness and culpable governance inefficiency. The World Bank already estimates that inflationary pressures would tip 7 million more Nigerians into poverty in the year, to bring the total to 45% of the population of 200 million. This is both tragic and unbelievable. Tragic because of cursed leadership, and unbelievable because Nigeria is a country blessed with abundant human and natural resources which those in power have failed to put into maximum use for human capacity and infrastructure development and national economic integration.
Dr. Ibe Kachuku’s first suggestion upon assumption of office as the GMD of NNPC and later as Minister of State for Petroleum Resources of Nigeria under Buhari in 2015 centered on the need for the outright sale of the refineries to private individuals. Dr Kachuku is a renowned industry professional and technocrat. But for Buhari who doubled as the longest-serving oil minister, Kachuku’s proposal was dead on arrival because the idea of giving away refineries he had “sentimental attachments” for was, to him a conversation driven too far hence the move to always “repair, turnaround, or rehabilitate it.”
The Kachuku-led NNPC had begun the “popular 90-day” turnaround maintenance to see if they could get the refineries back on track since Buhari had declined his proposal to sell the refineries, with the deadline then set for December 2015, close sources said. Meanwhile, three months before the turnaround, the refineries lost about N172 billion, with many more billions lost in 2016, a closer source wrote.
“We supply crude and they [the refineries] start for one day and then they shut down again because the CD unit has packed up. So, it is one thing after another,” Dr Kachuku was quoted to have said in May 2016, and thereafter resolved again to privatize the refineries in 12 months, “and the rest were stories”, the writer said.
One thing Dr Kachuku did not fail to do which also represented one of his major achievements during his brief and turbulent period as GMD and later as Minister according to news sources was to ensure that any Nigerian who was interested in the privatization bid saw how well or how bad the refineries performed, and this was besides instituting the monthly financial reports which also showed how refineries fared.
Our source also wrote, (and this is quite significant), that from September 2019 to September 2020, the refineries, especially the Port Harcourt refinery, never produced any single litre of petrol, as the deplorable state of the refinery left it completely unproductive for the whole period. But this wasn’t the main worry, says this expert. The main worry he says was that “people would wake up in the morning, get into official vehicles and go to work at the refinery, produce nothing, and get paid hard cash at the end of the month”, adding that “as early as 2016, overhead was at N6. 94 billion a month.”
Recall that sometime last year, the Federal Executive Council, made up of 50 people or less with Mohammadu Buhari as their chairman sat and approved $1.5 billion (about N600 billion), an amount of money they have told Nigerians would be used for the revival of the Port Harcourt refinery, while simultaneously assuring that rehabilitation works on Kaduna and Warri refineries would also be carried out on or before May 2023. Buhari also pledged to boost foreign reserves by ending the importation of refined fuel. But this was a joke taken too far for many experts one of who said: “After running the refineries at a loss for the most part of the last six years, it has now become wise to spend $1.5 billion in fixing one of the refineries. Let me say this without mincing words: They simply want to set $1.5 billion on fire. It would even make sense to set money on fire if you have the money. In this case, Nigeria will borrow $1.5 billion and set it on fire…” and the rest were stories.
Maybe we do a little more of a retrospection. Buhari’s first move to remove subsidy on petrol was in December 2015 when his regime scrapped the Petroleum Support Fund. While public suspicion of a possible upward fuel pump price review grew stronger, Buhari and the then Minister of State for Petroleum Kachuku announced, assuring Nigerians that they have no intention to change petrol pump price from the N85 per litre they met it.
But that was not so, for government eventually changed its course much later arguing that “it was unsustainable to continue paying to make imported fuel cheap as fraudulent importers had seized on the arrangement to steal from the country.” Maybe it was so, maybe it was not, but that wasn’t the expectation of Nigerians who never thought that the regime would wake up as early as it did to announce fuel pump price increase of N145 per a litre, notwithstanding the hardship and frustration nationwide. And while defending the hike, the NNPC said it was inevitable as the landing cost on petrol went as high as about N171.40 per litre per monthly. But petroleum marketers were not ready to accept NNPC’s position, and blames and counter-blames ensued which also ended up pushing the pump price to N200 per litre in almost all the states but Abuja and Lagos.
At this point it has become evident that government was quietly continuing with subsidy and even earmarked about N305 billion for petrol subsidy in the 2019 budget proposal, that between 2006-2018, Nigeria spent $24.5 billion on petroleum subsidies, and about 3 trillion Naira ($7 billion) between 2019 and 2020, an amount which is also expected to increase this year and even next, if the right leadership is not instituted.
In a dramatic turn Buhari said, on the country’s 60th independence anniversary in 2020 as follows: “Nigeria cannot sustain its low pump prices of petrol amid shrinking revenue and poor foreign exchange earnings. It makes no sense for fuel to be cheaper in Nigeria than in Saudi Arabia.
“Chad, which is an oil-producing country, charges N362 per liter; Niger, also an oil-producing country, sells 1 liter at N346. In Ghana, another oil-producing country, the petroleum pump price is N326 per liter, Egypt charges N211 per liter and Saudi Arabia charges N168 per liter,” Buhari stated.
In November 2021, the government said yet again it would remove fuel subsidy by mid-2022 and replace it with a monthly N5000 transport grant to poor Nigerians as a measure to cushion the potential negative impact that would spring up, a step many interpreted as another attempt to end subsidy to pay subsidy.
It couldn’t have been argued that the deep-seated illegality and abuse of financial procedures which characterized the operations of the petroleum ministry with the Nigerian National Petroleum Corporation (NNPC) at the helm of affairs in the last few decades still bedeviled it in spite of the Buhari-led administration’s claim to transparency and integrity.
There were damning verdicts it would be recalled, by two prominent global financial institutions – the Hongkong and Shanghai Banking Corporation popularly known as HSBC, with the International Monetary Fund, IMF, which took the All Progressives Congress (APC) led administration to the scanners, citing hybrid corruption and brazen administrative insensitivity.
While the HSBC on the one hand noted that Buhari’s approval ratings sit near all-time lows and this largely reflects the impact of Nigeria’s painful recession in 2016-17 and the sustained economic hardship that has accompanied his presidency, including rapidly rising joblessness, poverty, insecurity and unchecked cases of corruption in his administration, with all raising the risk of limited economic progress and further fiscal deterioration, the International Monetary Fund on the other hand, equally gave Nigeria under Buhari, a very negative appraisal during the AGM of the IMF/World Bank in Bali, Indonesia, where Nigeria’s growth prospect was revised downwards in 2018 from 2.1 per cent to 1.9 per cent.
