Following the outbreak of the Russia-Ukraine War, Reuters stated that energy firms were considering $100 billion in projects in Africa, with budding oil and gas supply set to strengthen Africa’s influence on the global energy stage.
First and foremost, new oil and gas production will bring in sizable export revenue streams for their respective state governments, taking advantage of high crude oil and natural gas prices that measure approximately $80 per barrel and $2.68 MBTU, respectively. For emerging gas producers like Senegal, LNG will be exported to energy-hungry regions like Europe and Asia, with the former seeking alternative LNG supplies to reduce its reliance on Russian gas.
According to estimates by the International Energy Agency, Africa could replace as much as one-fifth of Russian gas exports to Europe by 2030, generating an additional 30 billion cubic meters of African gas per year. Meanwhile, emerging oil producers like Uganda and Kenya plan to build refineries and associated pipeline infrastructure to produce refined petroleum products for both domestic and East African markets. The associated influx of foreign revenues will be game changers for African economies, able to accelerate infrastructure and sub-sector development, as well as ease fuel supply shortages and raise electricity access rates.
That said, analysts suggest that relying solely on oil and gas exports to fuel economic growth is unlikely to be sustainable, given fluctuating demand for fossil fuels, growing energy transition concerns and the subsequent risk of stranded investments. Gone are the days of single resource-based economies, and new economies must be able to create diversified, sustainable industries on the back of oil and gas extraction – such as petrochemicals, manufacturing, agriculture, agro-processing and construction – as well as leverage the energy sector as a means of skills development and job creation across sectors. In Mozambique, for example, natural gas is being positioned as a catalyst for large-scale industrial farming through the development of locally manufactured chemical fertilizers, with a view to shifting the country’s status from net importer to net exporter.
Finally, regional integration will be critical for Africa’s new oil and gas economies. In the current post-COVID-19 climate, regional cooperation calls for the creation of scalable economics models that pool collective resources to finance and develop large-scale energy infrastructure, along with the joint development of associated technology and sharing of best practices. Within the hydrocarbon sector, cross-border joint ventures and partnerships align with the narrative of building a pan-African oil and gas industry. Senegal’s first gas, for example, will be achieved through the Greater Tortue Ahmeyim Project straddling its shared border with Mauritania, with the two countries signing an intergovernmental agreement to lead the project jointly and share the resources on a 50-50 basis. Going forward, first oil and gas production will bring new foreign revenues to the table, but will also cement diversification and cross-border cooperation as key pillars of modern oil and gas economies, able to increase investor confidence, attract financing for large-scale, capital-intensive projects and help safeguard the sustainability of the industry.