An Expanding Energy Landscape – Oil and Gas in Africa

Introduction and the Role of Oil and Gas

Energy demand in Africa is growing and continues to outstrip supply. Over the next two decades, rapid population growth and industrialisation are expected to drive strong energy demand across the continent. Some estimate that African energy demand in 2040 could be around 30% higher than current levels; this compares with an expected 10% increase in energy demand globally.

Furthermore, ongoing political tensions impacting Europe and developed nations elsewhere have caused some to see energy security as being just as, if not more, important than energy transition, which can be seen as a shift of the narrative (particularly in Europe) in recent years. As a result, there is likely to be an increased focus on parts of the world that will be able to meet the resulting growing international energy demand – which cannot be met by renewables, or low-carbon energy, alone.

Africa is well positioned to play a key role in helping to meet this demand, with over 70 crude and natural gas projects expected to commence operations in sub-Saharan Africa alone by 2025. These projects are predicted to add around 2.3 million barrels per day (bpd) of crude and condensate production by 2025, with an estimated 9.6 billion cubic feet per day (bcfd) contributed to global gas production.

Upstream Opportunities

Africa’s upstream sector has gained increasing attention, especially since the outbreak of the Russia-Ukraine war in 2022, and Europe’s desire to reduce its reliance on Russian hydrocarbons.

While upstream investment in countries such as Angola, Nigeria, Egypt, Libya and Algeria is declining as fields mature, there have been significant new discoveries on the continent. For instance, the deepwater Baleine oil field offshore Côte d’Ivoire is estimated to have certified reserves of 2.5 billion barrels of oil and 100 billion cubic metres (bcm) of natural gas. Namibia’s Orange Basin also looks promising, with a high success rate on exploration wells so far. Significant discoveries include the Graff-1, Venus-1 and Jonker-1X exploration projects, which have attracted interest from oil and gas supermajors including TotalEnergies, Shell, Chevron and ExxonMobil, as well as multinational energy corporations, as well as Galp and QatarEnergy. According to Namibia’s national oil company NAMCOR, Namibia’s offshore Orange Basin holds 11 billion barrels of light oil and 2.2 trillion cubic feet (tcf) of natural gas reserves.

Overall upstream capex in Africa has rebounded to pre-pandemic levels. Growth is being driven by investment in all resource sectors, with deepwater and liquefied natural gas (LNG) in particular leading the charge for the continent’s recovery, as well as new greenfield projects in Mozambique, Namibia, South Africa and Uganda.

Transitioning With Gas

Natural gas was expected to overtake coal this decade, but the adverse supply impact of the Russia-Ukraine war and delays in the development of various gas/LNG projects have slowed the pace of growth. With energy security on much of the world’s agenda, natural gas (and therefore LNG) continues to be the transition fuel on the road to net zero.

African LNG offers an alternative to Russian natural gas, with Algeria, Egypt and Nigeria having long led the list of African LNG exporters to Europe. With final investment decisions (FIDs) having been taken, or imminent, on LNG projects in Mozambique, Mauritania and Senegal, these countries are poised to deliver significant additional LNG export capacity over the next decade. In recent years, Mozambique has grappled with debt defaults and insurgency, with promising projects declaring force majeure. Amidst these issues, the Coral floating LNG project delivered its first LNG cargo to Europe. Additionally, with over 180 tcf of gas reserves estimated in the Rovuma Basin, both Mozambique LNG and Rovuma LNG remain key projects for the country.

Nearly a decade on, the development of Tanzania’s multibillion-dollar LNG project continues to be delayed. Although negotiations on the host government arrangements and project documentation concluded in 2023, the parties are reportedly back to the negotiating table with the government on project economics.

The obvious markets for African LNG are Europe and Asia as both continue to diversify away from coal. Europe has been readying itself for importing more LNG, with the EU’s LNG import capacity growing steadily. It is estimated that European LNG import capacity will reach 406 bcm in 2030 (an increase of 143 bcm from 2021 levels) with the addition of six new LNG terminals and an expansion since the start of 2022. It also helps that large projects in Mozambique have an uninterrupted route to market in India (with numerous LNG receiving terminals on the west coast).

LNG projects globally are looking to advanced technologies to reduce emissions, and this trend has also been seen on African LNG projects. For example, the Congo LNG project, which delivered its first LNG cargo to Europe in 2024, uses a zero-flaring technological approach to reduce methane emissions. Notwithstanding the fact that increasing EU regulation is making hydrocarbon exports into Europe more challenging, African LNG will likely continue to be welcomed as a means of helping to ensure European energy security. With that said, African LNG projects will do well to closely monitor developments in EU methane and carbon emissions reporting regulations as the impact will likely trickle down to production, processing and liquefaction processes.

Green Hydrogen and Low-Carbon Projects

Africa accounts for less than 5% of global greenhouse gas emissions, although the increase in emissions on the continent over the last two decades has been significant as African states industrialise and look to monetise their hydrocarbon resources to fund development. Although the Paris Agreement and many of the global climate accords struck since recognise the need for a gentler, more nuanced approach to decarbonisation for developing nations, the energy transition presents a significant opportunity for African states to leverage their extensive renewable energy resources, as well as plentiful, cheap gas supplies, to become world leaders in green and ‘blue’ energy production.

