To address the current challenges constraining optimal output from Africa’s oil-producing countries and ensure sustainable growth of the hydrocarbon resources industry, an industry expert, Mr. Kola Karim, has charged banks in the continent to commit more funds to critical value chains in the sector.
Karim, who gave the charge during an interview with African Energy Chamber (AEC) circulated by African Press Organisation (APO) Group, noted that the industry had been facing some quite significant headwinds in recent times, especially systemic and COVID-19 related challenges complicated by the additional variable of de-carbonisation which continues to create a potential financing gap for both local producers and IOC’s looking to invest in new production in Africa.
The industry top player and Managing Director of Shoreline Energy International lamented that despite the humongous constraints to boost oil and gas production in Africa, the banks were “retreating from lending to oil and gas projects, and this created an uphill task with regard to the key cornerstone of any turnaround which is financing.”
Linking production decline in the continent to, in most cases, country-specific challenges and the COVID-19 pandemic with its attendant disruptions in the global supply chains which had dipped oil and gas output by about 10 percent in the past few year, Karim clarified that these massive disruptions in global supply chains also meant that equipment and maintenance activities such as part replacement had been severely disrupted across the industry leading to significant production delays and production shut ins in the worst cases.
Speaking on the implications of production under-performance in Nigeria and other African countries for the continent, the industry leader, who is also a Board Member of the AEC, explained that under-performance would invariably have a direct effect on the ability of countries to fund budgetary spending as there has been a direct linkage for many years between the oil price and the ability to many African governments to balance the books.
According to him, the massive slow down associated with the COVID-19 pandemic and the significant economic shocks it had produced coupled with production below capacity will certainly create fiscal pressure for the oil producing countries.
The industry chief further pointed out that oil price rise had been witnessed in the last few quarters to a healthy level, noting, however, that without the production to take advantage of higher prices, the usual challenges in funding capital spending will be sustained.
He maintained that the deficit spending would also, therefore, depend on the view of the markets on how much damage and for how long countries.
On the way out of the funding crisis, Karim, who is also a Board member of the African Energy Chamber (AEC), advocated: “We need to see additional financing to fix supply chains and allow manufacturing and maintenance inputs to be located nearer production facilities and we need more investment in opening up additional reserves to close the production gap as consumption returns.”
In recent years, despite being blessed with abundant oil and gas resources, Africa’s production has been on the decline, representing a challenge for the continent as moves to initiate a COVID-19 economic recovery and address energy poverty.
With exploration restricted due to reduced capital for fossil fuel projects and the transition away from hydrocarbons, the continent needs to act now if it is to reap the benefits of its oil and gas.