To make matters worse, as these two notable financial institutions were projecting into the future of Nigeria with these observations, Premium Times was simultaneously uncovering a monumental fraud within the seat of power, involving the fuel subsidy racket, which did not only reveal the subsidy regime as a huge financial scam, but has added to raising the credibility and integrity questions around the Muhammadu Buhari-led administration.
The documents which came right from the heart of the Presidency as published by Premium Times, made an open show of the unbridled impunity that characterized the Buhari-led administration, with all fingers always at NNPC as the cash cow and cesspool for hybrid fraud which even went out of proportion in a ministry Mohammadu Buhari held with so much jealousy and unparalleled vindictiveness.
Africa Needs Natural Gas to Meet 27th UN (COP27) Commitments
During the conference, representatives from wealthier nations made efforts to cast our continent as the recipient of undue climate change impacts deserving of financial compensation
The 27th United Nations Climate Change Conference, or the Conference of the Parties of the UNFCCC (COP27), held in Sharm El Sheikh, Egypt, in November 2022, featured a slight philosophical shift from where mindsets had been just the year before.
COP26 saw Africa under pressure to accept that its fossil fuel resources should remain underground. During the conference, representatives from wealthier nations made efforts to cast our continent as the recipient of undue climate change impacts deserving of financial compensation and the impetus to accelerate their own green agendas.
This year, the failure to deliver on those compensatory commitments, paired with Russia’s invasion of Ukraine, the subsequent effect on global energy prices, and a more unified voice of opposition from African leadership, managed to direct discussions toward another direction.
While some of the messaging shared at COP27 regarding Africa remained much the same as the previous year — that the focus should remain on moving away from reliance on coal and inefficient fossil fuel subsidies — the proposals supporting those sentiments showed a noticeable change. The conference more readily acknowledged both the economic benefits of leveraging African natural gas and the role that it could play in easing Africa’s eventual energy transition to renewables.
Commitments We Can Keep
It was also heartening to see African policymakers take the proactive step of committing to climate actions that are both feasible and have the potential to improve the lives of millions of Africans. As noted in our soon-to-be-released outlook report, “The State of African Energy Q1 2023,” two of COP27’s most significant developments were the launch of the Africa Carbon Markets Initiative (ACMI) and the Africa Just and Affordable Energy Transition Initiative (AJAETI).
With sponsorship from the Global Energy Alliance for People and Planet, Sustainable Energy for All, The Rockefeller Foundation, and the UN Economic Commission for Africa, ACMI aims to harness carbon markets and produce 300 million carbon credits (the equivalent of 300 million tonnes of CO2 reduction) per year by 2030 and 1.5 billion credits per year by 2050. In addition to providing support for over 110 million jobs in the same time frame, commitments to this initiative could generate more than USD120 billion in revenue, helping to expand energy access across the continent while protecting our biodiversity.
AJAETI focuses on transition, first to clean cooking and then eventually to green energy from renewable electricity generation. Aligned with the United Nations Sustainable Development Goal 7.1, AJAETI hopes to see 300 million Africans gain access to affordable energy and transition to clean cooking fuels and technologies within the next four years. Furthermore, the initiative also hopes to see a 25% increase in electricity from renewables by 2027 with a long-term goal of developing a fully renewables-based power sector by 2063.
Though one might not make the connection initially, the measures that the African Energy Chamber (AEC) endorses, including dramatically increasing Africa’s use of its natural gas resources, would actually support and even accelerate progress toward the longer-term goal of eventually transitioning away from fossil fuels. As examined in our Q1 2023 Outlook Report, estimates for African upstream emissions are expected to reach 795 million tonnes of CO2 equivalent between now and the end of the decade. These emissions would rank Africa in fifth place behind North America, the Middle East, Asia, and Russia and account for only 9.5% of global upstream emissions. However, half of these extraction-related emissions would result from gas flaring — the act of burning natural gas as a byproduct of oil extraction in place of preservation and distribution. If left unchecked, African gas flaring will account for nearly 20% of global flaring-related emissions. By simply capturing resources that are currently going to waste, Africa can contribute to a sizeable reduction in atmospheric CO2 levels.
Realizing Our Potential
In hard numbers, current estimates for African holdings include 74.365 billion barrels (Bbbls) of recoverable liquids and 82.875 billion barrels of oil equivalent (Bboe) of recoverable natural gas resources. At present, only half of these liquids and just a third of the natural gas resources connect to producing facilities. With the production rates of these tapped resources in terminal decline, Africa must secure the necessary investments to ramp up infrastructure development if we are to achieve any outcome greater than mere stabilization.
Getting back to hard numbers, the realistic dollar values at play here are an initial USD65 billion invested in greenfield projects over the next two years, followed by further investments totaling USD225 billion by 2030. To fully achieve the goals we have set for Africa, continued investment over the subsequent decade would bring this figure up to USD485 billion. However, current commercial forecasts project that investments between 2031-2040 will amount to only USD55 billion. As stated in our Q1 2023 Outlook Report, this disparity could represent “a potential deathblow to Africa’s oil and gas aspirations” and severely impact the future of numerous fossil-fuel export-dependent economies across the continent. Considering that Africa expects to still rely on coal for 9% of its power mix even beyond 2040, this diminished investment rate would also cripple the hope of expanding access to electricity and reversing African energy poverty by using natural gas as a transition fuel.
A Clear Path Forward
As more developed nations transition away from fossil fuels, the international oil and gas industry must recognize Africa’s potential as a future global energy supplier. While it is reassuring to witness what might be the early stages of a sea change in environmental policy, as evidenced by the sentiment at COP27, the AEC will continue to advocate passionately for energy development in Africa. Though Western powers and even some climate activists have finally acknowledged that oil and gas will continue to play a necessary role well into the future, we have much more work to do. For Africa to realize its goal of offering universal access to electricity and clean cooking, the industrialized world must also recognize Africa as the next energy frontier.
African resources offer a two-way path toward a greener and more prosperous future. Through international partnerships and infrastructure development, investment in Africa will support the remaining fossil-fuel needs of the rest of the world while providing for its own, and an infusion of capital to our continent will diversify our economy, produce millions of new jobs, and, in turn, provide the funding for our own eventual transition to a renewables-based energy network.
NJ Ayuk, EC, African Energy Chamber
Addressing Delays in the Name of Progress: The State of Play of African Oil and Gas (By Gawie Kanjemba)
At a time when African oil and gas holds the key to a secure energy future, the trend of project delays needs to be addressed
By Gawie Kanjemba, International Energy Fellow, African Energy Chamber
Historically, oil and gas projects are known to experience delays ranging from 5% to 20% of the project duration owing to project complexity, significant capital requirements and the multi-faceted nature of developments. In 2023, oil and gas projects across Africa are experiencing even further delays, a trend which is detailed in the African Energy Chamber’s (AEC) recent market-focused report, The State of African Energy Q1, 2023 Outlook. The report paints a telling picture of the challenges facing the industry and the impacts these delays could have.
