In recent years, key Western banks and financial institutions have implemented policies aimed at reducing support for fossil fuel projects, especially in Africa. This has led to a sharp decline in investment in the continent’s oil and gas industry, a sector that is crucial for its economic future and energy needs.
The African Energy Chamber (AEC) argues that these institutions are practicing “financial apartheid,” arguing that while similar projects receive support in Europe, Africa’s high-cost energy projects are being neglected.
The decline in investment is already having a noticeable impact, exacerbated by global shifts towards cleaner energy and prioritising of ESG practices. Major international oil companies are reducing their presence in Africa.
This decline is contributing to a bleak outlook for Africa’s energy sector.
“As the international community moves to boycott investments in the African energy sector, African people and African development stand to suffer,” says NJ Ayuk, Executive Chairman of the AEC. “The role of oil in Africa’s energy and economic future is apparent, and consequently, should be defended as Western elites move to disrupt African progress.”
The broader implications of financial divestment are profound. Many African governments rely on fossil fuels as a cost-effective means to alleviate energy poverty and boost state revenues. However, the increasing pressure on financial institutions to cut funding for high-carbon projects creates uncertainty about the future of Africa’s energy sector.
The International Energy Agency (IEA) has added to these challenges with its calls to cease funding for oil and gas projects, highlighting a disparity: while natural gas is considered a ‘green’ energy source for Europe, it does not receive the same treatment in Africa.
According to Ayuk, “The IEA has lost its relevance and its authority.” Originally focused on managing oil supply disruptions, the IEA now prioritises policies aimed at achieving net-zero emissions by 2050. Its 2019 projection that no new investments in oil, gas, or coal are needed if the world continues on this path has been particularly controversial.
Several key African projects are at risk due to the withdrawal of financial support. Significant initiatives like Nigeria’s Train 7 LNG expansion require substantial financing to advance.
Despite these setbacks, some projects are progressing.
Meanwhile Nigeria’s Train 7 project, an expansion of the existing NLNG facility on Bonny Island, aims to boost production by 8 million tonnes per year, bringing the total to about 30 million tonnes per year. This development is crucial for Nigeria’s growing population and its ability to meet its energy needs.
Nigeria’s Marginal Field Initiative Holds Enormous Potentials
However, Africa’s upstream sector is not short on opportunity, with oil and gas tenders being launched for onshore, deepwater, greenfield and brownfield acreage in Nigeria among other markets.
Essentially a World Oil report says that for African countries to better compete for global exploration capital, their respective licensing processes, frameworks and terms must encourage new investment.
The establishment of transparent and stable regulatory frameworks is crucial for attracting upstream investors, who are more likely to commit capital when they have clarity on the legal and regulatory environment.
This includes ensuring that laws governing oil and gas exploration, production and taxation are well-defined and consistently applied, as well as establishing independent regulatory bodies that can enforce regulations impartially.
The report observes that Nigeria’s Marginal Fields Bid Round in 2020 was one of the most transparent in the country’s history, attracting a diverse range of bidders, with over 600 companies registering to participate and licenses awarded to Nigerian companies including Matrix Energy, SunTrust Oil, Shoreline Natural Resources, Seplat Petroleum Development Company and Green Energy International.
As the country launched its latest bidding round in April 2024 – placing 36 blocks on offer across the onshore Niger Delta, Continental Shelf and deep offshore for a period of nine months – the Nigerian Upstream Petroleum Regulatory Commission has promised transparent evaluation processes and competitive entry fees, specifically inviting the participation of indigenous companies with sufficient technical expertise and financial resources.
The development of marginal fields is another key production driver within Africa’s mature markets.
Under its planned 2024 bid round, Nigeria is placing a strong emphasis on marginal assets, which offer the potential to boost efficiency of the sector, bring new resources online and diversify the country’s exploration landscape. Nigeria’s previous marginal licensing round in 2020 featured 57 fields, of which the largest 25 are expected to generate over $9 billion of investment in their first five years of operation and over $38 billion in lifetime revenue.
Promoting Nigeria’s Opportunities To Outside World
Energy investment opportunities in Nigeria is expected to be a major point of discussion at the upcoming African Energy Week (AEW) scheduled to hold in South Africa.
