How COVID-19 Opened The Vulnerability Of Africa’s Oil Producing Economies
…Nigeria good to lead Africa’s gas platform
A report has said that economic crises occasioned by the raging COVID-19 pandemic in African oil-producing countries will be so severe that they could reach double-digit economic recessions. The report produced by the African Energy Chamber (AEC) said the crises have demonstrated the dangers faced by African oil nations, dependent on oil are still not economically diverse.
Meanwhile, the AEC, who produced the report, said they align with the CEO & managing director of Shoreline Natural Resources, Mr Kola Karim, who said at the Invest Africa podcast last week that Nigeria is the country that could take the lead position in becoming the African gas producing platform the continent needs.
“He is right, and unless the current crisis leads to serious gas-market policies and initiatives to monetize gas across Nigeria and Africa, oil dependence-related hardships will continue and only get stronger,” the Chamber said in the report.
Nigeria has Africa’s largest discovered gas reserves and the 10th biggest in the world, with 188.8 Tcf of proved natural gas (BP, 2019).
In 2019, it was the world’s sixth-largest LNG exporter with a 6% global market share, ahead of Algeria (3%), Angola (1%) and Equatorial Guinea (1%).
Yet, out of the 20.8 million tonnes of LNG Nigeria exported last year (IGU, 2020), 54% went to Europe, 37% to Asia, and the rest to the Americas and the Middle East, the report noted, pointing out that the only Nigerian gas that reaches African markets is limited, and often interrupted, supply that goes through the West African Gas Pipeline (WAGP) to Benin, Togo and Ghana.
According to the report, despite repeated actions taken by governments over the past decade to diversify their economies, especially following the 2014-2016 African recessions, not enough has been done.
Countries like Nigeria, Angola, Gabon, Congo or Equatorial Guinea are grappling with very unprecedented lows in oil prices, and are choking to achieve balance with proposed economic variables in their national budgets, which were already under implementation before the pandemic started.
“The current downturn could well be the historic turning point these economies need to seriously put diversification at the top of economic policies priorities,” Africa Energy Chamber said.
The Chamber pointed out that diversification is not the same as abandoning oil and gas. “Efficient diversification goes through better use of oil revenues to fuel other sectors of the economy, build a stronger industrial base and create jobs. But it also means diversifying national hydrocarbons output and increasing production, monetization and valorization of natural gas.”
It noted that for many African oil producers, successful economic diversification depends on their abilities to increase hydrocarbons production and make better use of flared and associated natural gas to generate power for industries, produce fertilizers for farmers and manufacture petrochemicals for their growing domestic markets.
“Even then, the lack of stable gas supplies from the pipeline has forced these countries to rely on additional domestic or international sources of gas to fuel their power plants. The current situation in global and African energy markets is giving tremendous opportunities for Africans to take a strong position on economic diversification.
Africa needs to get used to a post-COVID-19 world where $50/barrel is the new $100, and where diversification needs to be the key priority in order to create a new hedge and natural buffer against future downwards cycles. “Diversification needs to become our new reality,” added Kola Karim.
“For Nigeria, it is time to stand up and focus on gas to become the gas platform producer that the continent needs. This pandemic should afford us all the opportunity to view our countries from an internal point of view and prepare ourselves and our economies for the next big crisis,” the report quoted Karim.