Procrastination: The Foe of Progress
According to the report, delays from discovery to final investment decision (FID) to development kick-off have increased, leading to revenue losses due to deferred production, increased costs for contractors, and essentially lack of progress. This trend mimics Parkinson’s Law of Delay, an observation that work will expand to fill the time allocated to it. In this scenario, procrastination is the ultimate foe of progress and productivity, and unless delays are addressed, Africa will not be able to unlock the full potential of its oil and gas.
Despite their significance, a number of large-scale projects are experiencing a lull. These include the Mozambique liquefied natural gas project which has experienced multiple delays due to security concerns. Developed by TotalEnergies, the project was originally scheduled to start production in 2024 (FID was secured in 2019) but the start-up is now delayed to the late-2020s due to the declaration of force majeure by TotalEnergies. Additionally, the East African Crude Oil Pipeline – which will transport crude oil from Uganda to Tanzania for export – has been delayed due to financing challenges and environmental opposition. The project, which is being developed by TotalEnergies and other partners, was initially expected to start operating in 2020 but is now expected to come online in 2025. In Nigeria, several offshore oil projects have experienced delays due to security concerns, regulatory issues, and technical challenges. For example, the TotalEnergies-developed Egina oil field, saw a 12-month halt due to issues related to local content requirements and delays in the delivery of key components. Meanwhile, sizeable natural gas volumes discovered in Ethiopia in the 1970–1980s are yet to see FID, with project delays extending decades.
However, there are several successful stories such as the Jubilee field off the coast of Ghana, which has been in production since 2010 and has had a significant positive impact on the country’s economy. Another example is Egypt’s Zohr gas field, which has been in production since 2017, and Angola’s Kaombo, which has been producing since 2018. These countries have experienced relatively few delays in their projects and are now enjoying the benefits of their successful development. Unless other O&G projects are developed with the same urgency, Africa’s production forecast will see a downturn.
Start-ups Critical for Long-Term Output
According to the AEC’s report, the currently producing fields, both liquids and gas, are in terminal decline due to depleting reservoirs. Infill drilling or redevelopment programs on these fields, which involve brownfield spending, may only temporarily stabilize the decline in production. Liquids output from these fields is expected to decline from 7.66 MMbbls/d in 2023 to 6.85 MMbbls/d in 2025 and 4.7 MMbbls/d in 2030. The average annual production decline rate is 8% through 2025-2030 and a higher 10% through 2031-2040. Any further delays or shelving of future start-ups can be catastrophic to Africa’s hydrocarbon output. Although short-term (2023-2025) start-ups are expected to have little impact on the forecast, the medium-term (2026-2030) and long-term (2030+) start-ups are expected to drive a revival in Africa’s liquids output. The good news is that the overall impact of delayed start-ups is short-lived, and the total liquids output from Africa is expected to ramp up to about 8.4 MMbbls/d in 2036.
Similarly, regarding gas production, the decline in producing fields, though terminal, is not as steep as liquids-producing fields. The short-term start-ups are estimated to account for 10% of the total output by 2025, but the share from the currently producing fields is expected to drop to 50% by 2031 and further to about a quarter of the total output by 2040. The long-term start-ups are estimated to add up to a third of the total output by 2035 and half of the total output by 2037-2038, and this share is only expected to increase going forward.
Capital Flows to Africa’s Deepwaters
Governments are already considering project delays and the issues caused, both economically for the countries dependent on hydrocarbon exports and domestically for countries looking to diversify the energy sector. Efforts have been made to address these issues, such as Nigeria passing the Petroleum Industry Act resulting in new production-sharing contracts signed with supermajors. As such, investment is seeing a gradual surge, and Africa’s deepwater prospects are gaining attention.
Due to the fact that most of the untapped O&G are currently located in deep waters off the coast of Africa, the majority of future investment is expected to be directed towards the deep offshore. By 2025, it is projected that 45% of the estimated $24 billion greenfield spending will be in deepwater projects, and by 2030, it is estimated to increase to over 50%. This trend is expected to continue, with over 55% of the estimated $64.5 billion total spending in 2035 projected to be spent on deepwater projects. Of the estimated $775 billion total greenfield spending between 2023 and 2040, approximately 48% is expected to be spent on deepwater projects.
Some notable deepwater projects in Africa include the Greater Tortue Ahmeyim (GTA), Yakaar–Teranga, Bir Allah, and Orca projects offshore Senegal-Mauritania as well as the Pecan project offshore Ghana; the Brulpadda and Luiperd gas fields offshore South Africa; and the recently discovered Graff, Venus and Jonker finds offshore Namibia. These deepwater projects are significant in terms of reserves and cost, making them major drivers of O&G spending. Given the importance of these projects for Africa’s production forecast, both governments and operators must prioritize securing funding for their development.
The AEC’s State of African Energy Q1, 2023 Outlook provides a comprehensive overview of the state of play of Africa’s O&G projects, highlighting the urgent need to advance collaboration, investment and development. Time is of the essence, and missing this opportunity could result in a significant development gap between Africa and the rest of the world. However, with accelerated projects, it is still possible for Africa to utilize its resources while adhering to global climate targets. In this context, AEC Executive Chairman NJ Ayuk’s slogan, “Drill baby Drill!” holds a palatable meaning. Let us work together to prevent project delays and drive environmentally-sound developments so that Africa benefits from its O&G resources.
Deregulation is an anomaly in a corrupt system like Nigeria – Don
- Corruption is inimical to petroleum products pricing policy;
- Regulation of supply and distribution of products impaired;
- It also impedes surveillance on key elements for effective delivery;
- Information/data base is compromised, in case there’s any;
- TAM of refineries becomes mere political rhetoric;
- Quick-rich syndrome is the sector’s greatest undoing;
- Legal and regulatory institutions are either non-existent or emasculated;
- Right, responsible and responsive leadership is the starting point for downstream sector deregulation
“Inasmuch as petrol subsidy in Nigeria is a conduit pipe through which “politicians” and those in authority siphon public money, deregulation of the downstream petroleum sector will remain an illusion”, says a Don at an American-based Political School of Thought, on the sidelines of industry convocation in Accra the capital of Ghana recently.
He said: “Until the principles and conditions upon which it should rest are properly or adequately addressed, the clamour and clarion calls for a deregulated downstream petroleum sector of Nigeria will only and continually be a dream which will never take any human face.
