Who can fill Europe’s energy gap as calls to stop Russian dependency grow?
As the dust begins to settle on the war in Eastern Europe and implications become more pronounced, hydrocarbon investors are assessing their options. African governments should be buoyed by the rhetoric of European markets as the power enters their hands. The time for Africa is now as the tectonic plates begin to shift, with European dependency shifting with it.
So, what has happened since February 22nd?
Olaf Schulz, the German Chancellor, froze the Nord Stream 2 pipeline in response to Russia’s invasion of Ukraine.
UK Prime Minister, Boris Johnson, announced that Britain would phase out Russian oil supply to the nation by the end of 2022.
So, how much is Europe really dependent on Russia’s oil?
40% of gas imports 25% of oil imports
As the promise of Eastern gas dwindled, whispers of the continent’s dependency on Russian natural resources grew louder. The Brent Crude oil prices reached their highest since 2008 as uncertainty rose. Consequently European investors are scrambling to search for alternatives to feed their burgeoning energy demand. Yet, opportunity in Africa is aplenty; from the Cape of Good Hope to the Moroccan Atlantic, Africa appears to have the only sane solution to Europe’s depleting supply.
Why is it that? The vast continent houses 30% of the world’s mineral reserves, and has not received, on the whole, the same exploration projects as Asia or the Middle East. There are several reasons for this lack of investment. One would say that a downfall that has plagued the region has been above ground risk. Nonetheless, the tide appears to be turning across the continent as investor confidence returns and, with it, an influx in capital that will, rightfully, be put towards projects across the region.
Who are the big players in the North?
North Africa offers the most geographically feasible alternative to Russian oil and gas supplies. Indeed, it is already supplying the Iberian Peninsula with LNG, 9 billion cubic feet passed underneath the Mediterranean via the Medgaz pipeline in 2020. This pipeline is being proposed as an example of the existence of infrastructure that will bring instantaneous profit for investors. Indeed, the EU’s High Representative on Foreign Affairs, Josep Borrel recently mentioned a potential expansion of the bloc’s LNG budget, with North Africa being a strong favourite for future projects. This suggests that the bloc is debating sponsorship proposals for projects similar to the Medgaz Pipeline, European investment will follow closely behind these talks.
Indeed, the EU’s decision earlier this year to classify natural gas as a ‘renewable energy source’ has increased incentives to invest in the resource. It will look to cooperate with all African governments to harness the 630 trillion cubic feet of natural gas reserves on the continent. There is opportunity in Libya as the country seeks to reinvest in its vast resources to achieve the political stability that it needs to drive change.
Most Europeans think of Algeria whenever they think of gas line development, however this is just the tip of the iceberg. Although Algeria, the supplier of the Medgaz and boaster of the world’s 10th largest gas fields has been the focus of several projects in the North African region, it is not alone. Egypt is rebuilding its gas output after the turmoil in the early years of the decade, whilst Morocco offers significant exploration potential. Egypt’s government has forecasted $8 billion in foreign investment for this fiscal year in general and investors will be buoyed by their focus on decarbonisation. Morocco has just handed UK-based E&P company Chariot the Rissana offshore licence. The deal could open the door for more investment opportunities, with the 7th Conjugate Margins Conference fast approaching in October.
What about further afield?
The vast technical advances of the past century have facilitated the ease of transport of commodities across the harshest of environments. The Sahara Desert is the latest of these environments that man aims to conquer through the proposed NIGAL pipeline. The project, a 4,128km pipeline that will supply Algeria with gas, offers the framework for another potential pipeline between Nigeria and Morocco. Although this second pipeline has not yet entered the developmental phase, it shows the cooperative ability of the African nations to achieve business. This will attract investors, who see the feasibility of Trans-Saharan networks.
This cooperation has also been forged between Equatorial Guinea and Nigeria, viewed as a “example to the world of the opportunities in Africa '' by co-CEO, Chryssa Tsouraki. Indeed, the small West African nation boasts 1.5 trillion cubic feet of untapped natural gas reserves, whilst the deal with Nigeria will allow the latter’s unused gas to enter the international market within two years. Nigeria’s government has labelled this decade as “the decade of gas,” but they are not the only ones aiming to take advantage of their huge potential. Mauritania boasts huge oil & gas fields, an estimated 300 million boe, off their coast and aims to begin LNG production by the end of 2023. Indeed, Kosmos is eyeing a second gas hub in the nation, as soon as the first is completed. Meanwhile, Tanzanian President, Samia Suluhu Hassan, has expressed her desire to work with European companies to achieve access to new markets for the nation, which holds the 6th largest gas reserves of the continent.
This willingness to create opportunities can be seen throughout East Africa. Tanzania’s neighbours, Mozambique have stumbled across a resource treasure trove in Cabo Delgado, in the far northern region of the country. Security issues have hampered investment in the region but wealth development, and a focus on local content, are believed to offer alternatives to turmoil. Opportunities have certainly arisen in Gabon, our conference in the nation, late last year, coincided with the well workovers in the Etame oil fields off the coast of the nation. The conference and this infrastructure further highlights the modernisation and capability of the African market.
Next Steps to Capture Opportunity
Europe’s focus on renewables is not feasible, oil and gas are needed for the foreseeable future to drive the change. African governments Exploration activities offer a huge opportunity and represent a key topic that will be discussed at Africa Oil Week, where investors will be looking to meet decision makers from across the continent. Each nation will be needing to focus on their strengths and develop investor-friendly plans that fall on clientele's laps, something that is talked about widely in our Capacity Building project, which has a significant upstream focus.