African countries have the potential to benefit from Europe’s shift away from Russian hydrocarbons.
This is according to Jacques Nel, head of Africa Macro at Oxford Economics, who said as Western Europe accelerates a structural transition away from Russian mineral dependence, Africa could play a salient role in filling this void.
— Africa's domestic demand for hydrocarbons is likely to remain strong well after many advanced economies have transitioned to renewable sources of energy
In report , Nel said while overlooked in the past, Africa’s hydrocarbons sector could see a quick uptake in development if country governments position themselves as attractive alternatives to Russian oil and gas.
“This will require them to placate fears that property rights will not be respected over the long-term investment horizons, and the provision of accommodative operational environments,” said Nel.
While other regions such as the US have the capacity to increase natural gas production and exports, a factor counting in Africa’s favour is that domestic demand for hydrocarbons is likely to remain strong well after many advanced economies have transitioned to renewable sources of energy.
African countries — especially SA, the DRC, Gabon, and Guinea — host a wealth of minerals, and the development of these nascent mining industries will have significant economic implications, he said.
SA accounts for 50% of the world’s platinum group metals (PGM) production and 90% of the world’s PGM reserves, 30% of the world’s manganese production and 40% of the world's manganese reserves. The DRC, meanwhile, accounts for 70% of the world’s cobalt production and 50% of the world’s cobalt reserves. Gabon has 13% of the world’s manganese production and 5% of the world’s manganese reserves; and Guinea has just under 20% of the world’s bauxite production — a rock with a high aluminium content — and 30% of the world’s bauxite reserves.
Nel said African hydrocarbon resources could see renewed interest due to the void left by Russian exports and that efforts to accelerate the green transition due to Europe's evident energy insecurity will also see an increase in demand for “green minerals”.
“Algerian authorities have already made it known that the country is willing and able to ramp up its gas supply to Europe, while Egypt is making progress towards positioning itself as a key regional destination for the processing and re-exportation of natural gas,” said Nel.
However, he said the prospects of oil giant Nigeria and potential gas giant Mozambique supplying Europe are a lot more uncertain.
“Nigeria has around 180-trillion cubic feet of proven gas reserves, but several oil and gas majors are opting to exit the market as increasing security challenges and vandalism affect production. Mozambique has 100-trillion cubic feet of proven gas reserves, but most of the gas is located off the shores of the northern Cabo Delgado province, where insurgent groups operate,” he said.
He said the situation in Senegal and Tanzania is vastly different. Nel said Senegal is already set to commence gas exports next year, even though British energy giant BP is yet to make an investment decision on untouched gas fields holding some 15-trillion to 20-trillion cubic feet in proven reserves.
Nel said Tanzania reignited interest in its gas resources when, in November, it began negotiations with foreign energy companies regarding a $30bn liquefied natural gas (LNG) project.
“But discussions surrounding the country’s LNG sector had come to a deadlock under late President John Magufuli, whose administration adopted a very combative tone with large foreign investors,” he said.
Nel said even though the continent has the potential to benefit from Europe’s shift away from Russian hydrocarbons and an accelerated transition towards renewable energy, political, institutional, and governance risks will prevent some African countries from harnessing this potential.
“In order to attract the necessary investment, governments need to go beyond the implementation of market-friendly policies and prioritise the strengthening of institutions and upholding the rule of law.”
zwanet@businesslive.co.za
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