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Unlocking Africa's oil, gas potential seen hinging on ESG solutions

Highlights

Upstream players in Africa need an 'ESG story'

Oil companies may need to diversify into minerals

Renewables, micro-grids seen as key tie-in projects

Oil explorers hunting new resources in Africa are facing tough choices over strategy and messaging as rising opposition to fossil fuels shrinks the appetite for frontier drilling in one of the most energy-starved regions of the world.

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Speaking at an African oil industry event this week, explorers advocated for a continued role for new oil and gas in Africa as part of a responsible energy transition even as former oil majors scale back on their hydrocarbon activities in the continent.

Despite holding significant oil and gas reserves and pumping around 10% of the world's crude oil, Africa has seen upstream investment fall sharply in recent years, exacerbated by the energy transition away from oil and gas.

Last year, Equinor dropped its extensive exploration acreage offshore South Africa and this year ExxonMobil pulled out of a deepwater oil prospect offshore Ghana.

While dominated by North and West Africa's oil giants Nigeria, Algeria, Angola and Libya, S&P Global Platts Analytics believes the continent has the potential to continue pumping around 6 million -7 million b/d for the coming two decades.

But BP's former head of African operations Jasper Peijs said upstream players will need to rapidly pivot towards decarbonizing their African footprints by incorporating renewables and power projects if they hope to continue working in the sector.

"African resource oil-rich countries can no longer assume that the oil resources will automatically translate to reliable future revenue as the world is in an energy transition, it's electrifying," Peijs told the PESGB/HGS Africa E&P Conference.

"Having an ESG story to go along with it --t o make sure that your own emissions are as low as they can be -- is important. Be prepared to help countries transition over the next 20 years or an exit strategy if you're focused on oil, because I do believe that demand could certainly drop."

Renewables rationale

Explorers still want host governments to play their part in bringing new resources on stream in order to tap a narrowing window of opportunity to discover and develop more oil and gas. African governments will need to become more "agile" in bringing projects on stream to facilitate continued upstream activity, the event heard.

"The activities that we're all doing, including exploration, are vital to maintaining the level of oil supply that the world needs and will need for the next 20 years or so," Tullow Oil's exploration head Amalia Olivera-Riley told the event. "While there are quite a bit of unfavorable views on exploration, there's still a lot of excitement when a big discovery gets mentioned in the news."

For existing African producers, encouraging new low-carbon oil and clean gas still makes sense for fertilizers, petrochemicals and electricity. Small scale and 'micro-LNG' projects to tap gas deposits in regions that lack developed gas networks are also seen as a key growth area.

But with two-thirds of Africans living in countries without any material oil or gas production, the rationale for a faster jump to renewables may be much stronger.

Transferable skills

Adding carbon capture and storage capability to upstream projects in addition to small-scale solar and wind projects feeding into micro-grids is one way to stay relevant, according to Tullow's Olivera-Riley.

"I think we're sitting in a very special time in our industry where there's all these new problems to solve and all of those involve our sciences," Olivera-Riley said. "Whether you decide to do carbon storage or you decide to do any kind of renewables or keep track of emissions... we have to be a huge part of this solution."

The comments come amid rising tensions that a rush to consign fossil fuels to history by many developed Western countries is jeopardizing Africa's drive to alleviate structural energy poverty.

In July, the African Energy Chamber called for regional governments to boycott any international companies shunning the continent's fossil fuels sector as part of net-zero ambitions, claiming "Western elites" are "disrupting African progress."

Peijs, now an advisor on energy transition, takes a more nuanced view. He told that event that it is "too simple to say that the energy transition is a Western dialogue, and doesn't fit Africa's energy needs... Africa actually needs the world to get to net-zero."

With clean energy technologies such as batteries requiring metals and other minerals, many of which are mined in Africa, upstream companies should also consider diversifying into minerals, Peijs said

Capital constraint

One company hoping to fill a fossil fuel operator gap created by the shift towards cleaner fuels by oil majors is African-focused minnow Afentra.

Led by former Tullow CEO Paul McDade, Afrenta is looking to buy producing assets and discovered resources left by IOCs exiting Africa and "decarbonizing" the asset with modern technology.

"The assets that will sell in Africa will be at the dirtier end of the scale," Afrenta's COO Ian Cloke told the event "The way we look at it is, if an existing operator would be keeping those assets, we would be taking on the assets looking to reduce carbon emissions."

But upstream players in Africa are also being squeezed by the rising cost and reduced access to capital as more financial institutions scrutinize decarbonization plans and net-zero commitments.

"I think Africa is in a race for capital and there's a lot less for hydrocarbons than there was five years ago, certainly 10 years ago," Cloke said.

As a result, he said African countries hoping to develop oil and gas will need to double down on efforts to cut red-tape and sweeten their fiscal terms to attract explorers and reduce the pace of bringing projects to completion.

Cairn Energy, an exploration-focused independent which discovered India's major Rajasthan oil fields, is targeting cash flows from producing fields and is "comfortable" considering projects which have a decarbonization angle, its exploration director Eric Hathon told the event.

The London-listed company, currently exploring offshore Mauritania, Suriname, Mexico and Israel, agreed in March to sell its producing oil assets in the UK North Sea and buy a clutch of upstream positions in Egypt's Western Desert from Shell in deals marking a shift to focus on lower-carbon gas.

"Looking at opportunities to make operations cleaner, to decarbonize, is a key goal and that was one of our targets when we entered into the Western Desert," Hathon said, noting Egypt is a signatory to the World Bank's zero gas flaring initiative and the country's own 2030 decarbonization targets.

"Times change... the energy transition is here, decarbonization is here, the drive towards net-zero. No continent has more to gain and lose in the energy transition than Africa."