Oil, gas supercycle may be on the way for Africa

OIL prices are up 70 percent over the last 12 months, with US$100 a barrel now within reach. That opens opportunities for African oil and gas producers to fast-track projects that were shelved just two years ago when the Covid-19 economic crash plunged prices to just above US$20 per barrel (bbl).

Two years later, African oil and gas producers are dusting off stalled projects and ramping up exploration. There seems little doubt that prices of around US$100/bbl won't last.

But a sustainable price of about US$60/bbl seems a reasonable bet, in which case billions of dollars of exploration funding could soon find its way to prospects that were deemed non-viable just a few years ago.

A sustainable oil price above US$57/bbl is a game changer for Africa, says NJ Ayuk, chair of the African Energy Chamber.

“High oil prices of around US$100/bbl are not sustainable. At prices like this, new supply is going to flood the market and that will push prices down again. Volatile prices are good for no-one.

“At the prices we are seeing now, we are going to see the kind of exploration activity we haven't seen in a decade or more.”

Up to 2,2 million barrels per day (bpd) of US tight oil could be unleashed in the event of a supercycle — with oil prices remaining around or above US$100 per barrel — driven by growing demand and continued supply tightness, according to Rystad Energy.

Marginal producers elsewhere in the world will likewise be eyeing these prices with envy and stepping up outputs as fast as possible.

Pressure

All this is happening while environmental pressures to transition to cleaner energy are ramping up.

Having spent decades extracting cheap oil and gas from African countries, the developed world now wants Africa to conform to its clean energy agenda, which is heavily skewed towards renewables.

This is creating anger across the continent, not least by making it harder to secure funding for oil and gas projects that might lift Africa out of poverty.

“Africa contributes just 4 percent to global greenhouse gases, yet we are expected to follow the developed world's agenda and embrace renewables at a time when 700 million Africans have no access to electricity and 900 million people have no access to clean cooking,” says Ayuk.

“Natural gas is being seen as a key component of the green transition, and some financing institutions are on board with this, but we need more.”

Opportunity

Says Craig Morkel, spokesperson for SA Oil and Gas: “We have an opportunity here to become self-sufficient in energy. But to get there we have to tighten regulations so explorers have legal certainty on what is permissible and what isn't, and we don't have to settle these issues in the court.

“If we don't, we're going to miss perhaps the best opportunity in decades to lift the entire country out of poverty.”

There have been some stunning discoveries off the coast of South Africa, but whether we get to participate in any oil and gas supercycle remains to be seen. The sub-continent stands on the cusp of an oil-induced economic flowering, with several stunning discoveries in recent years.

Consulting firm Kearney says southern Africa had little to offer the world in terms of oil and gas until a decade ago when a potential 500 trillion cubic feet of gas was identified across Mozambique and South Africa, along with 11 billion barrels of oil in Namibia. Together, these countries' gas reserves equal those of Canada or Venezuela.

“These discoveries could transform the southern Africa region,” it says.

Some more recent finds have been even more stunning. Preliminary results from exploration wells in Namibia's 6,3 million-acre Kavango Basin by Canadian oil and gas explorer Reconnaissance Africa points to a possible 120 billion barrels of oil, with indications of huge light oil and natural gas waiting to be extracted.

In February 2022, the Namibian government announced an assumed discovery of 700 million barrels of light oil at depths of 1 900 metres off the coast in the Orange sub-basic. The partners in this project are Shell (45 percent), Qatar Energy (45 percent) and Namibian energy company Namcor (10 percent).

Energy consulting group Wood Mackenzie says this find puts Namibia ahead of established producers like Gabon and Niger, and even newcomers like Senegal.

It ends a streak of dry wells dating back to the discovery of the Kudu gas field in 1974.

In May 2021, Minister of Mineral Resources and Energy Gwede Mantashe announced the discovery of pockets of shale gas in the Karoo Basin in the Free State, with estimates suggesting that South Africa holds a potential 390 trillion cubic feet of recoverable natural gas.

“These gas finds have the potential to drive the southern African country's economy while diversifying its energy mix and facilitating an energy transition,” says Matthew Goosen, writing in Energy Capital & Power.

The Brulpadda gas discovery, announced in February 2019, followed by the Luiperd gas discovery off the south coast of Mossel Bay in South Africa, could hold in excess of one billion barrels of gas condensate each.

SA is reckoned to have nine billion barrels of oil and roughly 60 billion cubic feet of gas offshore.

The recent court victory against Shell and Mantashe blocking the oil company's seismic surveys off the Wild Coast has been lauded by environmental groups, but such cases may douse enthusiasm for pursuing both onshore and offshore exploration, says Morkel.

“We urgently need our regulatory framework to harmonise environmental and developmental imperatives as provided for in Section 34 of our Constitution,” he says.

“If we don't, we risk losing a great opportunity to transform the country by pursuing energy self-sufficiency.

“South Africa has a significant near-term opportunity to achieve its social development goals by reducing its dependence on US dollar-denominated crude oil, gas and refined product imports and increasing the exploitation of its possible, probable and proven indigenous oil and gas endowments that could be denominated in rand. But only if the applicable regulatory and tax regime would create the enabling environment to do so.”

Exploration and extraction

Onshore exploration and gas extraction has even greater potential to generate jobs and wealth for the country as 70 per of costs are rand-denominated, as opposed to offshore exploration, where costs are mostly priced in US dollars.

Also in 2021, Italian energy company Eni announced another massive discovery of 200-250 million barrels of oil in the Cabaca Development Area, off the coast of Angola, with an even bigger find of 500-700 million barrels of oil equivalent off the coast of Ghana in west Africa.

This pales alongside the discovery, also by Eni, off the coast of Côte d'Ivoire with reserves estimated at between 1,5 and 2 billion barrels of oil and approximately 1,8 to 2,4 trillion cubic feet of natural gas.

Recent discoveries show the sub-continent is awash with oil and gas.

The only question, says Ayuk, is whether SA joins the party and uses its natural resources to change the country's economic course for good.