Wed. Jan 22nd, 2020

Stay Smart About Africa

The Energy To Make It Work

BY: Guillaume Doane, CEO and co-founder of Africa Oil & Power

THE AOP 2019 Conference in Cape Town in October  will bring together African policy makers, energy sector companies leaders and analysts. Themed #MakeEnergyWork, delegates will be discussing the changing face of the continents energy sector. 

In spite of enormous opportunity, Africa’s energy industry remains underserved, underestimated and continually overlooked. In 2015, we launched Africa Oil & Power as a platform to support the efforts of African governments to seek capital to grow their energy industries. We united global energy stakeholders to increase oil and gas exploration in the world’s most unexplored region. We brought the triumvirate of oil, gas and power under one roof to show the untapped potential of hydrocarbons as a feedstock for electricity, and to promote the symbiotic ties that exist between fossil fuels and renewables.

Four years later, we see that tremendous progress has taken place but that so much still needs to be done. Does Africa’s energy industry work? It’s a big question loaded with a complex set of issues, some of them riddled with confliction. But we are fortunate to see a continent teeming with countries setting a strong example.

The formula for making energy work better in Africa takes a combination of policy, politics and, yes, a lot of money. Are countries attracting sufficient capital to inject into large and complex projects? Not nearly enough, but the $103 billion being poured into African LNG projects this year is highly encouraging. Do countries in Africa provide an enabling environment for courting international investment? Well, regulatory uncertainty and high entry costs remain the most nagging deterrents for investors. Foreign direct investments for most African oil and gas producers have yet to return levels seen in 2014 and before. Senegal, which through good governance and a robust regulatory framework, has created a template for the rest of the continent to follow.

Is Africa a competitive investment destination? The rewards can be high, yes, but the terms are tough. In every year since 1980 Africa’s average corporate tax rate has been the highest in the world. Government take in upstream exploration is higher across the board onshore, nearshore and deepwater in Africa than any other region. It helps explain why Africa’s average rig count has been the lowest in the world every year since 1983.

Today, many African countries are being proactive with policy reforms designed to reverse systemic oil production declines. Angola, for example, has passed revolutionary reforms to restructure its industry and provide new incentives for investing in offshore exploration, marginal oilfields and natural gas. In July, Gabon enacted a long anticipated revision to its hydrocarbon code. One month later, it signed a production sharing contract with Malaysia’s state-owned oil company, Petronas. It was the country’s first exploration agreement in five years. 

The promotion of exploration acreage through open bidding was once a sporadic exercise; today for some countries it is a nearly annual affair to lure investors. In 2019, several African countries are completing or launching bidding rounds to promote new acreage opportunities, including Angola, Equatorial Guinea, Gabon, Ghana and South Sudan.

As countries vie for the attention and capital of investors, are they paying enough attention to issues like security? Attacks on energy infrastructure are occurring with increasing frequency and ferocity. We were grimly reminded of this last week, when drone strikes in Saudi Arabia knocked out nearly 6 million barrels of daily oil production. If inexpensive drones can wreak so much havoc, are African countries prepared for similar attacks? There is currently not one African country with an operational counter-drone program.

The world is making amazing progress in connecting people to electricity, with 120 million people gaining access in 2017 alone. But most of that progress is happening in Asia and too little in Africa. Our continent’s electrification rate has steadily increased to 43 percent, but the gains are too meager to keep up with surging population growth. We should take a page from the power playbook in Kenya, which through privatization and unbundling accomplished one of history’s greatest electricity feats. Between 2007 and 2019, access to electricity in Kenya doubled. 

Kenya’s triumph helps us shake away the temptation to compare the continent’s woes to the performance of other places, especially when success stories abound in Africa. Rwanda can teach us how to achieve gender equality in the workforce. We can learn from Equatorial Guinea on how to build value across the energy value chain in less than 25 years. We do not need to look elsewhere than Nigeria for the continent’s strongest local content provisions and a private sector brimming with successful local brands.

When thinking about how to make energy work, we can always look at Africa first.