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Africa's oil producers will miss out on the Russian sanctions opportunity

  • Producers in Africa are some of the largest suppliers of crude to the EU, behind Russia and Europe's own producers

  • But oil supply from Africa has been weak and erratic, and the withdrawal of IOCs is making the situation worse

  • Africa is set to miss out on the chance to replace Russia's oil supply to the EU, but there could be hope on the horizon

Africa's oil producers will miss out on the Russian sanctions opportunity
Janet Ogabi
Janet Ogabi

Senior Research Analyst

Tellimer Research
16 July 2022
Published byTellimer Research

Africa is one of the largest supplying regions of oil to the EU, after Europe's own suppliers, such as Norway, and Russia. The EU's vote to ban oil imports from the latter on 3 June has left a gap to be filled and led to a significant reshuffle in global oil flows.

Last year, Russia supplied 25% of the EU's oil imports as well as 40% of its gas imports, so there is a clear opportunity for Africa's major producers. But do they have the capacity to meet this urgent demand? The answer, unfortunately, is probably no, for three key reasons.

African producers are key suppliers of oil to the EU

1. Weak production numbers

Leading producers in Sub-Saharan Africa (SSA) have been recording steep declines in oil production for several years. Most notably, production from Angola and Nigeria has dropped to record lows and, in fact, Nigeria could soon lose its much-coveted position as Africa's leading oil producer.

Africa's top oil producers hit record lows

Moreover, they are now the biggest laggards in meeting OPEC production quotas – Angola is 298,000 barrels per day (bpd) under quota and Nigeria is 534,000bpd under quota as of the end of June.

Africa's top producers are the biggest laggards in meeting OPEC quotas

2. Exiting IOCs

Nigeria and Angola are heavily reliant on international oil companies for production. Recently, we highlighted the imminent risk of IOCs leaving SSA, as they look to make their operations greener and exit environmentally unfriendly operations. In addition, according to Rystad Energy, IOCs find the cost of operations in SSA too high relative to most other emerging markets.

SSA operating costs are relatively high

In Nigeria, Mobil, Shell and Total have all put up major assets for sale. And these exits are going ahead despite the recent passing of the long-awaited Petroleum Investment Act. Angola has also continued to suffer from receding investment in its oil sector.  

3. Instability and insecurity

Beyond the impact of IOC exits on the continent, the likes of Libya also continue to record increased volatility. Just recently, renewed political instability – reversing the progress made in 2021 – forced the shutdown of pipelines in the country, which is home to Africa's largest oil reserves. As a result, oil production has dropped from 1.1mn bpd in January 2021 to 629,000bpd as of the end of June, according to OPEC's sources.

In Nigeria, the persistent problem of oil theft robbed the country's coffers of US$1bn in oil receipts over Q1, according to the country's Upstream Petroleum Regulatory Commission. Shell Nigeria has described it as an "existential threat" to the sector.

...but there is hope

So, African producers will probably miss out on the opportunity to capture new markets in the EU, as well as missing out on the US$100/barrel oil price moment. But, there is some light on the horizon in the form of new energy producers in the region, particularly in East Africa. Mozambique, Tanzania and Uganda all have projects underway that are set to ramp up oil and gas production in SSA in the near future, and which have attracted interest from IOCs such as Total Energies, Eni, Exxon Mobil and Shell.

In Mozambique, the Coral South LNG project (in partnership with Eni and ExxonMobil) is expected to deliver first gas later this year. And the Ugandan and Tanzanian governments are working with Total Energies and China's CNOOC on the Lake Albert development project, which reached the final investment decision (FID) stage in February. Construction is set to begin soon and first production is expected in 2025, with a 230,000bpd peak capacity through the East African Crude Oil Pipeline.

Tanzania also signed a US$30bn-40bn deal with Shell and Equinor for an LNG project in June. The project's FID is expected to be signed in 2025 and first LNG flow is expected in 2029-30. And, in northern Kenya, the government there is working in partnership with Tullow Oil and other partners to develop the country's oil and gas resources.

The traditional producer giants of SSA cannot be completely written off either. In Nigeria, as IOCs exit, indigenous independents, notably Seplat, are set to step up, although pushback from the state oil firm shows it could be a shaky transition.

Nigeria also recently approved a memorandum of understanding with ECOWAS for the Nigeria-Morocco pipeline, which could allow for the supply of gas to Europe. The project could do with considerably more impetus, and the 2023 general election is set to be a major distraction, but it does represent a glimmer of hope.