Africa-Press – Mauritius. Energy majors are increasingly reluctant to take on new oil projects, but they have not abandoned hydrocarbons altogether, with natural gas experiencing an upswing.
In the second part of our series, we look at how the energy majors are increasingly reluctant to take on new oil projects. Big oil companies are applying their energy transition strategy to their African operations, whether the continent’s states like it or not.
The problem for the latter does not lie with oil fields currently under production, which will never have trouble finding investors, even if European majors are exiting such investments.
In Nigeria, for instance, Shell, Total and Eni recently sold a 45% interest, valued at $1.1bn, in the onshore OML 17 oil field[HC1] to the billionaire entrepreneur Tony Elumelu. Instead, the risk is that there will be a slowdown in the development of new projects.
In late 2020, during Africa Oil Week, BP’s Africa new ventures vice president, Jonathan Evans, said that, in view of carbon reduction requirements, BP would limit its oil extraction projects on the continent going forward.
This trend is becoming all the more pronounced now that the majors’ Western financial backers are more reluctant to invest in large extractive projects.
Banks Barclays and Crédit Suisse announced a short time ago that they no longer intended to finance the East African Crude Oil Pipeline (EACOP) in Uganda and Tanzania, a project that would allow Total and CNOOC to extract oil from fields in the Lake Albert region.
“Development agencies and even multilateral lenders are becoming increasingly apprehensive about financing fossil fuel projects, including natural gas ones,” says Stéphane His, senior consultant at France-based research firm Enerdata. Not everyone is on board with the new policy.
The Cameroonian attorney NJ Ayuk, who serves as chair of the industry association African Energy Chamber, has decried the oil sector’s “demonisation” and the “anti-African” attitude of governments and Western environmental groups like Greenpeace. Britain’s export credit agency UK Export Finance (UKEF), for one, decided to withdraw its support from natural gas projects in Mozambique.
In this context, what plans do Europe’s majors have for reducing their carbon footprint in Africa? In addition to implementing operational efficiency measures, such as reducing methane leakage from wells, eliminating flaring, optimising well-drilling operations and minimising surface footprint, they count on leveraging natural gas, renewables and nature-based carbon offset projects.
Globally, the majors’ shift is under way. For most of them, natural gas already accounts for half of their revenues. At the same time that majors are winding down oil projects, they are kicking natural gas projects into high gear, to the tune of tens of billions of dollars.
“Globally, the majors’ shift is under way. For most of them, natural gas already accounts for half of their revenues,” His says.
The reason for this is well known: when natural gas is used to produce electricity in place of coal (which accounted for 37% of global power production in 2019), it cuts carbon emissions by half.
It’s the “transition energy” touted by Patrick Pouyanné, chairman and CEO of Total. Environmental NGOs strongly dispute this vision of natural gas, pointing out that natural gas production emits pollutants and carbon dioxide, and does not come from a renewable source.
In Africa, alongside states like Algeria, which has a long-standing natural gas industry, majors have operations in new gas-producing countries where significant reserves have been discovered.
In Egypt, for example, Eni changed the face of the country’s energy industry with the discovery of the massive Zohr gas field. Mozambique, for its part, is home to three megaprojects representing a projected investment of over $55bn.
Total recently suspended its largest project in the country, Mozambique LNG, going back on its already approved final investment decision, on account of the attack on the nearby town of Palma in late March. The second-biggest project, Rovuma LNG, led by Eni and backed by ExxonMobil, is still awaiting a final green light.
In Nigeria, Shell and Total, in partnership with the semi-public joint venture Nigeria LNG (NLNG), each hold a 25% and 15% interest in a $4bn liquefied natural gas (LNG) processing unit, known as Train 7, on Bonny Island.
In Senegal and Mauritania, the Greater Tortue Ahmeyim (GTA) offshore LNG project, jointly developed by BP and Kosmos Energy, is expected to produce its first cubic feet of gas in 2023 and transform both countries’ economies. And in Angola, Chevron, Eni, Total, BP and Sonangol are currently part of a consortium investing in a $12bn integrated LNG project in Soyo.
While the natural gas equation is mainly based on the export of LNG to developed nations and to large emerging countries such as China, it also goes in tandem with local electrification projects (gas-to-power infrastructure).
This is the case in Mozambique as well as in Senegal, where the GTA project will fuel several power plants. In Ghana, Shell has just invested in the Tema LNG terminal which, in the coming weeks, will make the country the very first south of the Sahara to import LNG.
Total has plans to make similar investments in Côte d’Ivoire and Benin. In Angola, the future Soyo terminal will supply natural gas to a 750 MW power plant.
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