Financial sector must increase long-term capital for oil & gas projects

Chief Executive Officer (CEO) of the Ghana National Petroleum Corporation (GNPC), Opoku-Ahweneeh Danquah

Amid capital flight out of African fossil fuel projects, the Chief Executive Officer (CEO) of Ghana National Petroleum Corporation (GNPC), Opoku-Ahweneeh Danquah, says there is a clear impetus for increased involvement of the financial sector in securing long-term capital for oil and gas projects.

Energy investment trends – according to the IEA’s 2022 World Energy Investment Report – highlight a 42 percent fall in global upstream oil and gas investment from around US$680billion in 2015 to US$395billion in 2021. Similarly, global investment in renewable power has seen a 67 percent rise from US$310billion to US$520billion in the same period.

Speaking at the Exploration Financing Forum during African Energy Week in South Africa, the CEO said that there is a global risk of tightening financial markets coupled with the clear and present danger of capital flight out of African fossil fuel projects.

“With African finances only control 11 percent of its fossil projects and 33 percent of its production; a move by foreign investors and companies away from fossil fuels toward renewables creates a significant threat of leaving key African resources untapped (our bread and butter),” he said.

He also mentioned that governments across the African continent can provide enabling momentum to help build local exploration and production (E&P) companies’ operating capacity.

The necessity to plan and execute appealing initiatives in the face of declining fossil fuel funding becomes of even greater importance as global capital becomes scarcer in a volatile industry.

Mr. Danquah noted that protecting returns on investment at both the macro (government) and micro (project enterprise) levels is the foundation for this, especially given that many African initiatives entail frontier exploration that has inherent risks and unforeseen costs.

This will fundamentally require an enabling climate for African financing of projects to flourish.

“…National Oil Companies (NOCs) can be strengthened to lead the charge in exploration,” the CEO said. “Another element that may improve project prospects to attract financing is the availability of strong local capacity.”

Gas Commercialisation

In light of the dominance of natural gas in Africa’s fossil fuel discoveries, accounting for about 80 percent of discoveries between 2011 and 2022, Mr. Danquah said governments can further support gas commercialisation by taking a more regional view to expanding market access and developing key infrastructure.

“Importantly, unlike crude oil, monetisation can be more practically achieved by serving proximate markets. Consequently, the benefits of natural gas projects are mostly retained within the continent.  This should serve as a strong incentive to increase government-backed financing for projects, especially within frontier basins to de-risk projects and provide energy security,” he said.

Large gas reserves may, for example, be able to efficiently serve regional power pools or gas markets through inter-boundary gas pipelines that connect processing and LNG facilities, or gas-powered electricity generation. For example, according to 2019/2020 statistics from the Southern African Power Pool (SAPP), 69.5 percent of the power supplied to the power pool by Mozambique in 2019 or 2020 was generated from external gas plants.

It is estimated that effective implementation of regional power pools could lower power investment costs in Africa by US$80billion through 2040.

“In this regard, Africa’s growing gas resources and low access to electricity presents the opportunity for regional energy project development, financing and intra-African trade under African Continental Free Trade Agreement (AfCFTA),” the CEO stated.

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