Energy transition may be forced upon countries in sub-Saharan Africa if the governments fail to ensure that legacy investors remain in the long run, a new report has said.
The report, which was produced by Africa Oil Week and Wood Mackenzie, said gas should be playing a vital role in addressing the lack of reliable and affordable energy in the region.
“However, under-investment in infrastructure, high costs and customers’ ability to pay have been fundamental barriers to date. Uncertain regulatory frameworks and inadequate governance have also hindered market development,” it said.
According to the report, where gas is a priority, governments need to ensure fiscal frameworks are fit for purpose.
The potential resource upside is huge – 255 trillion cubic feet of gas remain undeveloped. Nigeria, as the region’s largest producer, could lead the way. Its Petroleum Industry Bill – over a decade in the making – is expected to include reforms that aim to stimulate investment in gas,” it said.
It said a greater focus on domestic markets should create economic benefits far beyond government tax revenues.
The report said, “Nigeria and Mozambique are by far the biggest resource holders in the region. However, the two giants are at very different stages in their evolution. Nigeria exports up to 3.5 bcf/d of gas, mostly as LNG.
“It also supplies over 1 bcf/d to its domestic market, which suffers from uncertain fiscal and commercial frameworks along the value chain.”
It said planned gas reforms should focus on promoting economic growth, not just boosting an existing revenue stream.
The report said, “Governments are promoting sustainable, lower cost and easier to develop renewable sources such as wind and solar in their energy mix.
“Gas will still be needed to electrify and industrialise economies. But in a post COVID-19 world, governments may need to consider holistic energy taxation policies to ensure legacy investors remain in the long term.
“If they don’t, the energy transition may be forced upon them. The Euro majors are putting low or net-zero carbon at the centre of long-term strategies.”
According to the report, less capital will be allocated to the upstream and only the best projects within global portfolios will advance but there are very few of those in SSA.
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