“For corruption in Nigeria has become so hybrid and endemic, and now has the propensity to keep every door for any reforms perpetually under lock and key. This is apparently so that not until the right things are done and reforms of the system are carried out, deregulation will be nothing far from the theoretical jargon as it is in the country at the moment. Without thorough and holistic reform of all the enabling institutions, it would be share waste of time and energy for section of the participants to continue to deliberate on a matter that lacks institutional and structural support, it’s laughable if you ask me, but it is so. I hold this view very strongly and with every sense of audacity”, he said.
While lamenting the trillions in naira of public money that had gone into private pockets as subsidy payment especially in the last eight years, the expert said that setting up an agenda for proper conduct of elections in the country must be foremost as recycling of old and the same kind of politicians were only detrimental to change and effective governance, as well as impinging on the critical elements that speed up socioeconomic growth and political stability.
“Deregulation requires a lot to work effectively. While participants will always seek to make gains, it must be seen to be done within the ambit of the laid down rules and regulations, to ensure that their activities do not infringe on the rights or privileges of the citizens and customers.
He said rehabilitation of the country’s existing refineries, and the construction of new ones would only receive proper boast when proactive leadership and the right regulatory institutions are put in place. Adding that years of monopoly by NNPC, as well as executive interference in the affairs of the apex oil firm only created huge gaps, in terms of operation and effective service delivery in the sector.
While tagging subsidy as one major arch-enemy of deregulation of the Nigerian downstream petroleum sector consequent upon vague, crude and shrouded pattern of its administration by successive regimes in Nigeria, the Major Oil Marketers Association of Nigeria MOMAN, said that lack of transparency, competence, strong institutional and policy structures, as well as proper stakeholder awareness of the modalities for engagement, were major cogs at the wheels of achieving sustainable and enviable progress in the Nigerian downstream petroleum sector.
Other impediments they have highlighted to include, lack of accountability by leaders, absence of a strong market regulator, abysmal failure of the existing refineries to work and unavailability of new ones, inadequate storage facilities, decrepit pipeline infrastructure and investment deficits, drainage channels quagmire, weak and haphazard haulage system, exacerbated by the deplorable road conditions, cost of purchasing and maintaining haulage trucks and above all, subsidy and government’s apprehensions over and against unrestricted market environment.
While assuring Nigerians of sufficient petroleum products offshore to deal with the recurring decimal of products shortfalls in the country, the group however said the situation still couldn’t have made any much difference even with the products onshore, as long as regimes continue to hide under subsidy to perpetuate heinous financial crimes.
The Union said Nigeria must, as a matter of urgency, start the process of price deregulation to reduce or even eliminate subsidy which, apart from its unprofitability, is also shrouded in secrecy and ambiguity. Adding that the country can still carry out a subsidy regime, but it should be meaningful within specific areas targeted at sectors development like agriculture and transportation, thereby reduce food price inflation and generate more jobs for Nigerians.
It said that its ultimate priority was to find ways of liberalizing products supply through transparency and competition which will also guarantee a steadier, more efficient supply at optimum prices. It also noted that imported products must compete with locally refined products to find a meeting point between the need for local refining and competitively low but cost recovered prices for Nigerians toward sustainability.
It maintained that dialogue with the Nigerian people was imperative, as identification, negotiation and agreement were the basic sine qua non for immediate implementation of programmes, geared to save the downstream industry. It said government’s deliberate inefficiency, resulting from revenue freefall, has speeded the degradation and lack of investment to maintain, renew and grow assets and facilities such as refineries, pipelines, depots, trucks, and modern filling stations. Adding that this lack of investments contributes in no small measure to fuel distribution inefficiencies and high costs. Stressing that neither the new, nor the refurbished refineries, would survive with the refining margins at current pump prices. It said exploration, production as well as refining of crude oil and the distribution of refined products, was an international business with ebbs and flows and guided by specific models, guidelines, rules, and norms designed to protect and sustain consumers within the energy supply chain.
MOMAN stakeholders who said they would not rest on their oars until full deregulation of Nigeria’s downstream petroleum sector was achieved, were speaking during a virtual media interaction.
DR Congo Albertine Graben Oil to sail via East African Crude Oil Pipeline
- It reaffirms the inevitability of EACOP as critical oil transportation channel
Ministries from Uganda and the DRC are close to reaching an agreement whereby oil produced at the DRC’s Albertine Graben blocks will be transported via the East African Crude Oil Pipeline. This was according to an email to Energy Window International, a print and online medium based in Nigeria.
The respective ministries were said to have already taken visible steps aimed at establishing a formal agreement which would see oil produced at exploration blocks in the DRC’s Albertine Graben transported via the East African Crude Oil Pipeline (EACOP) – a 1,443km-long heated pipeline connecting Uganda’s Kingfisher and Tilenga oilfields with international markets via the Tanga Port in Tanzania. One of the email contents had shown that a bilateral meeting took place in Kampala a couple of days ago between Uganda’s Minister of Energy and Mineral Development Dr. Ruth Nankabirwa Ssentamu and the DRC’s Minister of Hydrocarbons, Didier Budimbu Ntubuanga, the main discussion which centered on the strengthening of regional relations and advancing access to regional infrastructures. The meeting also laid the foundation for a formal memorandum of understanding (MoU) to be signed between the countries – following the preparation of reports by technical teams of both countries – kickstarting a new era of energy security and regional trade on the back of the EACOP.
The African Energy Chamber NJ Ayuk who was at the meeting said: “The bilateral meeting held between the energy and petroleum ministries of Uganda and the DRC represents a crucial step towards lifting East Africa out of energy poverty. At the Chamber, we commend the efforts taken by the countries towards maximizing the EACOP. The pipeline offers critical opportunities, not just for Uganda and Tanzania, but for the East African region as a whole.”
The bilateral meeting and the upcoming MoU which according to the stakeholders were testimonials to the role the route would play in the region in the future have been pursued consistently and successfully notwithstanding interference by international environmental groups in the ongoing construction of the EACOP.
Representing a future major oil producer, the pipeline will enable Uganda export oil from oilfields located in the Albertine Rift Basin, located on the country’s western border, shared with the DRC, while with an MoU, the pipeline will also enable the DRC to export oil. The Albertine Graben – also known as the Lake Albert Basin – lies on the western border of Uganda and the eastern border of the DRC, adding that much of the rift area remains underexplored despite its significant potential.
Meanwhile, it had earlier on been reported that the DRC opened up about 30 oil and gas blocks for exploration in 2022, new discoveries whose successes are expected to also open up horizons as players move to replicate the same successes even as they have been seen across the border in Uganda.
It’s believed that EACOP will offer a solution to getting high-demand crude to the international markets, with enormous financial benefits which would be created from export activities, the pipeline and associated upstream buzz is also expected to open up opportunities for job creation, infrastructure development, market access and other crucial economic prospects. It will also enable East African consumers to tap into regional energy supplies, thereby tackling security across the energy-poor region, email contents had shown.
