The Africa Oil Week (AOW) will be hosting its 27th edition next month. The forum is notable for its persistence to keep fossil fuels on the agenda, especially now with reduced investment and issues such as climate change. The Week, being held in Dubai, United Arab Emirates, for the first time outside its base in South Africa, aims “to stimulate upstream deals and transactions and drive investments into African projects.” With almost a half of Africa’s countries having proven reserves of either petroleum or gas, one can see why AOW is an important deal-making forum, bringing together governments, national and international oil companies, investors and other industry players. As with other African regions, most Eastern Africa countries – Kenya, Uganda, Ethiopia, Somalia, Rwanda, Djibouti, Eritrea and Burundi – will all have high-level ministerial and other representation at the forum. No matter that there is an emerging trend around the world to reduce carbon emission on account of climate change. The Week is an indication that the oil industry is not about to slow down. There is the argument that, with around 600 million people living without power, Africa needs petroleum and gas – particularly gas to generate electricity. It is true that the continent has an abundance of cleaner, renewable energy such as the sun, wind and hydroelectric energy. These could be harnessed but requisite technology is still to catch on, much less become more cheaply available. The argument therefore is that fossil fuels are still viable for the continent. Some estimates put it that carbon emissions arising from the use of the fuels for the entire continent would rise by only 1 percent if electricity generation is doubled. It is an argument African states are willing to make at the Climate Summit – COP26, set to begin at the end of the month in Glasgow, United Kingdom. The case is being made that developed countries burnt fossil fuels to get where they are and are overwhelmingly responsible for causing the climate crisis. African states argue that they haven’t had that opportunity, and will use gas instead of coal to develop. But if the new and would-be African entrants in the sector hope to cash in on their proven or nearly proven petroleum and gas reserves, the prevailing global circumstances couldn’t be more discouraging. Tapping into existing or prospecting for likely oil wells require investment. But the Covid-19 pandemic and climate change have conspired to make investments in the sector more challenging. And this is besides the slump in investment in the sector that has been going on for the past several years. As The Economist tells it, annual industry capital expenditure worldwide has fallen from $750 billion in 2014 (when oil prices exceeded $100 a barrel) to an estimated $350 billion this year This year the investment shortfall is one of the main reasons prices of energy commodities have soared, with Oil crossing $81 a barrel in early October. The experts note that even though prices are rising, investment in oil seems unlikely to pick up. Climate change is part of the reason, with banks and investment companies listening to their shareholders to decarbonise and invest in renewable energy. There are also jitters that the pandemic may yet weaken the global economy should coronavirus cases rise. It is also still vivid how the oil sector was affected last year when demand became so low during the lockdowns that the price at one time in the United States was negative $30 per barrel of oil. The scenario is still unimaginable, how some traders had to pay oil buyers to take oil from their hands. Things have since changed. And perhaps there is a silver lining to all this if we have to tackle climate change. The longer prices stay high, experts aver, the more likely it becomes that the transition to clean energy ultimately buries the fossil-fuel industry. In the meantime, under the theme “Succeeding in a Changed Market”, the Africa Oil Week will gauge the continent’s upstream preparedness to adapt and respond to the Covid-19 pandemic and accelerated energy transition. It will also seek to build back the industry by unlocking Africa’s upstream asset and exploration potential. We shall be watching to see how it plays out.
