Newly discovered oil and gas reserves in Sub-Saharan Africa are set to reshape the economic landscape of the region, providing a substantial boost to fiscal revenues and foreign currency earnings.
This optimistic outlook comes from a recent study by Moody’s Investor Services, which highlights the increased exploration and investment activities by both established and new players in the hydrocarbon sector.
South Africa stands on the cusp of reaping the benefits from these developments. However, analysts caution that the Government of National Unity (GNU) led by President Cyril Ramaphosa must act swiftly to incentivise investors to re-enter the sector.
While Shell Offshore Upstream South Africa said in July that its plans to drill five wells off the West Coast will be game-changing for, TotalEnergies confirmed exiting SA offshore of Mossel Bay following a decision to exit the fields by another partners in the project, Canadian Natural Resources International (CNRI) and QatarEnergy International.
Nonetheless, Moody’s noted this week that “the emergence of new hydrocarbon producers across Sub-Saharan Africa will allow for improvements in fiscal revenue and foreign-currency” generation.
And with more countries, especially in southern Africa facing electricity deficits, renewed hydrocarbon exploration and production is set to provide support for energy security and electricity access.
However, Moody’s analysts have warned that a number of hurdles that have left many existing producers unable to reach the full potential of their natural resource wealth could derail prospects of the regional hydrocarbon industry.
“Effective governance and policy preparedness will be crucial to managing oil and natural gas resources in a way that ensures resilience to the energy transition and maximises economic and fiscal benefits,” said the analysts.
Over the next few years, a number of countries across Sub-Saharan African countries are expected to become sizeable oil and natural gas producers for the first time.
This emerging production follows a wave of exploration efforts over the last two decades, resulting in significant discoveries, especially for gas. As a result of this, Africa accounted for nearly 40% of new natural gas discoveries globally between 2010 and 2020 according to data from the International Energy Agency (IEA) which notes Mozambique, Mauritania, Senegal and Tanzania as having significant new discoveries.
This was in sharp contrast to declining oil production in Nigeria– the region’s largest producer – and stagnation across Angola.
“Hydrocarbon production will be transformative for some economies, although the state of progress across projects is uneven. Mozambique’s liquefied natural gas (LNG) sector remains nascent, but the country’s proven gas reserves are among the world’s largest and offer vast export potential,” explained Moody’s.
Tanzania had recorded significant discoveries between 2010 and 2015 amounting to 47 trillion cubic feet of natural gas in offshore deep-water blocks. Similarly, large offshore oil discoveries in Namibia’s Orange Basin could also make the southern African country a significant regional crude oil producer.
However, appraisal of the Namibian discoveries is still ongoing although it is aiming for its first oil production from the Venus field between 2029 and 2030.
Although new exploration and discoveries have been a boon for regional oil and gas production, Moody’s said accelerating global green energy transition “complicates access to external financing and increases uncertainty” over future revenue.
“Should investors start to raise pricing on global carbon transition risks, access to finance may also tighten for new regional producers. These factors may ultimately limit the economic and fiscal windfall for emerging producers and raise the risk of prematurely obsolete assets.”
BUSINESS REPORT