Report: Nigeria and other African countries’ energy demand will increase by 30% by 2040
Although wealthier countries continue to push for the transition from fossil fuels, energy demand in Africa will increase by at least 30% in Nigeria and other African countries, compared to 10% in others parts of the world, according to a McKinsey and Company report revealed.
McKinsey, a global management consulting firm in the report titled: “The Future of African Oil and Gas: Positioning for the Energy Transition”, said that a number of African oil producers are highly exposed to the transition global energy source, as their economies depend on oil and gas revenues.
He added that Africa’s oil reserves cost more to produce and are, on average, more carbon intensive than oil and gas from other regions, a development that could pose serious challenges for the continent in the future. close.
“McKinsey modeling estimates that African energy demand in 2040 could be about 30% higher than it is today, compared to a 10% increase in global energy demand,” he said.
Last month, the federal government said sub-Saharan Africa could need $60 billion to access reliable fuels for electricity and clean cooking facilities by 2030.
Minister of State for Petroleum Resources, Timipre Sylva, noted that an annual investment of about $35 billion could bring access to electricity to 759 million Africans who currently lack it, adding that $25 billion additional dollars per year could help 2.6 billion people around the world gain access to a clean kitchen by 2030.
The minister pointed out that Nigeria has approximately 208.62 trillion cubic feet (TCF) of proven gas valued at over $803.9 trillion and an upside potential of 600TCF of gas, the largest in Africa and the world top 10.
He insisted that despite pressure from rich countries, there must be multiple pathways to the energy transition to ensure that no country is left behind in the process of reaching net zero by 2060.
Sylva said that around 900 million people lack access to clean cooking in Africa; and in 32 countries, more than 75% of the population does not have access to a clean kitchen with the 20 least electrified countries in the world in sub-Saharan Africa.
But McKinsey said its current trajectory energy transition scenario suggests global oil demand could peak by 2027, while global gas demand could peak by 2040, especially if major countries meet their pledges. net zero through targeted policies.
“In this ‘delivered’ scenario, global oil demand could peak as early as 2024, while global gas demand could peak around 2030,” he added.
The report adds that more than half of Africa’s oil and gas producing countries depend on oil and gas exports for more than 50% of their total export earnings.
This trend, he said, creates several considerations for African oil and gas producing countries that rely heavily on global capital pools to finance their hydrocarbon projects and maintain their oil and gas operations.
“African oil and gas assets are on average 15-20% more expensive to develop and operate and 70-80% more carbon intensive than global oil and gas assets,” he pointed out.
According to McKinsey, as global capital pools for hydrocarbon projects begin to dwindle, the cost of oil and gas production in Africa is expected to rise, making African oil and gas projects potentially even less competitive in global markets. .
“Under the energy transition scenario of the commitments achieved by McKinsey, the replacement of around 60% of Africa’s current oil production could become uncompetitive by 2040.
“As oil majors look to low-emission pools, African oil-producing countries could find themselves deprioritized for further development and facing increased risk of stranded assets with large oil and gas reserves remaining. untapped,” he added.
He predicted that this could put additional pressure on public spending and impact development priorities, as more than half of Africa’s oil and gas producing countries depend on oil and gas exports for more than 50 percent. of their total export earnings.
In Nigeria, for example, he said that oil exports accounted for more than 85% of the government’s total export earnings.
He cited Nigeria and Angola as examples of countries that have both low oil resource resilience and economies heavily dependent on oil and gas production, noting that countries of this archetype could consider implementing levers to strengthen the cost-competitiveness of their resources, such as the optimization of tax conditions.
“These countries could further build their resource resilience by considering initiatives to decarbonize their existing oil and gas operations and encouraging investment in low-carbon energy infrastructure such as gas pipelines,” he added.
To overcome headwinds, McKinsey advised national governments to explore optimizing their fiscal regimes to improve the position of their resources on the resource supply curve, as Nigeria recently did with the Petroleum Industry Act (PIA).
As Africa’s energy demand grows, the need for projects that boost energy supply on the continent is likely to increase, he noted, saying that to ensure bankability, such infrastructure projects should integrate decarbonization or carbon offset levers.
“McKinsey analysis suggests that despite having the largest proven gas reserves on the continent, Nigeria could find itself in a situation where gas demand exceeds gas supply by 2030 by at least $3 billion. cubic feet per day.
“This presents a potential opportunity for investment in gas infrastructure such as pipelines, gas processing facilities and offshore LNG regasification to connect currently stranded gas reserves onshore and offshore with industrial demand centers, national commercial and electricity companies,” he said.
McKinsey added that increasing grid electrification could also help displace more carbon-intensive decentralized energy sources, with estimates that there are between 40 and 60 gigawatts of installed capacity of generators. diesel and gasoline engines in Nigeria, generating approximately 33 metric tons of CO2-equivalent (MTCO2e) each year, or 12% of Nigeria’s total emissions.