Globally, Russia is the second highest producer of gas and third largest of oil. Russia’s invasion of Ukraine and the EU-US sanctions that followed have fuelled speculations, pushing oil prices and supply disruptions to new highs. Brent started trading above $110 this month for the first time since 2014. In the present scenario of uncertainties and escalating tensions, it is unlikely that prices of oil in the near-term remain steady.
Africa has abundant oil and gas reserves. The moot question is, can Africa benefit from the current impasse?
Europe is desperately searching for alternative energy sources and contemplating medium- and long-term solutions to replace the average 380 million cubic meters per day of Liquefied Natural Gas (LNG) from Russia. Several African countries could benefit from Europe’s energy diversification. BP divesting its stake in Russian state-oil company Rosneft, may explore opportunities in Africa. Similarly Germany has halted the Nord Stream 2 project with Russia and has shown interest in the East Africa’s gas reserves. Spain and Italy are also exploring imports from Libya and Algeria.
It is true that for African oil and gas producers like Nigeria, Angola, Libya, and Algeria this crisis opens a window of opportunity. But experts say that unfortunately Africa has neither that kind of surplus nor refining capacities to yield any notable benefit. On the contrary, they say that the crude oil exporters will have to pay more for imported refined fuel.
For instance, Nigeria is Africa’s largest producer of oil. Nigeria imports almost all of its fuel as its refineries have been shut down for about one year. The country depends entirely on imports to meet its energy needs. The Dangote Refinery, projected as the largest one in Africa is expected to be functional only by the third quarter of 2022. In fact the current oil crisis has plunged the country into darkness due to its excessive dependence on petrol and diesel for running generators for electricity.
The war-torn Libya was the second largest oil producing African country in 2021. The country has been mired in instability since 2011 after ousting its long-time leader Gaddafi. Amidst deepening political crisis, its oil production has dived below 1 million barrels a day, this month. Libya’s National Oil Company (NOC) announced the suspension of oil production from two major fields two weeks back.
Angola and Algeria came the third and fourth biggest oil producers in 2021. Angola like Nigeria, is struggling to meet its OPEC quotas. Algeria is one African country that appears to be gearing up to step in to plug the gap created by Russia. This week, Algerian state-owned oil and gas giant Sonatrach has offered to supply oil and gas to Europe. It has also announced its plan to invest US $40 billion between 2022 and 2026 in oil exploration, production, refining, gas exploration and extraction. Africa’s energy sector needs urgent reforms and investment if the continent wants to tap the opportunity. Existing trade agreements and new Agreements should be negotiated with clauses to ensure investment in the energy sector. Issues such as corruption, crude oil theft, and red tape should be also addressed aggressively.
Russia’s invasion of Ukraine has highlighted the danger of fossil fuel dependency. It presents a rare opportunity to reconsider alternatives that can reduce the impact of climate change. In January, the European Union drafted a proposal to classify natural gas projects as “green energy” investments, which will support Africa’s efforts to build on its huge green energy opportunities.
According to political analysts and oil experts, as the energy crisis lingers with the Russia-Ukraine conflict, a shift in focus to Africa is inevitable. But it could be both a blessing and a burden for Africa.