Targeting $10 billion in oil and gas investments in the next 12-18 months, Nigeria has implemented a slate of reforms aimed at creating a more favorable investment climate and improved governance within the sector.
At the upcoming African Energy Week: Invest in African Energy 2024 conference and exhibition an Invest in Nigeria Energies roundtable will outline the ample opportunities for investors and project developers to grow the energy value chain of Africa’s largest crude oil producer, highlighting the latest policy directives, consolidated fiscal incentives and gas utilisation investment allowances.
The session places Nigerian policymakers in conversation with industry regulators and associations, exploring the latest policies, regulations and investment opportunities currently shaping the market.
The discussion will be led by Heineken Lokpobiri, Nigeria’s Minister of State for Petroleum Resources (Oil); Abdulrazaq Isa, Chairman of the Independent Petroleum Producers Group of Nigeria; and Farouk Ahmed, CEO of the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
The discussion will feature representatives from IOCS including ExxonMobil and Chevron.
The AEW: Invest in African Energy is the platform of choice for project operators, financiers, technology providers and government, and has emerged as the official place to sign deals in African energy.
The federal government introduced several policies earlier this year – in addition to the ongoing implementation of the Petroleum Industry Act – to reinvigorate the country’s energy sector and retain its position as a regional powerhouse.
New measures aim to deliver a competitive Internal Rate of Return for oil and gas projects and attract over $10 billion in new investments within the next 12-18 months.
For new exploration, this includes streamlining contracting procedures by raising approval thresholds for PSCs and JOAs to not less than $10 million, simplifying processes and extending the duration of third-party contracts from three to five years.
This serves to reduce project contracting cycles, leading to faster oil and gas production and supporting Nigeria’s long-term oil production target of 4 million barrels per day.
Nigeria is also targeting new investments in gas monetisation, refining and infrastructure expansion, with a view to boosting gas supplies, raising power access and supporting industrialisation. Gas-focused reforms include tax credits for non-associated gas projects and a 25 per cent tax dedication for qualifying plant and equipment used in gas utilisation projects, which have directly triggered new investments.
In June 2024, TotalEnergies and the Nigerian National Petroleum Corporation reached a $550 million FID for the development of the Ubeta gas field. Gas from the field will be supplied to the Nigeria LNG liquefaction plant, with first production anticipated for 2027, and supports the country’s transition toward low-cost and low-emission projects.
In the downstream industry, Nigeria has been in the process of deregulating the sector, improving fuel availability and affordability, eliminating government subsidies and improving efficiencies.
The long-awaited Dangote Refinery began operations in late-2023, transforming Nigeria into a net exporter of refined petroleum products to Europe, Asia and Africa.
With a capacity of 650,000 barrels per day, the refinery is Africa’s largest and its operational success is crucial for stabilising domestic fuel prices, reducing import dependency and increasing foreign exchange earnings.
Looking ahead, Nigeria’s policy reforms are translating to new investment opportunities in developing domestic refining capacity, petrochemical complexes and distribution infrastructure, as well as natural gas processing and storage facilities as part of the country’s gas monetisation drive.
IOCs Exit And Making Of Nigeria’s Indigenous Oil Giants
France’s TotalEnergies sale of its stake in two Nigerian oil fields, Olo and Olo West, to local firm Aradel Holdings for $19.5 million, is the beginning of the company’s biggest acquisition.
TotalEnergies has been progressively withdrawing from Africa in recent months as part of its strategy to streamline its management and optimise its oil and gas portfolio. The company has been reducing its investments on the continent.
In late July 2024, TotalEnergies had already divested 10 per cent of its shares in Shell Petroleum Development Company of Nigeria Limited, pulling out from 18 oil and gas projects in the Niger Delta.
This shift is attributed to the Nigerian government’s push to enhance the role of national companies in the oil sector, moving beyond merely receiving royalties.
Aradel Energy Limited, has stepped up asset purchases to boost its production portfolio in Nigeria’s marginal field space.
Aradel Holdings Plc was excited to announce that its subsidiary, Aradel Energy Limited, has inked a sale and purchase agreement to acquire the 100 per cent interest in the Olo and Olo West marginal fields from TotalEnergies EP Nigeria Limited and the Nigerian National Petroleum Company Limited (NNPC).
The acquisition was completed for a consideration of $16 million, plus $3.5 million of deferred and conditional payments.