With construction currently ongoing, the EACOP is billed to commence production in 2025, with both the governments of Uganda and Tanzania expressing confident to secure the needed funding, even as international lenders are reported to have pulled out of the development, consequent upon pressure from environmental activities. It is hoped that China would step in as the primary financier, leveraging the country’s already strong presence in both the region and the pipeline’s development to see the EACOP’s completion.
Gabon establishes funds for Local Content promotion
|Geared towards reinventing its energy industry, Gabon, Central African oil and gas producer says it will incorporate its local content priorities within its transformation by establishing state funds to provide financial support and skills development for local companies, as well as giving preference to indigenous firms to service and operate marginal assets.
In a statement issued by the authorities, the government also said that preference for contract awards to any of the registered indigenous companies would however be on the basis that the company has at least 60% local ownership, with about 80% constituting its local workforce. “Such companies are preferred by the government in awarding rights for the exploitation of marginal fields.”
Fulfilling the above conditions means that such companies would be given lower corporate tax rate considerations, and are also provided concessionary conditions for the import of equipment and machinery. One instance of this according to the statement was Stream Oil Owali which is a 100% Gabonese-owned company that had been divested by TotalEnergies and Perenco but currently operates marginal on- and offshore assets in Port Gentil.
This has according to the statement, yielded a twin benefit for the domestic industry. First, and according to the release, international oil majors who wish to operate marginal oil fields in Gabon must engage domestic firms, thereby generating employment opportunities and service contracts for Gabonese workers and firms. It encourages as well local companies to adopt the latest technologies required to reverse declines in production in mature oil fields while helping them acquire the technical and digital skills needed to move up the oil and gas value chain.
Other innovative local content initiatives by the government include the creation of a fund to finance local companies in the hydrocarbons industry. The fund is aimed at providing financial support to local companies to engender effective competition between the indigenous companies and the IOCs for industry contracts, even as the government is said to be currently working on developing a database to monitor the progress of local companies in the industry.
Demographics according to the statement are a major factor driving the country’s local content policies as the country boasts a fast-growing population, with more than 50% of its citizens below 16 years of age. While noting that the Gabonese economy scores higher than its regional peers in female workforce participation, unemployment rate however among women is still twice as high as among men, even as lack of technical expertise among youths continue to widen despite its sizable population. So far two-thirds of all vacancies for Gabonese workers remain unfilled even as the public sector is said to have already employed more than half of the country’s workforce since inception.
“But plans are afoot to address these issues, with the oil and gas industry at the heart of the solution.”
The authorities, as the email to Energy Window International suggested, have started implementing affirmative action policies to increase the participation of women and youth in the industry. This would include the granting of scholarships to female students to study engineering and other STEM-related fields. It is also developing and subsidizing vocational training programs to equip job-market entrants with the necessary skills to work in the industry. Incentives are also being offered to companies working in logistics and infrastructure to help develop skills in ancillary services, a combination of efforts which are expected to dramatically improve the country’s importance as a regional logistics hub and trade conduit
|The oil sector has long been Gabon’s economic mainstay, generating the majority of its exports, taxes and national income since production peaked in the 1990s.|
Sub-Saharan Oil Producers are Building Momentum
|In the AEC’s newly released outlook report, “The State of African Energy Q1 2023,” much of the remaining oil this year will come from sub-Saharan countries like Gabon, Chad, Congo, Ghana, and Equatorial Guinea|
|By NJ Ayuk, EC, African Energy Chamber
Sub-Saharan countries are playing an increasingly prominent role in African oil production this year.
OPEC members Nigeria and Angola remain among the continent’s top producers. In fact, they, along with Libya, Algeria, and Egypt, will account for 80% of African oil output in 2023.
But, as noted in the African Energy Chamber’s (AEC’s) newly released outlook report, “The State of African Energy Q1 2023,” much of the remaining oil this year will come from sub-Saharan countries like Gabon, Chad, Congo, Ghana, and Equatorial Guinea. Let’s examine recent oil industry developments in each of these countries in greater detail.
Since the 1950s, oil exports from Gabon have accounted for a majority of the nation’s GDP. After seeing a peak in 1996, a price crash in 2014, and a natural decline in production that collided with the widespread havoc that COVID-19 wreaked on the global oil sector, recent developments in the Gabonese oil market could potentially bring about the return of more prosperous times for the country’s oil producers.
The unexpected oil market disruptions induced by Russia’s invasion of Ukraine and other economic shifts have inadvertently created new opportunities for Gabon, and a series of regulatory changes have revitalized foreign interest in the country’s fossil fuel resources.
President Ali Bongo Ondimba’s administration aligns with the AEC’s position that Africa can simultaneously work to lessen the effects of climate change and transition to renewable energy sources while promoting economic growth through continued oil and gas development.
Gabon’s efforts to protect its rainforests from deforestation and degradation were recognized when Gabon became the first African nation to receive payment from the UN’s Central African Forest Initiative (CAFI). At the same time, Gabon sought to maintain its rank as the fifth largest sub-Saharan oil producer by opening new licensing rounds for shallow and deepwater drilling and reorganizing the Gabon Special Economic Zone (GSEZ), easing customs compliance and offering tax advantages to foreign investors. A new hydrocarbons code also offers international oil companies better returns on exploration and production (E&P) investments made in Gabon.
Although Gabon’s oil production failed to achieve its target rate of 220,000 barrels per day (bpd) by 2023, it did reach 200,000 bpd in April, a marked improvement over the 180,000 bpd rate noted in 2020.
While much of the work underway to raise this production rate comes in the form of mature or marginal oil field redevelopment led by Perenco and BW Energy, the region saw a total of 18 new appraisal and exploratory wells drilled between 2022 and 2023.
If the Gabonese government continues its push to attract foreign investment and further offshore deepwater exploration, the country will remain on a promising path toward game-changing discovery and profitable development.
With 2022 oil production averaging 69,000 bpd into May, Chad saw an increase to an average of 92,000 bpd for the second half of that year, accompanied by PetroChad Mangara’s (PCM) export of its first barrel of oil to the Chad-Cameroon pipeline in July.
These developments came after Perenco’s acquisition of PCM and with support from the Société des Hydrocarbures du Tchad (SHT) and Chad’s newly appointed Minister of Petroleum and Energy, H.E. Djerassem le Bemadjiel.
Under the new minister’s guidance, considering his background as a trained geologist, his experience working for the oilfield services company Schlumberger Limited, the Djarmaya refinery, and as an adviser on oil inspection for President Idriss Deby, Chad’s oil and gas sector stands ready to grow into a prosperous future in support of the national economy.
