VENDREDI 07 JANVIER 2022 BIZWEEK ÉDITION 376 The State of African Energy 2022 report assesses the energy value chain encompassingupstream, midstream and downstream investment needs, especially in light of the pandemic-related market shocks and the opportunities therein. The 2022 Outlook demonstrates is that all is not lost, especially for the African continent. There are at least three reasons why some of the adverse predictions about Africa’s oil and gas and broader energy industry need putting in perspective. Firstly, exploration activity in the region is expected to increase gradually to 2019 levels, albeit well below pre-2015 levels. Greenfield activity is expected to keep increasing for the remainder of this decade as many of the LNG projects in East Africa start attracting investments. Greenfield investments offshore in Sub-Saharan Africa are also expected to increase with the recovery in sanctioning activity. Six licensing rounds are expected to conclude LA TOUR THE STATE OF AFRICAN ENERGY 2022 All Is Not Lost Last year was an extraordinary year for the oil and gas industry as the COVID-19 pandemic hit the global demand, leading to a fall in oil prices. Companies responded swiftly by slashing their budgets and delayingupcoming project sanctioning decisions. The pandemic has also been particularly challenging for many countries worldwide, more so in Africa. The continent entered its first recession in decades, with several African economies seeing a sharp slowdown in economic activity since early 2020 with the outbreak of the Coronavirus (COVID-19) pandemic. Although we have seen a rebound in economic activity, this renewed growth momentum on the continent still lags behind other regions such as emerging and developing Asia before the end of 2021, with about 92 blocks on offer, while another fourteen are expected to close in 2022. Secondly, a key change visible in Africa is that the continent is expected to sanction more gas resources than the last decade, which focused mainly on crude oil projects. Due to energy poverty in Africa, net-zero targets are not at the forefront of most countries’minds. Instead, providing sufficient energy to fulfil the basic requirements of the population is foremost. Afri- Key Highlights Free cash flow (FCF) generation and government take declined by slightly less than 50% in 2020 Highest free cash flow generation expected in 2021 supported by improving commodity prices and curbed capital investments Higher sanctioning and investment activities in 2022, decreasing free cash flow by 15% Short termoutlook suggests a good supply demand balance for the rest of 2021 but an oversupply if OPEC+ delivers on its new supply targets There could be a correction in reference prices from 2022+ if additional volumes from OPEC+ result in supply outrunning the demand Demand and supply to recover after taking a hit in 2020 due to COVID-19 and a supply shortfall in 2021 Major reference prices to remain on the higher side due to new LNG supply delays, exemplified in the recent escalation in gas prices during 2021, also impacted by pipeline flows COVID-19 and the subsequent disruption to global markets is estimated to have wiped out close to US$150 billion of exploration and development expenditure from Africa between 2020 to 2025 Over the last 12 – 15 months, more companies and especially majors have announced strategic revisions with increased focus on the energy transition, cutting down their carbon emissions and in doing so, reduce respectiveupstream expenditure going forward While 2021 is expected to see marginally higherupstream investment totaling just over US$33 billion in Africa, the estimated drop in Africanupstream expenditure over the years 2022 – 2025 is close to US$34 billion when compared to the estimates from year-end 2020 Upstream capital expenditure halved from US$60 billion+ levels in 2014 to an estimated US$33 billion in 2022 Drilling activity is expected to fall to about 950 wells per year in 2022 versus the 1475 wells drilled in 2012 2021 offshore rig demand cut by 22% versus 2020, but 2022 demand estimated to double from 2021 levels, spelling out a busy market for drilling service providers While 2020 witnessed the second lowest discovered volumes in the past decade, so far in 2021 much lower volumes have been discovered Only 1 high impact well has been drilled in 2021 which resulted in non-commercial oil flows ; 3 more are expected to be drilled before the end of the year A much more encouraging year is anticipated in 2022 with 13 high impact wells expected to be drilled 6 licensing rounds are expected to conclude before the end of 2021, with about 92 blocks on offer. During 2022 14 rounds are expected to close, although 7 of these rounds remain uncertain Majors are divesting carbon intensive crude oil assets to meet carbon neutral goals through selling to NOCs and INOCs, amid a changing player landscape NOCs are acquiring majors crude oil assets European majors are expected to boost on gas output with the intention of tapping into global markets through the production of LNG G20 governments allocates US$ 123 billion in public sector financing to Africa and Middle East from 2013- 2019 European finance institutions demonstrate strongest reluctance to invest in fossil fuel related projects Asian financing institutions likely to remain as key sources of financing for fossil fuel projects in Africa 4 Cont’d on page 5