The key factors shaping investment in Africa’s upstream industry

Africa's upstream sector has gained increasing attention from investors over the last two years. Improved tax terms and exploration success have been important developments.

Despite declining investment in some African countries due to stalled projects, overall upstream capex in the region has rebounded to pre-pandemic levels and looks to remain steady.

While the outlook is positive, old challenges like above-ground risk, project lead times, and the dominance of national oil companies (NOCs) persist.

Amidst global pressure to decarbonise, opportunities for upstream investment in Africa will likely become limited. To ensure the region receives its share of economic benefits, it’s imperative to accelerate investment before it’s too late.

Attracting capital into Africa’s energy sectors

Investments within Africa need to align with the growing sustainability regulations. The continent's upstream carbon intensity ranks among the world's highest, discouraging purchasers seeking low-carbon resources. African nations must address significant sources of upstream emissions.

With disciplined capital allocation over the past decade, and the increasing pace of the energy transition, Africa faces a number of investment challenges to Africa-bound investment, and what host governments and national oil companies are doing to successfully attract investment.

The rise of oil and gas hotspots

As demand for oil and gas rebounds strongly following COVID-19, Africa has seen a rise in investment hotspots.

Liquefied natural gas (LNG) projects like Marine XII FLNG in Congo and advantaged, low-carbon oil projects like Baleine in Cote d’Ivoire offer appealing investment solutions. These projects also have the governments primed to transform the respective countries’ national economy and infrastructure.

Despite the rise in oil and gas hotspots, the region still faces challenges presented by an increasing market focus on decarbonising Africa’s energy system. With greater corporate attention on resilience and sustainability, future investment levels remain somewhat unpredictable.

How can Africa compete?

Africa possesses globally renowned resources, but it lags behind other regions in effectively capitalising on its abundant resources. To enhance its competitiveness in attracting investments, governments must eliminate obstacles to progress.

Fiscal attractiveness, infrastructure deficits and limited domestic markets, particularly for gas, challenge operators’ willingness to invest. Providing clarity on terms and quick decision-making are levers at governments’ disposal to help maximise the region’s resource potential.

Developing sustainability strategies and long-term energy plans inspires confidence with investors on the national objectives and priorities to develop resources, infrastructure and capabilities across energy sectors.