Landlocked Chad holds approximately 1.5 billion barrels of crude oil reserves and relies on pipelines for export. Chad recently signed on to a project to erect a network of three multinational pipeline systems linking 11 different countries to multiple refineries, storage depots, liquefied natural gas terminals, and gas-fired power plants. The project has an expected completion date in 2030 and should prove to reduce Chad’s dependence on imports of refined petroleum products.
Going forward, the AEC recommends that Chad continues to seek foreign investment and public-private partnerships to develop its sizeable hydrocarbon and renewable resources with an aim toward reducing energy poverty and fostering economic growth.
As sub-Saharan Africa’s third largest oil producer holding 2.9 billion barrels of proven reserves engaged in an offshore extraction rate of 336,000 bpd, The Republic of the Congo, or Congo Brazzaville, is always looking to scale up its output.
After improving the fiscal terms for operators and opening a total of 28 blocks in licensing rounds between 2015 and 2019, Congo has attracted numerous global energy majors, including TotalEnergies, Perenco, Chevron, Eni, and Lukoil.
As of April 2023, the Congo is nearing closure on a new production-sharing deal with Chevron and Angola’s Sonangol EP concerning an offshore oil block shared by both countries.
Ghana has become one of the most attractive prospects in the sub-Saharan region, having taken a highly engaged approach to securing financial backing for its numerous energy project proposals.
The Petroleum Commission of Ghana intends to increase E&P within the country’s borders as it considers allocating new offshore blocks and conducts a review of operator fiscal terms to ensure they encourage the development of new global partnerships. By potentially offering a sliding taxation scale, on which ultra-deep wells would see the lowest tax rate, Ghana stands to position itself as a lucrative prospect for international oil companies looking to invest.
In addition to introducing plans for a $150 million logistics hub in Ghana, the Ghana National Petroleum Corporation (GNPC) also intends to begin drilling operations in the Voltaian Onshore Basin by early 2024.
Furthermore, AFC Equity Investment’s recent takeover of Aker Energy’s stake in the Deepwater Tano Cape Three Points (DWT/CTP) Block off Ghana’s coast marks the start of redevelopment efforts for the ultra-deepwater Pecan oil field and its estimated reserves of 450 million barrels of oil equivalent (MMboe) to 550 MMboe, which have been on hold since the COVID-19 outbreak in 2020.
Ghana will showcase these various proposals at African Energy Week (AEW) 2023 in Cape Town from October 16-20, 2023, taking advantage of the industry’s premiere conference for networking and investment opportunities.
In February 2023, the Ministry of Mines and Hydrocarbons of Equatorial Guinea signed three production-sharing contracts with Panoro Energy and the Africa Oil Corporation, starting a new chapter of exploration and production for the West African nation.
Block EG-01 went to Panoro Energy, fortifying its partnerships with six other oil and gas wells in the neighboring Ceiba Field and Okume Complex. The block borders Block G, which holds more than one billion barrels of oil reserves.
The Africa Oil Corporation secured an 80% share in blocks EG-18 and EG-31, with GEPetrol holding the remaining 20% interest.
The following month, the Ministry of Mines and Hydrocarbons also approved a Plan of Development (POD) for the Venus discovery in Block P off Equatorial Guinea’s coast. Along with partners VAALCO and GEPetrol, Atlas Petroleum International Limited will begin drilling the first of two wells on the site in 2024, with an expectation of first oil in 2026. Upon completion of the $310 million project, the developers anticipate that the Venus discovery will produce roughly 15,000 gross b/d of oil over a 25-year production lifespan.
These production-sharing contracts reflect Equatorial Guinea’s positive movement toward advancing the country’s oil and gas industry and adding a welcome boost to its economy.
While the whole of Africa deserves to benefit from its oil reserves to a much greater degree, progress is underway. Massive foreign investment and substantial infrastructure developments are necessary to realize Africa’s full potential in the global oil economy. At the same time, we must recognize the contributions of these smaller, sub-Saharan producers who are doing their part to keep pace with the effort to achieve that greater goal.
Latin America to face natural gas deficit as new source remains uncertain – Woods
- Net imports to potentially double by 2035, ranging between 7-to-12 bcfd
With several challenges facing new gas developments in Latin America, supply will be unable to keep up with demand, driving the need for expanded imports to the region over the next decade, according to a new report released by Wood Mackenzie and made available to Energy Window International news desk.
Wood Mackenzie in its prediction said that natural gas demand in the region would increase in an average of 1.4% per year over the next decade, stabilizing around 25 billion cubic feet per day (bcfd), with gas supply expected to decline at a rate of 5.6% in that timeframe. The countries include, Argentina, Bolivia, Brazil, Colombia, Mexico, Peru, Trinidad and Tobago, Guyana and Venezuela.
“We forecast that supply will be unable to close the gap with increased demand,” said Adrian Lara, principal research analyst, Latin America upstream oil and gas for Wood Mackenzie. “This could potentially be mitigated with new gas developments or yet-to-find resources, but there are significant challenges with infrastructure restrictions and unfavourable exploration incentives. The likely result will be a steady increase of imports in the region.”
Imports according to the report could range between 7 to 12 bcfd by 2035 to meet demand. Adding that in 2022, net imports were 4.9 bcfd with Wood’s 2023 forecast which projects 5.2 bcfd. Noting that countries in the mid-continent would be most challenged with gas integration, while countries like Argentina, with its strong reserves, may find opportunities to supply neighbouring countries.
“Colombia’s gas production needs to offset declines of at least 300 million cubic feet per day by 2030 or else it will require a higher level of gas imports. Venezuela has a significant amount of undeveloped gas resources in the Mariscal Sucre offshore assets, estimated at 13.6 trillion cubic feet (tcf), and some of which could be jointly developed with Trinidad and Tobago. Peru also has discovered undeveloped resources in the Camisea region accounting for approximately 3.7 tcf. The question remains which of these resources can become more attractive to operators, and whether the infrastructure and market restrictions can be overcome in a timely manner”, Lara said.
Adding Lara said: “As many countries shift away from oil and coal in favour of gas to support the energy transition, demand will continue to grow in the next decade. And “for Latin America countries, the challenge will be meeting this demand while their own production declines.”
Low Carbon: Oil, mining companies must adapt new strategies – Woods
As companies in the energy and natural resource sector struggle to find the balance between satisfying shareholder returns and meeting stakeholder low-carbon demands, new strategies are emerging that could serve as catalysts to drive capital allocation decisions toward growth as well as close valuation gaps, says the research team at Wood Mackenzie.
While noting that in the last year, energy security exceeded sustainability, Tom Ellacott, senior vice president, corporate research also believes that companies equally are gaining from the commodity prices and margins while delivering the needed record cash flow.
