Special Report-Africa in the Limelight as Europe Set to Replace Russian Energy
- July 22, 2022
- Posted by: Quatro Strategies
- Category: Energy
Europe’s scramble to replace sanctioned Russian energy supplies has revived interest in African projects that had been shelved due to costs and climate change concerns. Energy companies are considering projects worth a total of $100 billion in the continent. African countries that currently have no output of oil or gas could get billions in energy investments in the coming years, including Kenya, Mozambique, Namibia, South Africa, Tanzania and Uganda.
Following promising exploratory work in recent months, Namibia alone could provide around half a million barrels per day in new oil production.
International Energy Agency (IEA) estimated that Africa as a whole could replace as much as one-fifth of Russian gas exports to Europe by 2030. The agency said an additional 30 billion cubic metres (bcm) of African gas a year could flow to Europe by then.
EU’s sanctions on Russian oil supply and Moscow’s reduction of gas flows to Europe have sent oil and gas prices to soar, driving inflation to 40-year records. Benchmark Brent crude in March reached near a 15-year high of $139 a barrel.
According to an IEA report in June, investment in African energy has yet to recover from a plunge in oil and gas prices in 2014. Global oil output is set to rise from the pandemic but is then forecast to ebb in the late 2020s, it said.
IEA executive director Fatih Birol previously said in an interview that the world is in the middle of the first truly global energy crisis and it will have to replace the loss of Russian oil and gas.
The IEA shocked the oil industry last year by envisioning no investment in new fossil fuel projects in order to meet net zero emissions goals by mid-century.
Companies and governments acknowledge that they must move fast in order to profit from African reserves before the global transition to clean energy makes many fossil fuel projects unviable.
Last month, Tanzania signed an LNG framework agreement with Shell and Norwegian state energy giant Equinor that accelerates development of a $30 billion export terminal.
CEO of TotalEnergies Pouyanne said during his visit to Mozambique in January that if security improves, the company aims to restart its $20 billion LNG project this year. It was halted because of militant activity. Pouyanne also stated in May that his company would need to make up for declining Russian supply and was accelerating activity in Namibia.
Namibia, which has not produced any oil or gas, has become a hot spot for exploratory activity. Top energy companies have been sifting through the country’s geographical data and probing its waters for decades until Shell said in February that it had found an “encouraging” supply of light oil.
Shell has accelerated its exploration activity at the site two months into the Russian invasion of Ukraine, which sent with oil prices near record levels.
TotalEnergies also completed an exploration well in the nearby Venus prospect in March, which it called “significant”. The company said it will “still have to determine if the volumes are commercially recoverable … (but) investments remain necessary to satisfy demand”.
It is estimated it will take around $11 billion to develop the two companies’ blocs.
The discoveries could lead to oil production of around half a million barrels per day.
As more companies are looking to invest in Namibia to search for hydrocarbons, the country hopes to start production from the Shell site by 2026.
Renewed European thirst for gas looks set to help push African output to a peak of nearly 500 billion cubic meters by some estimates by the late 2030s, up from 260 bcm in 2022.
Meanwhile, the IEA estimates a peak of natural gas output in its “sustainable Africa scenario” under 300 bcm in 2024. It forecasts oil output will peak this decade at around 6 million bpd in 2022 – down from over 10 million in 2010, indicating a longer life span for gas projects than oil.
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