When the African Energy Chamber (AEC) published its African Energy Outlook for 2023, there was ample reason for optimism that Senegal was just months away from becoming a producer of both crude oil and natural gas.

On the one hand, Australia’s Woodside Energy was talking confidently about bringing Sangomar, an oil-bearing offshore block, online before the end of 2023. On the other hand, the British giant BP and its U.S. partner Kosmos Energy were gearing up to start extracting gas from Greater Tortue/Ahmeyim (GTA), an offshore block shared with neighboring Senegal, in the third quarter of 2023 and then processing it into liquefied natural gas (LNG) in the final quarter of the year.

By mid-year, though, those plans had been derailed. Woodside said in July that it had pushed the target date for first oil at Sangomar back to mid-2024 after discovering problems during the construction of a floating production, storage, and off-loading (FPSO) unit that had forced it to raise its budget.

Then in August, BP also announced a delay, saying that GTA would begin gas production in early 2024. Its decision appears to have been the result of similar problems — that is, cost overruns and the late delivery of the floating LNG (FLNG) vessel needed to realize BP’s vision.

Revised Capital Expenditure Forecast

As a result of these recent developments, Senegal looks set to enter 2024 still waiting for its domestic oil and gas industry to gain the momentum it needs to take off.

In a somewhat similar fashion, Africa’s oil and gas industry is looking a bit flat as it reaches the final quarter of 2023. That is, as AEC details in its newly released 2024 African Energy Outlook, capital expenditure (CAPEX) on upstream projects is still rising, but it is on a relatively slow upward trajectory — and it is moving up more slowly than we had predicted last year because of changes in the timeline of certain African upstream projects.

That’s the bad news.

There is good news, though.

For one thing, we don’t expect cumulative CAPEX to go down in the long term, even if it starts out by rising more slowly. We do expect the rate of increase to be lower than previously projected during the 2023-2026 period, but we’re no longer expecting CAPEX to drop from 2026 to 2027 before resuming its climb until the end of the decade. Instead, we’re forecasting that CAPEX levels will rise more or less steadily from 2023 to 2029 before leveling out in the last year of the decade. We’re also projecting that overall potential cumulative CAPEX in Africa’s upstream sector will approach USD450 billion, and that number is unchanged from last year’s forecast.

Actual Spending Falls in Line With ‘Mean’ Climate Scenario

There are likely to be some shifts within that figure of USD450 billion, though.

The AEC is expecting the share of actual spending — that is, all of the spending coming from upstream projects with break-even prices less than forecasted Brent crude prices — in total spending to average about 60% over the 2024-2030 period.

But the figure will not remain constant. Instead, it will drop from around 95% in 2024 to less than 40% in 2030.

What’s more, this drop will make actual spending levels fall fairly closely into line with estimated spending levels under a “mean” climate change scenario that limits global temperature shifts to +2 degrees C. The implication of this is that if efforts are made to limit global temperature shifts even further (say, to +1.5 degrees C) or to achieve specific goals (such as, say, net zero carbon dioxide emissions by 2050), actual spending could drop to an even local share of total spending coming from African upstream projects by the end of the decade.

This would, of course, have a significant negative impact on the African oil and gas industry.

Lower CAPEX Would Be Detrimental for African Oil And Gas

And by extension, the drop in spending would have a significant negative impact on many African countries and African people.

In an economic sense, it would complicate efforts to attract investment from companies that have the funding, the technology, and the experience needed to create jobs and provide African workers with new skills and training. It would frustrate efforts to establish and expand local businesses that can support oil and gas operations. It would deny national and regional African governments new sources of tax revenue.

And in a socioeconomic sense, it would leave hundreds of millions of Africans in a position of continued dependence on traditional biomass fuels — wood, charcoal, and/or dung — while they wait for renewable energy solutions that are not yet available in mass quantities or in remote communities. This is an unacceptable health hazard, given the pollution and dangerous emissions that such fuels are known to produce. It is also avoidable, given that multiple African countries possess natural gas that could be used to fire power plants to produce electricity for local markets or processed into liquid petroleum gas or LPG (cooking gas) for local consumption.

Despite these concerns, though, it’s too early for pessimism about African oil and gas CAPEX. There are encouraging signs, such as the steady number of high-impact wells (HIWs) scheduled for drilling through the end of 2024 and the recovery of rig demand to pre-COVID levels.

To learn more, download the 2024 African Energy Outlook at https://EnergyChamber.org.