Why Africa is missing out on the oil boom

African oil producers have not seen the fiscal benefits of rising energy commodity prices in the past two years.

Declining legacy oil production, domestic fuel subsidies and other price control policies, changing export markets and a lack of investment in new field development have meant that Africa’s largest oil producers will not capitalize on rising oil prices in 2022 and sustained high prices. in the following years.

As African oil production declines, the region’s petrostates lack the resources to begin their energy transition, writes Zainab Usman, a senior fellow and director of the Africa program at the Carnegie Endowment for International Peace, in an opinion piece in Financial Times.

These countries must rely on external financing to achieve the UN’s Sustainable Development Goals and help the global fight against climate change.

Why Africa missed the oil boom

Saudi Arabia and other OPEC and OPEC+ producers generated huge revenue in 2022, when the price of oil reached $100 per barrel after the Russian invasion of Ukraine. Saudi Arabia, for example, has received up to $326 billion in oil revenue for 2022, the highest volume of oil sales in a year under Crown Prince Mohammed bin Salman.

At the same time, Africa’s biggest producers, including Nigeria and Libya, were left on the sidelines as output was falling – or halted – and domestic politics and unrest added more hurdles to African petrostates benefiting from rising oil prices.

Some of Nigeria’s oil revenues in 2022 were to subsidize domestic fuel prices, and Libya has not seen stability since the overthrow of Muammar Gaddafi more than a decade ago. Angola, Congo and Equatorial Guinea lacked new manufacturing investment.

Major internationals have scaled back investment in Africa’s legacy producers and opted for exploration instead offshore Namibiahoping it will be the next Guyana and the next big oil producer and exporter.

The most significant decline in output was seen in Nigeria, where crude production fell by about 1 million barrels per day (bpd) in a decade – to about 1.5 million bpd in 2023 from 2.5 million bpd in 2010.

Despite still being a major oil producer and the largest oil-producing nation in Africa, Nigeria is currently going through its worst economic crisis in a generation as reforms initiated by President Bola Tinubu last year exacerbated the cost crisis life.

After a decade of declining production, increasing oil production has been a key priority for the Nigerian federal government, which aims to boost revenue and foreign exchange reserves.

Oil theft and pipeline vandalism have long plagued the upstream oil and gas industry, driving the majors out of the country and often leading to force majeure at key crude export terminals.

The combination of pipeline vandalism and oil theft with a lack of investment in capacity has made Nigeria the biggest laggard in crude production in the OPEC+ alliance. Because of the underproduction, OPEC cut the quota for Nigeria’s oil production just last year.

Nigeria’s National Petroleum Company, NNPC Ltd, said state of emergency in production in Nigeria’s oil and gas industry as Africa’s biggest oil producer struggles to increase output.

NNPC believes Nigeria needs to take urgent steps to address the challenges that have plagued the oil and gas industry for years, NNPC Group Chief Executive Mele Kyari said in July.

A review of Nigeria’s oil and gas assets found that Africa’s top OPEC producer can easily pump 2 million barrels per day of crude oil without using new rigs, Kyari said.

On the supply side, African crude has also faced challenges, with increasing competition from US crude in the Asian market and, more recently, cheap barrels of Russian oil, which India and China are seizing while the West has banned imports of Russian crude oil.

Investing in clean energy

As calls have grown in recent years for producers to leave oil in the ground to save the planet, African oil-producing nations still rely heavily on revenue from oil sales, which have become the backbone of their economies.

Government revenue will also be needed for African countries to begin the transition to renewables, as clean technology investment levels on the continent are woefully inadequate to meet development and climate goals.

Access to energy is among the top priorities in Africa, where 600 million people live without electricity and about 1 billion people lack access to clean cooking, the International Energy Agency (IEA) said in World Energy Investment 2024. report.

In addition, the high cost of capital is a major obstacle to scaling up clean energy investment in Africa, says the agency advocating for rapid energy transition.

“Beset by significant debt repayments, financing for clean energy projects is limited as the need for concessional support becomes increasingly apparent,” the IEA said of clean energy investment in Africa.

By Tsvetana Paraskova for Oilprice.com

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