The African oil and gas industry is facing increasing pressure to clarify the implications of the energy transition for upstream operations and business models, and explain the contributions that the sector can make in reducing greenhouse-gas emissions, says research and strategy firm Birguid senior consultant Patience Panashe.

Increasing social and environmental pressures on many oil and gas companies raises complex questions about the role of these fuels in a changing energy economy, and the standpoint of these companies in the societies in which they operate.

“Africa’s oil and gas industry is entering a new era. As the world looks to accelerate its transition away from fossil fuels, the pressures on the continent’s oil- and gas-producing nations are mounting,” she adds.

Panashe notes that most oil-producing countries in Africa are likely to be affected by the global energy transition, as their economies depend substantially on oil and gas revenues; however, their reserves thereof cost more to produce and are, on average, more carbon-intensive than oil and gas produced in countries outside Africa.

Other factors that are increasing the pressure on the African oil and gas sector include the rising costs of exploration and production, oil and gas resources often being located in difficult-to-reach areas, with the cost of developing them consequently being high, as well as political instability and uncertainty.

Looking Forward

Panashe contends that positive developments in the upstream oil and gas sector, such as new discoveries, improved fiscal terms and growing demand for African oil and gas, suggest it has a “bright future”.

She highlights that Africa’s upstream oil and gas industry has evolved significantly over the past 10 to 20 years through its becoming more diverse and competitive, which has led to increased investment and exploration and, in turn, has boosted Africa’s oil and gas production.

Panashe notes that international oil companies have sought to reduce their portfolios by selling off assets across Africa, with the continent’s share of global oil production having dropped from 12.3% in 2010 to 7.5% in 2022, as noted in oil and gas company bp’s ‘Statistical Review of World Energy’ report released in June 2023.

However, in recent years, several new players have emerged, including State-owned and private-sector oil companies and service providers, which has helped to boost Africa’s oil and gas production by adding diversification.

The 2015 ‘Brighter Africa’ report by global management consulting company McKinsey notes that upstream oil and gas investment in Africa increased from about $10-billion in 2000 to more than $40-billion in 2014.

However, investment declined sharply after 2014, owing to the collapse of oil prices and the onset of the global energy transition.

The report estimates that upstream oil and gas investment in Africa could range from $20-billion to $30-billion a year by 2030, depending on the pace and scale of the energy transition.

Technological advances also mean that it is currently possible to explore and develop oil and gas resources in increasingly difficult-to-reach areas.

“Technology has opened up new opportunities for investment and exploration in Africa,” says Panashe, adding that these new discoveries and exploration successes have added significant new oil and gas reserves to Africa’s resource base.

Additionally, some African countries have reformed their fiscal terms, making them more attractive to investors.

For example, Angola approved a new fiscal regime for marginal fields in 2018, which reduced the petroleum income tax rate from 50% to 10%, with the petroleum production tax rate decreasing from 20% to 5%, and the petroleum transaction tax rate also declining from 70% to 15%.

The new regime also granted a five-year tax holiday for marginal fields and a 50% reduction in service fees for oil and gas companies active in Angola.

“It is likely that the upstream oil and gas industry in Africa will continue to evolve as African countries and their partners seek to balance the need for energy development with the need to reduce emissions and address other sustainability concerns,” Panashe concludes.