Ensuring Affordability and Security of Energy Supply in Africa

The underperformance of production not only impacts national energy supply, but also reduces the export earnings of producing countries, creating a multiplier effect on the economy. In 2021/2022, many African countries have seen their production gradually decline, leading stakeholders to seek innovative ways to enhance exploration and establish energy security.

In an exclusive interview with the African Energy Chamber (AEC), David Hartell, Managing Director of Stellae Energy Ltd. brings more clarity to the current situation.

What will this underperformance of production in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the whole continent?

Underperformance in production hurts affected countries with less capital and operating expenses for local staff, services, purchasing and logistics. Countries receive less revenue from direct and indirect taxes and royalty payments. The economic multiplier effect harms the overall economy of these countries. The continent also suffers from reduced economic activity within the continent’s domestic markets for goods and services as well as reduced access to locally produced energy resources. Importing hydrocarbons from international locations will cost more and require payments in external currencies, while domestic market transactions can facilitate alternative payments with food, minerals and manufactured goods.

In your opinion, what are the main reasons influencing the decline of production in Africa?

The initial impact of the pandemic at the start of 2020 had a negative impact on the price of oil, which fell significantly, resulting in reduced revenue streams and postponement of investments. Lack of continued investment has allowed some assets to deteriorate with a lack of new wells and facilities, inadequate maintenance of existing wells and facilities, and reduced manpower to keep assets in good working order. market. With the decline in oil and gas prices, operators working in these countries have had to limit their expenses to remain able to meet their fixed obligations, including debt repayment. Many good employees have been laid off, many small and medium-sized businesses have suffered from the closure of certain businesses, and the industry has lost important experience. The hiring and training of local staff suffer from major delays. Hopefully we are on the road to recovery.

What can be done to turn the tide?

Oil and gas prices have recovered significantly from 2020 lows, with international demand picking up as the pandemic continues to resolve. Big companies with better balance sheets have started to recoup their work and expense programs. Small and medium-sized businesses are beginning to recover with higher cash flow from existing assets. Maintenance of wells and facilities is beginning to improve, which is vital. Existing assets provide the fastest way to rapidly improve production by performing maintenance, well workovers and maintenance, and near-field developments of existing underdeveloped resources. Continued access to finance and funding is under pressure with an inadequate appreciation by some international governments, multilateral agencies, investors and policy makers of the role Africa’s domestic production plays in helping Africa’s 1.2 billion people to meet the United Nations Sustainable Development Goals. Goals and help end energy poverty. A united approach and lobbying by African countries to these external banking and multilateral investment parties is needed to help educate them on the need to ensure affordability and security of energy supply for the people of Africa. Africa accounts for only 3% of global emissions, so better access to domestic energy resources and their development will not have a significant impact on others, but it will improve Africa’s standard of living, access to clean water and better sanitation, education and better economies.

What do you recommend as an industry approach for monetizing and financing low carbon gas in Africa?

The EU’s recent decision to consider natural gas as a green investment was an important step in recognizing the reality that gas plays into decarbonization as renewables continue to grow. Other developing countries have seen significant increases in coal use due to inadequate energy supply and gas is better than coal at reducing potential carbon emissions. This gas classification will help improve access to finance and finance for African countries and companies to pursue low carbon gas monetization. Africa has significant gas reserves and the ability to target other unconventional undeveloped gases in some countries has significant upside potential. Gas from North Africa can be exported to Europe to improve energy security, but Europe must support funding and funding. The proposed addition of African energy banks and the strengthening of the African Export-Import Bank to complement the work of the African Development Bank is a good idea to improve access to finance and gas monetization . Carbon capture and storage of emissions can help ensure that these gas supplies meet clean energy targets for export.

What should new independents consider when entering Africa’s rapidly changing energy sector?

New independents should consider a sustainable entry into the African energy sector. They should plan to partner with local companies that have significant experience and knowledge gained over decades with old and existing energy companies in Africa. Experienced energy personnel, engineers, geoscientists, drillers, logistics providers and operators are available in many countries and regionally across Africa. Improved costs are possible with these local service resources. Africa’s small national energy companies are good partners for new independents planning to enter with a good knowledge of how to successfully meet regulatory and legal obligations to operate efficiently. New freelancers can work with existing local businesses to strengthen ESG frameworks and support the pursuit of the United Nations Sustainable Development Goals for their local communities.

Is it time for a model gas/LNG production sharing agreement?

As the world addresses climate challenges, the external investment available to develop Africa’s oil and gas resources is dwindling. Having countries with complicated PSAs coupled with complex commercial terms has reduced the attractiveness for outside companies to enter into assets with these agreements. As investment decisions and capital allocation are influenced by economic return and risk, the use of certain PSAs has undermined Africa’s attractiveness to new investors and reduced the interest of existing investors to to stay. A well-negotiated model gas/LNG production sharing agreement that addresses these challenges could help to better balance direct and indirect revenues and risks and increase investor interest in assisting exploration and development. oil and gas development in Africa. Unless this happens, tax-advantaged jurisdictions will continue to attract investment out of Africa.

What pending deals do you think should be concluded and announced during Africa Energy Week in Cape Town?

A unified African approach by the international community to the importance of solving energy poverty is an important announcement that builds on the progress of AEW2021 in this regard.

The different lines of work of African nations and companies to support the energy transition must be announced. Stellae Energy is working with several African entities to develop clean renewable energy solutions, including geothermal, carbon capture and storage, solar photovoltaic and wind hybrid, and energy storage systems, including hydrogen. African companies are well qualified and experienced to begin transitioning some of their work to renewable energy as existing oil and gas developments recover with increased cash flow for future sustainability investments.

Announced and supposedly pending divestments by some international operators need to be resolved and announced. Until then, there could be a significant deferral of spending by existing operators and potential new operators would be unable to implement their plans and make new investments.

The uncertainty surrounding potential divestments will only increase the underperformance of production until it is resolved. African governments can help these processes run smoothly to maximize opportunities for new entrants, especially in combination with national energy companies.

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