Taking green hydrogen as an example, according to European Investment Bank estimates, Africa has the potential to produce 50 million tonnes per annum (mtpa) of green hydrogen by 2035 at an economically viable EUR2 per kilogram (substantially cheaper than oil), although the route to market will, of course, introduce additional cost to the supply chain – especially if pipelines are envisaged.

No doubt there will be demand for African green hydrogen in Europe, and Egypt is leading the charge in this regard, with the signing in March 2024 of memorandums of understanding (MoUs) for the development of up to seven green hydrogen projects in the Suez Canal Economic Zone. Similarly, utility-scale (and mega utility-scale) green hydrogen projects are also being developed in Djibouti, Mauritania and Namibia.

In addition to international export, green hydrogen also creates domestic and regional opportunities for African producers, including the opportunity for green hydrogen to replace, and therefore reduce, costly grey hydrogen imports and/or otherwise integrate into existing value chains. Morocco is a great example of this, where Fortescue and the state-owned OCP Group (a leading fertiliser producer) plan to invest in a green hydrogen ammonia plant which will eventually reduce grey ammonia imports by Morocco for fertiliser production. Similarly, South Africa is also putting hydrogen to the test in its well-developed mining sector, by developing hydrogen-powered mining trucks to reduce diesel fuel emissions in open-pit mines.

Whilst a true African green hydrogen economy may be some way away, especially as African emissions remain (relatively) low and gas remains cheap and plentiful, the energy sector’s increasing recognition of Africa’s green hydrogen potential, as evidenced by the growing number of projects on the continent, cannot be ignored.

Downstream Boom

Historically, international oil and gas companies that developed upstream projects in Africa opted to build downstream facilities in the US or Europe. African crude/LNG would then be shipped to these facilities, with the resulting petroleum/chemical products then being re-exported back to the continent. As a result, even though many African countries are crude oil exporters, the downstream refining capacity in Africa has remained limited. This has made the continent reliant on imports of refined products, including diesel, petrol, jet fuel and gasoil, as well as petrochemical products such as plastics and polymers.

This dearth in downstream capacity presents an opportunity for energy behemoths such as Nigeria to reinvest their crude oil export revenues into downstream refining capacities, thereby capturing more of the ‘value chain’ in-country. For instance, in Nigeria, the Dangote Refinery – Africa’s largest refining facility – started producing diesel and aviation fuel in January 2024. The 650,000-bpd facility will cater to Nigeria’s domestic energy requirements while positioning the country as a key exporter upon full operational capacity – expected in mid-2025. The Nigerian National Petroleum Corporation is also upgrading its Port Harcourt refinery, with operations expected to commence in 2024. Meanwhile, the first phase of Sentuo Oil Refinery Limited’s 120,000-bpd refinery in Ghana became operational in January 2024. The facility will process 2 mtpa of crude oil in the first phase and 5 mtpa in the second phase to further the country’s industrialisation efforts.

While in Gabon, plans are underway to expand the processing capacity of the Port Gentil refinery to meet rising demand for diesel and butane.

In Angola, the national oil company Sonangol awarded a project management contract for the construction of the USD6 billion 200,000-bpd Lobito Refinery to engineering firm KBR in April 2024. Once operational, the facility will be Angola’s largest refinery, increasing the country’s oil processing capacity by 200%. Angola is also developing several other refinery projects, including the 60,000-bpd Cabinda and 100,000-bpd Soyo facilities – all of which aim to enhance regional energy security by leveraging Angolan oil and gas resources.

In addition to refining, African countries are investing heavily in oil and gas storage capacity. For instance, Botswana Oil is reportedly seeking proposals for the Tshele Hills Oil Storage Development project to increase Botswana’s fuel storage capacity, while the Kenya Pipeline Company has reportedly acquired the now-defunct Kenya Petroleum Refineries’ storage assets.

FDI vs Regional Co-operation

Enhanced co-operation among African nations may play a pivotal role in unlocking the continent’s vast energy and economic potential.

AfCFTA and focus from GCC

The African Continental Free Trade Area (AfCFTA) is an initiative with the goal of creating the largest free trade area in the world by size and by the number of participating countries (55). Full implementation of the AfCFTA has the potential to reshape markets and economies across the continent.

The AfCFTA has also been helpful in bringing significant investment into Africa from the Gulf Cooperation Council (GCC) countries. In 2023, companies from the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman announced 73 FDI projects worth over USD53 billion. Notably more than 90% of the FDI came from the UAE and Saudi Arabia, with a particular focus on hydrogen and renewable energy projects. For instance, Saudi Arabia-based ACWA Power signed a framework agreement to develop a green hydrogen project in Egypt, the UAE’s AMEA Power is planning to build a hydrogen project in Kenya, and Infinity Power (backed by Masdar, the UAE-owned renewable energy company) has signed a MoU with Germany’s Conjuncta to develop a USD34 billion green hydrogen project in Mauritania.

