WIEN President Funmi Ogbue Proffers Solutions to Challenges of Africa’s Oil&Gas Sector

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President of Women In Energy Network (WIEN) , Nigeria, Mrs Funmi Ogbue has  offered suggestions on  how oil and gas producing African countries can  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.  WIEN is  the platform providing convergence for professional women playing in the energy industry.  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.  Recall that oil and gas and mineral resources account for more than 75% of Africa’s exports and the continent’s potential for growth in oil and gas is significant. Estimations at the end of 2017 indicated that Africa has 487.7 tcf of proven gas reserves (7.1% of proven global reserves), while Africa’s proven oil reserves are in the region of 125 billion bbl.  AOW is a platform for stimulating deals and transactions across the African upstream with unrivalled opportunities that drive investment and deal-making to shape the future of Africa.  The platform brings together governments, national and international oil companies, independents, investors, the geological and geophysical ( G&G) community, and service providers to proffer solutions to challenges of  the energy sector in Africa.  AOW offers four days of pioneering insights, from ministerial panels to strategic outlooks designed to drive investment into the African upstream for the continent’s benefit. At the heart of the event are some of the most compelling insights into the upstream strategies of governments across the continent.  Speaking on what is needed to nurture and stimulate more investment from equity partners at this moment to cement Africa’s role as a secure and reliable energy partner to consumer markets, the  WIEN President indentified  security, predictable fiscal environment , ESG implementation and  competitive cost environment as some of the  measures that should be put in place secure steady investment in the continent.  On security she said  “provision of a safe and secure host environment that doesn’t put human resources or assets at risk. Currently, 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.   Responding  to the question on how the global energy crisis impacted appetite for new E&P (Exploration & 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 decarbonisation, 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 predicted   that  “oil price and rig count will likely continue to remain positively correlated even beyond the current Russo-Ukrainian conflict, based on past antecedent. 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 will play a key role in the current effort to boost  intra-African trade.  AfCFTA is one of the flagship projects of Agenda 2063.It is a high ambition trade agreement, with a comprehensive scope that includes critical areas of Africa’s economy, such as digital trade and investment protection, amongst other areas. By eliminating barriers to trade in Africa, the objective of the AfCFTA is to significantly boost intra-Africa trade, particularly trade in value-added production and trade across all sectors of Africa’s economy.  Ogbue said  “increase the quantity of regional African markets for crude oil and gas as a hedge against the West completing its energy transition before Africa and supported by investment in midstream and downstream infrastructure to refine and commercialize petroleum products (e.g. with WAPco & WAGP). The recently enacted AfCFTA will be a key enabler for this.”   While answering question  on “ how can we stem the flow of divestments and create stronger ESG and climate policies to encourage operators and investors back to the African Upstream (1/3),” she suggested  that African “ build from the ground up, i.e. use industry advocacy groups (e.g. OPTS in Nigeria) across Africa to push a clear and harmonized set of standards for implementing ESG goals in their various countries working with their various Energy Ministries.”   She added  that “building blocks for this are already present on the continent, e.g. Nigeria with its use of IFC Performance Standards, South Africa with CRISA.  According to Ogbue , “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.”  Encourage new participants in the investment landscape, focus on “symbiotic investors” such as oil traders whose business model depends on a thriving upstream industry  In one such recent transaction, Sirius Petroleum, a UK independent, executed a senior loan facility with Trafigura in 2021 to fund E&P activities in Nigeria  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  Acknowledging the realities of the energy transition, upstream operators raising funds should do so by demonstrating an energy transition strategy, where disbursements of funds would be based on tangible decarbonization milestones, albeit if initial funding supports carbon-based projects  The perception, sometimes valid, is of green washing by oil and gas companies with no strong commitment to decarbonization. According to the IEA, global investment in clean energy in 2020 by the oil and gas industry was 1% of CAPEX  The energy transition to zero-carbon is a journey that will take more time than anticipated as policy meets reality (as witnessed with the current global energy crisis). The oil and gas industry will remaining relevant albeit in a diminishing capacity through this period. However only operators that follow rhetoric through with action will survive  The opportunity here is for Africa 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.

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