- Africa’s largest oil producers, like Nigeria and Libya, have struggled to capitalize on recent high oil prices.
- International oil companies have reduced investments in Africa’s traditional oil fields, focusing on offshore opportunities in regions like Namibi
- Competition from U.S. and Russian crude oil in the international oil markets has grown in recent years.
Oil producers in Africa haven’t seen in the past two years the fiscal benefits from the higher energy commodity prices.
Falling legacy oil output, domestic fuel subsidies and other price control policies, changing export markets, and a lack of investments in new field developments have led to Africa’s biggest oil producers failing to capitalize on the oil price surge in 2022 and in the sustained high prices in the following years.
As African oil production is on a decline, the region’s petrostates do not have the resources to begin their energy transition, Zainab Usman, a senior fellow and director of the Africa program at the Carnegie Endowment for International Peace, writes in an opinion piece in the Financial Times.
These countries must rely on external financing to achieve the UN’s sustainable development goals and help the global fight against climate change.
Why Africa Missed Out on the Oil Boom
Saudi Arabia and other OPEC and OPEC+ producers generated huge revenues in 2022 when oil prices hit $100 per barrel after the Russian invasion of Ukraine. Saudi Arabia, for example, received as much as $326 billion in oil revenues for 2022, its biggest oil sales haul in a year in the era of Crown Prince Mohammed bin Salman.
At the same time, Africa’s largest producers, including Nigeria and Libya, were left out on the sidelines as production was declining—or halted—and domestic policies and turmoil added more hurdles to African petrostates benefiting from the oil price surge.
Part of Nigeria’s oil income in 2022 was going to subsidize domestic fuel prices and Libya hasn’t seen stability since the toppling of Muammar Gaddafi more than a decade ago. Angola, Congo, and Equatorial Guinea have been lacking new investment in production.
International majors have scaled back investments in Africa’s legacy producers and have instead opted for exploration offshore Namibia, hoping it would be the next Guyana and the next major oil producer and exporter.
The most significant production drop was seen in Nigeria, where crude oil output fell by around 1 million barrels per day (bpd) in a decade—to about 1.5 million bpd in 2023 from 2.5 million bpd back in 2010.
Despite still being a major oil producer and the top oil-producing nation in Africa, Nigeria is currently going through its worst economic crisis in a generation as reforms initiated by President Bola Tinubu last year have exacerbated the cost-of-living crisis.
Following a decade of falling output, raising oil production has been a key priority for the Nigerian federal government, which aims to thus boost revenues and foreign exchange reserves.
Oil theft and pipeline vandalism have long plagued Nigeria’s upstream oil and gas industry, driving majors out of the country and often resulting in force majeure at the key crude oil export terminals.
The combination of pipeline vandalism and oil theft with a lack of investment in capacity has made Nigeria the biggest laggard in crude oil production in the OPEC+ alliance. Due to the underproduction, OPEC even reduced last year the quota for Nigeria’s oil production.
Nigeria’s national oil company, NNPC Ltd, has declared a state of emergency on production in Nigeria’s oil and gas industry as Africa’s largest oil producer struggles to boost output.
NNPC believes that Nigeria needs to take urgent action to address the challenges that have plagued the oil and gas industry for years, NNPC Group Chief Executive Officer, Mele Kyari, said in July.
An analysis of the oil and gas assets in Nigeria has found that the largest OPEC producer in Africa can easily pump 2 million bpd of crude oil without deploying new rigs, Kyari said.
On the supply side, Africa’s crude grades have also faced challenges, with growing competition from the U.S. crude on the Asian market and, more recently, cheap barrels of Russian oil, which India and China are snapping up while the West has banned imports of Russian crude.
Clean Energy Investment
As calls have grown in recent years for producers to leave oil in the ground to save the planet, African oil-producing nations still rely very much on income from oil sales, which have become the backbone of their economies.
Government income will also be needed for African countries to begin the shift to renewables, as investment levels in clean technology in the continent are woefully inadequate to meet development and climate goals.
Energy access is among the top priorities in Africa, where 600 million people live without electricity and about 1 billion people lack access to clean cooking, the International Energy Agency (IEA) said in its World Energy Investment 2024 report.
In addition, the high cost of capital is a major hurdle to scaling up clean energy investments in Africa, the agency advocating for fast energy transition says.
“Burdened by significant debt repayments, financing for clean energy projects is scarce as the need for concessional support becomes increasingly evident,” the IEA said about clean energy investment in Africa.
By Tsvetana Paraskova for Oilprice.com
