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President of Women In Energy Network (WIEN), Nigeria, Mrs Funmi Ogbue, has declared that the African business environment must be made cost competitive, secure and compliant to the requirements of global ESG in order to attract investments.
Mrs Ogbue who is also the Managing Director of Zigma Limited said in a panel discussion at the 2022 Africa Oil Week (AOW) that the African operating environment must be congenial enough to attract and host global petroleum industry investments.
She said petroleum producing countries in the continent have the opportunity to nurture and stimulate more investment from equity partners at this moment to cement the continent’s role as a secure and reliable energy partner to consumer markets.
Ogbue spoke at the African Oil Week (AOW) 2022, in South Africa, recently, during which she made other important submissions on how to increase the level of investment inflow, improve on intra-African trade among others to sustain the oil and gas sector in Africa.
She emphasized the need for security, predictable fiscal environment, ESG implementation and competitive cost environment as some of the measures that must be installed to secure flow of investments in the continent.
On security she hammered on the need for governments to provide “safe and secure host environment that doesn’t put human resources or assets at risk,” adding that increased restiveness in the Niger Delta and terrorist insurgences in Mozambique have made both Nigeria and Mozambique less attractive investment destinations.”
Africa, she said, needs a predictable fiscal environment because “stable fiscal provisions and sanctity of contracts, honouring of stability clauses built into oil & gas contracts to ensure the commercial basis of investment is preserved just as adherence to, and transparency of reporting ESG policy objectives will serve as a recurrent deciding factor on where to deploy capital for many equity partners going forward.”
On competitive cost environment, Ogbue said “cost of operations would need to be even more competitive going forward as clean energy costs start to compete with that of an increasingly stigmatized oil and gas industry.”
She made it clear that the world would still need more petroleum energy to drive social and economic development, adding that rising demand and strong prices present good opportunity for African to position for new wave of capital deployment in search of new reserves.
In responding to the question on how the global energy crisis impacted appetite for new resource exploration and production, she noted that “the global energy crisis hasn’t appeared to dim the world’s appetite for African oil and gas.”
According to her, “despite the push towards decarbonization, the increase in oil and gas prices, spurred partially by the Russo-Ukrainian conflict has been strongly positively correlated with an increased rig count on the continent.
“It is important to note this correlation is a lagging correlation with respect to rig count. Meaning as the oil price increases, an uptick in E&P follows suit and vice versa. As at August 2022, the total African rig count was 77, up from a pandemic low of 61,” she pointed out.
Funmi predicted that “oil price and rig count will likely continue to remain positively correlated even beyond the current Russo-Ukrainian conflict, based on past antecedents. This will likely remain the case until a fully energy transitioned Africa is birthed, which is likely to be after her Western counterparts.”
She said the African Continental Free Trade Area (AfCFTA) which kicked off last year would play major role in the current effort to boost intra-African trade.
On how to stem the flow of divestments and create stronger ESG and climate policies to encourage operators and investors back to the African Upstream, she called on industry advocacy groups to work with government agencies across Africa to push a clear and harmonized set of standards for implementing ESG goals in their various countries.
“Following successful implementation, eventually the standards set by the industry advocacy groups would move from “best practices” to legislation. The uniformity and stability in legislation this portends would make the continent more attractive as an investment destination
“This presents an opportunity for the African energy industry to set the pace for the development and implementation of ESG standards in consonance with continental realities and growth aspirations,” she argued.
She urged players and policy drivers to encourage new participants in the investment landscape and focus on “symbiotic investors” such as oil traders whose business model depends on a thriving upstream industry
In one such recent transaction, she noted, Sirius Petroleum of the executed a senior loan facility with Trafigura in 2021 to fund E&P activities in Nigeria. She emphasized that increased participation of symbiotic investors could lead to a more competitive lending environment on the continent
“The opportunity here is for continental operators to raise funds from investors who share both similar ESG as well as commercial outlooks,” Mrs Ogbue pointed out.
Acknowledging the realities of the energy transition, she advised upstream operators raising funds to demonstrate an energy transition strategy “where disbursements of funds would be based on tangible decarbonization milestones, albeit if initial funding supports carbon-based projects.”
Mrs Ogbue also pointed at the valid perception of green washing by oil and gas companies with no strong commitment to decarbonization, referring to reports that global investment in clean energy in 2020 by the oil and gas industry was 1% of CAPEX
The WIEN President posited that the energy transition to zero-carbon would take more time than anticipated in view of the prevailing resilience of oil and gas demand and the global energy crisis.
The oil and gas industry, according to her, will remain relevant albeit in a diminishing capacity through this period.
Dwelling on the African dilemma, she urged the continent to stay slightly ahead of the curve to attract funding.
“If the rest of the world is doing 1% of CAPEX on ESG compliant projects, then Africa doing 5% will send the right signals and attract investment. The idea is you only need to be faster than the slowest gazelle not to get eaten by the lion,” she advised.
Source: WIEN DIGEST