“In the last year, energy security has trumped sustainability, and companies too have benefitted from the recent commodity prices and margins to deliver record cash flows”, Ellacott said.
However, and like James Whiteside, head of corporate metals and mining said, firms may also face the capital allocation dilemma of high hydrocarbon returns vis-a-vis lower risk, lower-return transition-enabling projects for years while also urging that they develop robust strategies to overcome the regulatory hurdles of the ongoing energy transition now at the doorsteps of countries and companies.
“The evolution of policy is a big unknown. Companies may face the capital allocation dilemma of high hydrocarbon returns versus lower-risk, lower-return transition-enabling projects for decades yet”, James said.
He added: “Rather than chasing carrots or ducking sticks, companies need to develop robust strategies to navigate the unfolding regulatory landscape of the energy transition. The metals most exposed to the transition, such as lithium and rare earth elements, have garnered more media attention than established commodities such as nickel, copper and aluminium. But it is these base metals that need to mobilize the most growth capital to achieve climate goals.”
However, three key strategies available to companies to address what now seems to look like a complex dynamic according to the report include, nurturing legacy cash cows while simultaneously shifting to a transition-growth mindset and secondly, incorporating transition risks and rewards into differentiated investment hurdles rates, and last but not the least, using new business models to enable growth and close valuation discounts.
Under the first key strategy according to Wood’s team, investors would expect companies to balance the need for returns in the short term by tending to their legacy portfolio, while delivering low carbon transformation plans. Noting that visibility of low-carbon profit centres starting to support – and supplant – the legacy cash cows could be a revaluation trigger to shift the market to a transition growth mindset, while the companies in turn scale back share buybacks to fund the shift. Adding that in 2022, mining majors and international oil companies allocated US$157 billion, (approximately) 30% of their operating cash flow, to buybacks, stating that companies could still grow base dividends and lift reinvestment rates to over 60%.
James said: “That is not to say that decarbonisations goals cannot be met and priorities cannot change. But to spur activity, there needs to be a recalibration of current risks and rewards for investment in low carbon technologies, as well as new incentives from both government stakeholders and financial institutions. There’s no one answer, but smart oil and gas and natural resources companies will realize that protecting the status quo would be a mistake and start to manage their portfolios to reflect a balanced approach of managing legacy output and carbon management.”
While noting that the only way to change investor sentiment is to bring about further shifts in the risk-reward equation, Tom Ellacott averred that expected reinvestment rates, that is, investment as a percentage of operating cash flow in oil and gas companies and miners of between 40% and 50% trail the investment rates of utilities chasing growth. Adding that reinvestment rates in both sectors have been trending down since the middle of the last decade.
Stating that even investment as a percentage of operating cash flow has, in a large part, been due to strategies such as capital restraint and massive buybacks that have been successful for companies and investors. He added that the oil and gas and metals and mining sectors have outperformed the broader market by 44% and 16%, respectively, since the end of 2021.
Says Ellacott: “Realistically, the only way to change investor sentiment is to bring about further shifts in the risk-reward equation.”
“We will have to see this in a variety of ways. Examples are government support schemes like the Inflation Reduction Act in the US, regulations such as The European Carbon Border Adjustment Mechanism, or customer-driven market creation, such as a willingness from consumers to pay premiums for low-carbon energy. Financial institutions could also play a big part by punishing slow-to-change companies with higher borrowing rates. This will all hopefully drive new investment inflection points that will catalyze more activity for low-carbon energies.”
About managing investment inflection points, the report showed that wind and solar have passed through inflection points and were scaling rapidly, resulting from strong infusions of capital, with hope alive that such similar point could also be reached for the energy transition support system – metals, CCUS, bioenergy, hydrogen and charging infrastructure.
While pointing out the critical importance of mergers and acquisitions (M&A) as well as new business models as growth enablers and guard against gaps in valuation discounts, the team in the report said that major oil companies were already using M&A to accelerate expansion into low-carbon businesses, such as biofuels, biogas and renewable power. Adding however that the overall capital allocated to low-carbon M&A has remained limited, as mining majors continue to take a low-risk approach to acquisitions of transition-focused commodities. Stating that new or modified business models could help reduce the transition valuation discount and support efficient capital allocation in businesses with quite different costs of capital and risk-reward profiles.
Ellacott said: “A transition growth mindset does not mean abandoning capital discipline if combined with risk-adjusted and transparent hurdle rates.”
“There are different horses for different courses, depending on a company’s scale, portfolio make-up, geographical focus and legacy skillset. The prize is worth fighting for, bending the carbon curve to limit the world’s temperatures to well below 2 °C. And a balanced, disciplined, transition-focused investment approach could grow corporate cash flows sustainably, boosting company valuations.”
GES: Instigating actions that’re changing the landscape and shaping the future
- Clean energy acquisition may take investment of about $2 trillion by 2050
- GES to draw the global attention to fresh technological innovations
- Canada increases carbon tax, announces $9.1 billion plan to reduce carbon emissions by 40% below 2005 levels by 2030
- Emphasizes clean energy drive through wind, solar, and biomass
- Over 300 speakers, 1000 delegates, and more than 50 countries at GES
- What has Canada to say about its net zero emission strategies?
- What concrete plans are underway to reduce emissions while exploring for oil
- More emphasis to be placed on diverse and engaged leadership
The Egyptian President Abdel Fattah El-Sisi addressed world leaders at COP27 held in Egypt towards the end of 2022. He said: “The hosting of COP27 in the green city of Sharm El-Sheikh this year marks the 30th anniversary of the adoption of the United Nations Framework Convention on Climate Change. In the thirty years since, the world has come a long way in the fight against climate change and its negative impacts on our planet; we are now able to better understand the science behind climate change, better assess its impacts, and better develop tools to address its causes and consequences.
“Thirty years and twenty-six COPs later, we now have a much clearer understanding of the extent of the potential climate crisis and what needs to be done to address it effectively. The science is there and clearly shows the urgency with which we must act regarding rapidly reducing emissions of greenhouse gases, taking necessary steps to assist those in need of support to adapt to the negative impacts of climate change, and finding the appropriate formula that would ensure the availability of requisite means of implementation that are indispensable for developing countries in making their contributions to this global effort, especially in the midst of the successive international crises, including the ongoing food security crisis exacerbated by climate change, desertification and water scarcity, especially in Africa that suffers the most impacts.”
Continuing he said: “In 2015, the world came together and showed the will to make the necessary compromises which led to the successful adoption of the Paris Agreement. Today and in light of the unmistakable messages in the recent IPCC reports, and following COP26 in Glasgow, we are once again called upon to act rapidly if we are to really meet the 1.5-degree goal, build our resilience, and enhance our capacity to adapt. And while these are no doubt major undertakings, I sincerely believe that they can also become opportunities for transformation towards sustainability if we collectively think creatively and demonstrate the necessary political will.
