Page 39 - Energize March 2022

VIEWS AND OPINION

The benefits of domestic gas over imported LNG

Powering African countries with domestic gas is advantageous over
importing liquefied natural gas (LNG)

BY SIRAJ AHMED, IMPACT OIL & GAS

espite being blessed with abundant oil and gas resources, Africa’s production is
declining, representing a challenge for the continent as it moves to initiate an economic
Drecovery and address energy poverty.
With exploration restricted due to reduced capital for fossil fuel projects and the transition
away from hydrocarbons, the continent needs to act now if it is to reap the benefits of its oil and
gas resources.
Nigeria, Libya, Angola, the Republic of the Congo, Equatorial Guinea and other African
countries are heavily dependent on the export of oil and natural gas, so production
underperformance will inevitably have an impact on their economies, both in terms of access
to cheap energy and revenues into the treasury. This in turn could have a destabilising effect
on these countries. While temporary underperformance could be managed, persistent
underperformance would be far more damaging, holding back development and the ability of
these countries to invest in the energy transition.
In modern society, technology drives progress, but technology requires power – be it
a smartphone, tablet, laptop, or other gadget designed to make life easier. Nations which
fail to invest in energy will be left behind and lack the economic growth they need to fund
development. This is an issue for health and social care, progress in living standards and access Siraj Ahmed
to opportunities.
In the short term, reduction in supply means higher oil prices, which leads to higher globally and allowed it to create a sovereign
inflation. Higher inflation affects the poorest people most. These countries have the means and wealth fund worth over a trillion dollars.
ability to turn this around, so the underperformance need only be temporary. Much of Africa’s production is in
Leaving aside the impact of the recent Covid-19 pandemic, global issues such as the shallower waters and is rapidly maturing.
energy transition, compounded by important country-specific issues, are driving a decline in Declining production requires investment
production. At the heart of the challenge is a lack of investment in exploration and the question in exploration. It is important, therefore, to
of what countries must do to attract this investment. incentivise frontier exploration alongside
The pool of both equity and debt capital for oil and gas projects is on the decline, largely ILEX opportunities, and maintain a suitable
(but not exclusively) due to pressure to meet the energy transition. With an ever-decreasing fiscal framework. A one size-fits-all fiscal
supply of global capital for such projects, funders can be selective about where capital is framework will limit exploration to smaller,
invested and, therefore, competition is stiff and the threshold to secure it is high. near field exploration opportunities.
Countries in Africa must provide a stable and competitive framework for investment. This Although the demand for energy is
applies not only to countries with existing production, where infrastructure-led exploration growing, there is a rapid and concurrent
(ILEX) can provide lower risk additional resources, but also to countries with frontier exploration reduction in investment in exploration
potential. These higher risk, but high-resource frontiers which have the opportunity to make and production. This reality, and the
large-scale economic impact, have the greatest challenges to attract capital. consequences of it, are reflected in current
A stable and competitive framework for investment requires policy certainty, with global oil and gas prices and the apparent
transparent decision-making processes which enable projects to be progressed quickly, since economic and geopolitical turmoil it is
pace is intrinsically linked to value. Other important aspects are competitive and stable fiscal causing. It is unlikely that the demand trend
terms and a stable legal framework. Often, governments are too quick to tighten fiscal terms will reverse soon, so Africa should invest to
immediately after early discoveries, thereby introducing significant hurdles for subsequent reverse its growing production shortfall.
exploration. Fiscal terms and the opportunity to participate in new licensing rounds must Natural gas is a relatively low carbon
remain competitive to attract risked capital. energy source when compared to oil or coal,
Norway has been producing oil since the 1970s. It recently announced the awarding of 53 therefore it is an obvious transition fuel that
new licenses, of which Equinor picked up interests in 26 blocks, and announced that it plans to could meet the energy needs of Africa from
drill 25 exploration wells during 2022. By comparison, South Africa, where Impact has a large its own resources. However, this must be
footprint, has only seen two exploration wells during the last decade. Norway operates a model done quickly since the transition period is
which enables and incentivises exploration, which has put Norway in the top 15 oil producers not indefinite.

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