The oil and gas industry faced a tough year in 2021. According to The State of African Energy 2022 this was a result of a drop in global demand, which resulted in a fall in oil prices. This led to companies cutting budgets and delaying future projects. The sharp slowdown in several African economies further exacerbated the challenge and while we are seeing a rebound in economic activity, Africa is still lagging in this renewed growth momentum. According to Ahmed Djidda, Head of Oil and Gas at Aggreko Africa, while the oil and gas sector on the continent faces several challenges, one of the biggest challenges is access to financing. “The oil and gas sector in Africa has historically been financed with external funding,” he says. “Given the challenge brought on by the pandemic and the global economic meltdown, the financing did not flow. This financing is crucial in maintaining production and keeping these companies afloat.”
Another challenge the sector is facing is that of legislation and regulation transparency. “In a way, this is connected to financing particularly when it comes to taxes and other regulations. If you look at Egypt for example, the tax legislation is transparent and straightforward, making it easier to attract foreign investment, because investors know what to expect. That is, however, not the case in many African countries,” says Djidda. “So, a lot of work needs to be done by the different countries on the continent to simplify or clarify their expectation in terms of taxes and regulations, and around the environment.” Already there is a global trend towards reducing emissions and saving resources environment protection. “In Africa, we are seeing some countries picking up on this regulation, which has a huge impact on the oil and gas sector, particularly around flaring activities,” he adds. “The problem is that although some of those regulations are unclear or not fully implemented, it is a reality that the sector has to face”. “And the third biggest challenge the industry is facing is around having access to the right type of skills.”
Collaboration is key to overcoming these challenges
“The keyword for us in Africa is collaboration. The private sector needs to collaborate with governments, entities and even within the industry if we are to overcome these challenges and find the right technologies and solutions to develop the Oil & Gas industry on our continent,” says Djidda. “Africa is rich in resources and currently accounts for roughly 7.5 percent of the world’s resources in terms of oil and gas, yet we are only refining in Africa a bit in excess of 2 percent of the oil produced, which means most of the oil we produce on the continent is exported in its raw form. This presents an opportunity for the different stakeholders to work together to expand on the midstream and downstream activity in Africa – to move beyond just the production of oil and gas, and to transform the industry to add more value to the oil and gas value chain on the continent,” he says.
The continent also faces a challenge of a shortage of energy to meet growing demands. “The time is now to start thinking outside the box. We know financing is an issue, so why not develop an African financing institution to finance the oil and gas sector to fuel it’s development and turn it’s focus on supplying the local market? This way Africa is funding internal development.” Another opportunity directly addresses the challenge of lowering emissions and gas flaring. “Most countries major and independent Oil & Gas companies are committing to adopt achieve net zero emissions. This is where Aggreko can play a huge role in guiding them on their journey and helping them accelerate the achievement of those targets with our different technologies. One such example is implementing flare gas to power solutions. This creates a double-win situation for our continent because we are reducing the gap between power availability and demand while helping the oil and gas companies reduce their impact on the environment by using their flare gas to generate affordable electricity,” says Djidda.
The private sector also has a key role to play in ensuring that skills are developed locally in the countries they operate in. “As Aggreko, we are a global company, but we are also a local company embedded and rooted in the countries and communities in which we work. We hire locally and train our workforce to global standards to ensure that we bridge the competency gaps that we have on the African continent, using local resources,” says Djidda.
Looking forward to a promising year
2022 is likely to see a rebound in activity and an acceleration of the steps to meet the commitments toward reducing emissions on the continent. “We are seeing growing interest of oil and gas companies for hybrid and energy storage solutions, as well as an increase in the pace of transformation towards true digitalisation of their operations. And, of course, we expect investment into the sector to rebound in 2022, to bring production back to pre-pandemic levels, with projects put on hold during 2020 and 2021 now becoming part of the pipeline again.”
He adds that the industry is also adjusting to a “new normal” due to the impact of the pandemic on our industry. “It is not only around the safety aspect of it, but the way companies operate going forward with smaller workforces, which requires them to digitalise their processes and look at more efficient technologies,” says Djidda. “Our customers are looking at hybrid technologies, which is a combination of thermal and renewables technologies, to which we have the engineering capabilities to couple battery storage. These are the types of technologies innovations that Aggreko brings to the market allowing our clients to be more efficient and use cleaner power.”
For many companies in the oil and gas sector, one of the biggest obstacles lies in finding the funding to embark on large-scale projects. “In Aggreko we play a key role in partnering with our customers on large scale, long-term energy solutions projects,“ he concludes. “We are an energy solution partner to the Oil&Gas industry. We have the capabilities to design and engineer extremely complex gas flaring to power solutions to help our customers achieve their target emissions and reduce their cost of energy. In addition to that, we provide them commercial flexibility by removing the need for heavy capital investment. In fact, by owning and operating our equipment, we negate to our customers the need to acquire and manage lifecyle of assets, as well as the training of their personnel to operate it. They also do not need to worry about the end of life of this equipment or upgrading the technology. As Aggreko, we take this capital-intensive requirement out of the equation, helping our clients fast-track their projects drastically and focus on what really matters: boosting production.”