“With this in mind, Egypt and its people look forward to welcoming you all at COP27 in Sharm El-Sheikh, where we trust the world will come together, yet again, to reaffirm its commitment to the global climate agenda despite the difficulties and uncertainties of our time. I am positive that all parties and stakeholders will be coming to Sharm El-Sheikh with a stronger will and a higher ambition on mitigation, adaptation and climate finance, demonstrating actual success stories on implementing commitments and fulfilling pledges.
“I deeply believe that COP27 is an opportunity to showcase unity against an existential threat that we can only overcome through concerted action and effective implementation. As incoming Presidency Egypt will spare no effort to ensure that COP27 becomes the moment when the world moved from negotiation to implementation and where words were translated to actions, and where we collectively embarked on a path towards sustainability, a just transition and eventually a greener future for coming generations”, he said.
Recall that in September 2021, Antonio Guterres, the UN Secretary General, while engaging the UN Assembly during an energy dialogue had advised that countries took proactive measures to ensure rapid phase out of emission as well as all the highly combustible power generation sources like coal, first within the OECD countries by 2030, and the rest of the world by 2040. Adding that “…no one should be left behind in the race to a net zero future…”, and that “the global energy transition must be just, inclusive, and equitable…”, while recognizing that “…no two national energy transition pathways will be identical…”
Canada has already carved for itself an energy transition pathway, from “multiple pathways”, as carbon technology, deemed “critical to achieving global climate and energy goals”, continues to make its mark in Canada, with oilsands companies intensifying investment efforts in major CCUS projects. At the moment, six oilsands companies were reported to be producing about 95 percent of oilsand output thereby setting a goal (Pathway Alliance) of net-zero greenhouse gas emissions by 2050. “Our approach” says the group, “includes an estimated $24-billion investment in carbon capture and storage (CCS) and other technologies to reduce emissions and improve energy efficiency in our processes by 2030. Our scientists and experts are also studying and testing many emerging emission-reduction technologies for use in later phases of our plan.”
Stressing the importance for good policy framework by the authorities, the group said the enormous investment required to materialize the ongoing energy transition conversation could only occur through proper government policy framework. It said fresh commitments within budget 2023 by the authority through tax credit and new legislative proposals to amplify private capital was commendable, but that more work was needed to lock in Canada’s competitiveness as an energy producer in a net-zero regulatory environment.
Meanwhile Wood Mackenzie had in one of its latest reports said that up to US$185 billion of investment would be committed to developing 27 billion barrels of oil equivalent (boe), so upstream oil and gas financial investment decisions (FID) are expected to witness some level of increase this year.
However, “achieving FID on oil and gas projects” says Fraser McKay, VP, Head of Upstream Analysis for Wood Mackenzie, “is harder than it used to be, but with fewer sanctioned in 2022 than was expected, we believe we will see a slight uptick in activity this year, with over 30 of the 40 most viable projects likely to reach this milestone.”
“Most operators will remain disciplined and carbon mitigation will remain a key part of many FID projects”, he said.
Investigating these somewhat divergent issues with the aim of finding a lasting solution forms the critical imperatives of the Global Energy Show 2023 with the theme: “Change through Action”, and intended to address the cleanest approach of supplying energy to the planet.
To be hosted from June 13 until 15 2023, the all-inclusive energy event would be revealing fresh perspectives of the global energy systems, including features on the exhibition floor and conference in Canada’s oil sands, hydrogen, wind, solar, petrochemicals, gas and LNG, electrification and nuclear, for as it is usually said, “no single source of energy can meet the increased global energy demand.”. The Show will also provide the North American energy hotspot the opportunity to demonstrate its vision and leadership through the assemblage of industry experts and earth scientists together for the purpose of ensuring that the global energy and policy challenges were met with real-world solutions.
This year’s conference the organizers said, would be “pivotal and purpose-based” meeting of the global energy ecosystem which shoulders the huge challenge of balancing the climate targets while supplying clean, and responsibly produced affordable energy to those who need it. It also presents a unique opportunity to showcase practical and groundbreaking answers to the most pressing questions of the present generation, including how “we finally focus on the customer through the energy transition, our domestic and international energy relationships and how we navigate through political and market uncertainty.”
Balancing the international scales, unsettling geopolitical situations, and other major threats to global energy transition, exploring the development of fundamental drivers for the global energy system, what the outlook and global demand for hydrogen, sustainable fuels, natural gas, oil, and coal, as well as a view on the role of CCUS, how to ensure that clean, accessible, and affordable energy were made available for all – these and many more have been articulated to form the catalyst to escalate the entire conversation.
How does the invasion of Ukraine influence the direction and speed of the transition, and what’s the outlook on energy investments over the next 12 months? The “Great Carbon Capture Debate”, what is it all about – a real solution or another way to extend the use of fossil fuels – all these are to be laid on the front burner at the energy feast for possible analytical vivisection.
With no end in sight to the war in Europe, the diverse and uncertain energy policies among countries, the unfortunate and negative impacts of COVID-19 on the global energy markets notwithstanding, the global landscape continues to forge new energy trading relationships, as countries continue to look up on policymakers for good policies and approvals of new project infrastructure – key pillars to addressing energy security, while ensuring commitments to decarbonization and meeting climate targets.
What in practical terms is climate financing, and how will developed countries ensure there’s equal access to climate financing to achieve the “all low-carbon” energy sources, including nuclear? For countries who may want to deploy nuclear energy, what support structure is available for them – this and many more of the jigsaw would be broken down by experts.
Investors are at a crossroads and opportunities against a backdrop of immediate uncertainties over U.S. long-term energy policy. The increase in revenue for traditional energy producers due to high fuel prices is being balanced with the cost of the energy transition, but for how long will this continue? Countries and their consumers are expecting investments to be aligned with authentic efforts to reach net zero targets while meeting the day-to-day necessities at an accessible and affordable price. Hear more from those who are championing the course at the show in Calgary.
How vital is oil and gas to a functioning economy, and how potential are they to power our everyday lives? What other new and explorable avenues for renewable energy? What major waves are cleantech investments and innovations making in defining decarbonization? What’s GFANZ central mission – to mobilize funds to accelerate transition to achieve net zero target across the globe while supporting oil exploration companies with net zero emission compliant plans, or otherwise – this and many more would be dealt with exhaustively by those who speak the language of the industry at the all-inclusive energy feast which had been identified by the United States Commercial Service, under the Trade Event Partnership Program as “an excellent opportunity for the US energy companies to expand their business in the industry.”