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Article   |   David Clark   |   31.08.2021

How viable is Africa’s oil and gas industry in the wake of a global energy transition?

The 26th UN COP26 conference in Glasgow in November 2021 will look to accelerate a global drive towards a net-zero economy. To reach targets of reducing emissions, and keep global warming below two degrees Celsius, industries like oil and gas will have to adapt, and as the recently published IPCC report highlights, global action is required now to stay within this target. However, global climate policies, typically, have little relevance to the people of Africa where the current energy mix is dominated by biomass and fossil fuels. David Clark, CEO of Vysus Group, explores the viability of Africa’s oil and gas industry in the wake of a global energy transition, identifying the challenges facing the industry, future prospects, and steps companies can take to remain competitive during this transition.

Environmental challenges

Concerns around climate change are becoming increasingly important to African companies, as reflected in environmental, social, and corporate governance (ESG) commitments, as well as the wider populous as the effects of climate change impact on weather and rain patterns become increasingly evident. The continent has already seen the deployment of renewables in small quantities at the Noor Solar Power Complex in Morocco, however, fossil fuels and wood burning are still primary fuel sources. In a more eco-conscious world, the viability of oil and gas is impeded by the industry’s environmental impacts and consequently hesitance to invest in this.

Geopolitical challenges

Africa’s geographical and political landscapes create challenges for potential investment because of its sometimes unpredictable nature. For example, in Uganda, remote inland wells produce heavy oil that must be transported through long pipeline systems to distant refineries across difficult terrain. The vastness of the continent and the dispersion of industry assets means it isn’t always cost effective to exploit potential sources. Furthermore, there are numerous challenges with regards to the somewhat chequered history of transparent governance across both government and corporate stakeholders across the continent and which impact on investor sentiment, particularly given the long term, multi-billion dollar nature of these types of energy developments. Disparity in regulations across borders also means that oil and gas companies are hampered by bureaucracy and uncertainty with their future operations.

The future energy mix

The energy transition will drastically alter the continent’s energy mix to heavily feature renewable sources in the years ahead. However, hydrocarbons will still be needed for many decades. The term ‘transition’ itself suggests a period of change, and in this case a long-term process. We are not at the stage where we can simply ‘switch off’ fossil fuels and it is too soon to see a rapid decline of oil and gas, particularly in a continent of rapidly expanding population, and growing middle classes. There is still value in extracting these fuels, and although forecasts suggest they will lose their prominence, they will remain an integral feedstock in delivering an effective transition.

Fossil fuels are essential commodities omnipresent in aspects of everyday life including, ironically, in the creation of renewable energy sources. Currently 8% of global crude oil is used to make plastics, which will increase with the demand for lightweight materials to support electrical components vital to wind turbines, electronic vehicles, and batteries.

Hydrocarbons can also be exported, when combined with carbon capture technology, as alternative fuel sources with both blue hydrogen and ammonia seen as potential low carbon, transportable fuel solutions for the global transportation and industrial sectors.

As Africa has already proven with the deployment of mobile telecoms networks and mobile trading systems, the continent has the opportunity to jump the development curve witnessed in the developed countries, deploying a broad range of localised renewables/low carbon generation, storage, and distribution solutions to help drive domestic demand and economic development. Here, traditional oil, and particular gas, production will likely be a valuable feedstock.

Steps businesses must take

The world must therefore now look to bring innovative, creative ideas not only in the design of new energy infrastructure, but also in how these can be designed, built, commissioned, operated, and ultimately decommissioned.

Vysus Group has adapted by innovating on how we can deliver our expertise and capability to our clients remotely. In Ghana, we were able to remotely connect to a rig to provide critical rig positioning quality control expertise on deep water rig operations. Without mobilising personnel to the rig, we were able to provide to accuracy of better than ±5m in water depths in excess of 1,500m. This reduced costs and risks associated with ‘in-person’ consultancy, protected workforces from COVID-19, reduced the carbon footprint of the operation through less travel and less energy costs typically associated with an onboard workforce for the project’s duration.

The African continent can benefit from remote technological capabilities eliminating unnecessary costs and emissions. Healthier margins and environmental mitigation make investment more viable given its important role in the energy transition. However, the intrinsic factors mentioned earlier could hinder further investment and success.

That said, the demand for oil, gas, and its bi-products will still be here for many decades to come. With the right focus and determination governments, stakeholders, energy asset operators and the whole project and services supply chain can, and must, bring innovative technical and commercial solutions which leverage the significant natural resources available across the continent, whist delivering low carbon energy to fuel the expanding African population, as well as the wider global market.

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