Pan-African projects

There are many cross-border African oil and gas projects that are under development. The Greater Tortue Ahmeyim LNG (GTA) project offshore Senegal and Mauritania is one such project that is going ahead. Located on the maritime border between Mauritania and Senegal, the GTA is among the lowest-cost greenfield projects in the world. The initial phase of the project is expected to deliver approximately 2.5 mtpa of natural gas. GTA is just one part of the significant acreage held by Kosmos, BP and its partners offshore Mauritania and Senegal, which is estimated to have between 50 and 100 tcf of gas resource potential. GTA alone is estimated to contain more than 15 tcf of potentially recoverable gas resources.

In addition, there are a number of notable midstream cross-continent projects. The East Africa Crude Oil Pipeline is being developed by TotalEnergies, China National Offshore Oil Company and the national oil companies of Uganda and Tanzania and involves a 1,443 km crude oil export pipeline connecting the Hoima District in Uganda to the port in Tanga District in Tanzania, bringing Ugandan oil to the international market. It is estimated that the pipeline will transport 216,000 bpd of crude oil, with a ramp up of up to 246,000 bpd. The Ugandan government has also been trying to develop an associated refinery project, to serve regional demand.

Partners in the Nigeria-Morocco Gas Pipeline (NMGP) project are reportedly on course to take an FID on a USD25 billion project to proceed with the offshore development in late 2024. The NMGP is expected to traverse through more than a dozen West African countries to supply 3 bcfd of gas from Nigeria’s Niger Delta region to Morocco. The pipeline would help Nigeria utilise those parts of its abundant gas resources which are currently stranded, and would connect to the existing West African Gas Pipeline, with the potential of being extended into Spain.

Another notable pan-African energy project is the West African Hydrogen Pipeline. Morocco is reportedly planning to expand on the already proposed NMGP by running a parallel 5,600 km pipeline to carry green hydrogen. The NMGP is expected to be built in multiple stages over a 25-year period and is not expected to be completed until 2046. The partners in the NMGP could also supply green hydrogen to the EU alongside natural gas. While the NMGP currently involves Benin, Togo, Ghana, Côte d’Ivoire, Liberia, Sierra Leone, Guinea, Guinea-Bissau, Senegal, The Gambia, Mauritania and Morocco, currently only Mauritania has expressed an interest in the green hydrogen pipeline. This bolt-on pipeline has the potential to significantly increase green hydrogen export from West Africa while providing a reliable source of renewable energy to Europe.

Although a number of cross-border pipeline projects are on the cards to be developed in the next decade, this expectation is optimistic. Pipeline projects are incredibly complex (from both a technical and regulatory perspective) and capital intensive. Onshore pipeline projects require land acquisition (which is often fraught with its own challenges, especially where designated land may be communal or inhabited by indigenous populations), relocation of communities, physical security of infrastructure and project employees, among other matters. These projects also require close co-operation between multiple host governments, in particular regarding the allocation of ‘risk and reward’ from the relevant project. As a result, cross-border pipeline projects must navigate significant structural and development challenges (in addition to funding challenges) to reach FID and completion. Simply put, not all of the planned projects are likely to materialise.

Joint Development Zones

Joint Development Zones (JDZs) serve as collaborative spaces where neighbouring countries pool their expertise, technology and capital for resource extraction or industrial projects. One notable example is the Nigeria–São Tomé and Príncipe JDZ, established specifically for oil exploration in their overlapping maritime boundaries. Joint exploration and exploitation of hydrocarbons involves shared infrastructure, financial investments, sharing of skills and knowledge flow between the two countries, and revenue sharing. Revenue generated from oil and gas production within the JDZ is shared between Nigeria and São Tomé and Príncipe. The Nigeria–São Tomé and Príncipe Joint Development Authority oversees the JDZ, ensuring equitable benefit sharing. Despite their differences from traditional free zones, JDZs allow both countries to harness natural resources and promote economic interdependence.

Sources of Finance

Traditional sources of financing, such as Export Credit Agencies (ECAs) and Development Finance Institutions remain active in African energy projects, and are the primary source of financing for large-scale greenfield energy projects. Both the Total-led Mozambique LNG project and the Exxon-led Romuva LNG project received significant interest from ECAs, in particular Asian ECAs, given Asian sponsors and the expected export of LNG into Asian markets.

With that said, it is becoming increasingly challenging to develop and construct oil and gas projects in Africa due to reduced availability of funding from commercial lenders, some of whom are reconsidering whether to lend to oil and gas projects. In particular, a number of European commercial banks have, as a policy decision, stopped lending to upstream and midstream oil and gas projects (especially those without a ‘transition’ or ‘development’ angle).

With a view to filling a potential future gap in financing, the African Export-Import Bank (Afreximbank) and the Africa Petroleum Producers’ Organisation (APPO) have come together to establish the Africa Energy Bank (AEB). As a pan-African energy development bank, the AEB is intended to be an independent bank with an initial capital of USD5 billion to fund energy projects. Execution by member states is awaited for the AEB to become operational. Although envisaged as the African funding solution with contributions from African nations and matching contributions from Afreximbank and APPO, the AEB will also need to raise capital from international sources to be able to meet its expected initial capital amount – and the success of the initiative depends on it.