CAPE TOWN, September 16, 2024 — Global investment in upstream oil and gas is set to reach US$ 570 billion in 2024, showing a 7 percent increase compared to 2023 expenditure. Of this, 33 percent is expected to be directed toward frontier assets, presenting a strategic opportunity for emerging oil and gas markets in Africa.
Meanwhile, the International Energy Agency has estimated that delivering modern energy to the entire African continent – where more than 600 million people still lack access to electricity – will require up to US$ 25bln in annual spending through 2030.
With a lack of investment representing one of the primary challenges to oil and gas project financing in Africa, this year’s African Energy Week [AEW]: Invest in African Energy 2024 event – taking place in Cape Town from November 4-8 – will feature a panel discussion on Unlocking African Assets Through New Risk and Finance Solutions.
Sponsored by Global international insurance broker Howden and Pan African Insurance advisory firm TRM Risk management, the session will explore the mechanisms, opportunities and challenges shaping Africa’s energy funding space, identifying new strategies for accelerating project development and maintaining a competitive advantage within the global energy landscape.
The session will explore the mechanisms, opportunities and challenges shaping Africa’s energy funding space, identifying new strategies for accelerating project development and maintaining a competitive advantage within the global energy landscape and how political risk and credit Insurance can facilitate investment.
Serving as a milestone development in the sector, the African Petroleum Producers’ Organisation and multilateral financial institution Afreximbank signed an agreement last June establishing the Africa Energy Bank. The bank is set up to facilitate, promote and finance the development of oil, gas and energy projects in Africa.
The Bank will play a central role in strengthening energy access by providing the financing needed to get large-scale projects off the ground. With US$ 5bln in initial capital raised from African signatories so far, the institution aims to close the funding gap by providing capital to oil and gas projects across the continent.
Despite the role oil and gas has played and will continue to play in Africa, global efforts to transition to alternative sources of fuel have created a stark investment gap. Fossil fuel funding has been declining in recent years, as international oil companies divest their oil and gas assets in favour of lower-carbon investments.
As a result, one of the challenges in Africa’s oil and gas sector is reliance on both foreign expertise and funding. The Africa Energy Bank serves as a prime opportunity for the continent to attract interest and stimulate participation from local and regional governments and private sector players to fund future projects.
African governments play a crucial role in developers’ ability to secure financing for oil and gas projects. Many countries on the continent offer flexible profit-sharing, royalty and tax structures that facilitate quicker cost recovery, which is a major consideration for investors.
Equatorial Guinea has established a one-stop shop that enables investors to set up a business in the country in one week, while South Africa’s InvestSA platform serves to facilitate investment, fast-track projects and reduce government red tape. Earlier this year, Angola implemented a one-stop shop for local content compliance in the oil and gas industry, enhancing transparency and policy implementation across the sector.
Financial delays are a major risk to project timelines, requiring companies to secure the necessary funding before launching large-scale projects. As such, the establishment of certain financial mechanisms in the oil and gas sector can enable companies to better access funding, as well as unlock alternative sources of capital such as sovereign wealth funds, development finance institutions, bond markets and more.
One such mechanism is public-private partnerships [PPPs], which can accelerate project timelines by sharing risks, resources and expertise. Governments can encourage PPPs by offering incentives such as tax breaks, reduced royalties or fast-tracked approvals for projects that involve private sector investment. PPPs are especially effective in infrastructure development, where private companies can bring in advanced technology and expertise to expedite construction and operation phases.
“Financial institutions across Africa’s oil and gas sector have an essential role to play in driving industry growth. By providing much-needed capital to critical energy projects, they help bridge the investment gap and reduce the level of perceived risk that has long hindered development. Their involvement ensures that Africa’s resources are harnessed in a way that benefits local economies, creates jobs and supports energy access. As we unlock new opportunities, the support of these institutions will be paramount,” states NJ Ayuk, Executive Chairman of the African Energy Chamber.
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