Natural gas is the way forward for the African resources sector

11 November 2019 4 min. read
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PwC has released its Africa Oil & Gas Review 2019, which portrays a sector that is strongly affected by the global trend towards sustainable energy and focusing its efforts on developing its known reserves. Meanwhile, Mozambique is driving a move towards natural gas production. 

Several economies in Africa are heavily dependent on the oil trade. This ranges from the smaller economies to Nigeria, the continent’s largest economy by GDP. The heavy reliance has made the continent susceptible to volatility in oil prices recently, with many facing stagnation since oil prices plummeted in 2014.

Aside from oil reserves, many African countries enjoy a surplus of natural gas and coal reserves, which have a considerable role to play in the energy sector. Where coal has been among the most stable commodities and sources of income, changes in the energy sector are shifting the focus away from coal.

The state of LNG in Africa

The energy sector in Africa and across the world is looking to decarbonise its production processes to the greatest extent possible. This shift has turned the attention away from coal to natural gas as a source of energy. In Africa, many countries are ramping up their energy infrastructure at present, and are using the opportunity to make their functioning more sustainable. 

As a result, the continent’s oil & gas outlook appears reasonably positive, with an air of tentativeness and uncertainty. In the oil sector, for instance, production across African market increased over the last year, although their share in the global output declined by 0.1%, presumably due to a similar increase in global production.

Another mixed scenario for Africa pertains to its oil reserves. The continent currently accounts for 7.2% of all oil reserves across the globe, which is 1% lower than the region’s share of global reserves in 2017. While this might appear concerning, it is an expected result for many economies.

Oil & gas capital expenditure: Africa and Global

As the spending crunch has hit the oil sector on the continent, most markets have tended to look inwards in recent years, focusing on developing existing reserves and maximizing their economic value. As a result, spending on exploration has lost out, which has meant a depleting share of global reserves.

Another worrying trend is that while the continental average for oil production registered an increase, only three countries – Republic of Congo, Libya and Nigeria – contributed to the increase, while a number of other countries registered declines in their production levels.

One sign of encouragement is that the global shift towards natural gas has been accompanied by an increase in proven natural gas reserves across Africa. The continent’s  share of global gas reserves is currently at 7.3%, aided by a substantial discovery made in Mozambique in recent years.

Oil & gas exploration spend: Africa and Global

According to PwC, the new discovery ‘has already unlocked the first three large-scale LNG projects. These projects, together with project expansion phases and additional exploration, have the potential to position Mozambique as the third largest global LNG producer after Qatar and Australia by 2030.” 

The relative stability combined with the new discoveries appears to be attracting business to the continent. ‘Investment in the frontier region of Africa has seen signs
of renewed interest driven by somewhat stable prices and increased investor appetite. This has given exploration and production companies an opportunity to pursue the potentially highly-prospective frontiers and under-explored areas,’ reads the report.