Somaliland’s Emerging Oil Industry! Presents a New Frontier in Africa’s Oil and Gas Industry

Unlocking the potential of Africa’s hidden nation Somaliland: Is building a National Oil Company the correct way to harness this potentially game-changing untapped hydrocarbon resources?

 Preface

Africa, a vast continent home to the world’s second-largest population, is now seeing much limelight and positioned itself strategically to win in the ever-competitive oil and gas industry. It has positioned itself as one of the world’s most rewarding and fruitful hydrocarbon markets, with nations such as Nigeria, Libya, Angola and Algeria leading the way in African oil and gas exploration and production.

Traditionally, hydrocarbons have not been a critical driver of economic growth in Africa. This is all about to change in light of the continent’s recent oil and gas discoveries. The potential of the continent’s oil and gas sector cannot be overlooked as the current fast-growing energy demand from expanding markets and sanctions on Russia offer significant investment opportunities for this industry.

Europe’s mission to quench the thirst for oil and gas to replace sanctioned Russian hydrocarbon supply is reviving African upstream projects that were foregone due to the high costs of exploration, unstable oil and gas fiscal regimes, and, more recently, the curb on new oilfield finance due to climate change concerns. According to Reuters calculations based on public and private company estimates, energy firms are considering projects worth a total of $100 billion on the continent.

Somaliland’s recipe to succeed in the possible Oil and Gas discoveries soon:

Enter Somaliland, an autonomous region located in the Horn of Africa, with a chance to present itself on the international stage of the oil and gas industry. With substantial oil and gas discoveries have been made along Africa’s east coast regions and close to the Gulf of Arab nations that are rich with oil. Somaliland has emerged as an attractive upstream market. Despite the potential, the state remains relatively underexplored.

In light of recent news of Genel Energy (an independent oil and gas exploration and production company headquartered in London, United Kingdom) agreeing on a farm-out with CPC Corp (a state-owned hydrocarbons company in Taiwan), bringing forward the much-anticipated drilling of hydrocarbons in Somaliland to early 2023. This has undoubtedly generated buzz around other African counterparts as a new frontier in the ever-dynamic and competitive energy sector. Citizens of Somaliland will pay close attention to how potential revenues will be used to generate lasting benefits.

Oil and gas revenues are a unique case because they are finite, volatile and can negatively impact other industries through a phenomenon known as Dutch Disease that can lead to a resource curse. The resource curse, also known as the paradox of plenty, refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth. These revenues additionally lead to a conflict of interest and can cause political instability, thus leading to a deteriorating society. As a result, they need to be managed and distributed differently from other types of government revenues. The government of Somaliland has several ways and techniques it can employ to respond to all the challenges of natural resource revenues. One of the more severely touted options remains the creation of a State-owned National Oil Company.

A new age is now set and has taken over the oil industry as we know it. State-owned companies dominate the world’s largest oil producers. Looking at the latest figures, it is clear that the top three producing oil companies are state-owned. Due to this and in preparation for the drilling next year, Somaliland wants to ensure greater national participation in the upstream petroleum sector. The creation of a national oil company is needed to take on more significant operational roles and responsibilities.

We, the undersigned authors of this article, along with our dad, who is an Oil & Gas, FDI and economic development pundit, and also with five other government officers that include economists, oil and gas experts, and business developers, were called to the task of giving the Ministry of Energy and Minerals and the government about the possibility and the way forward for Somaliland’s National Oil Company (SOLNOC). The eight-member committee formed a forum code-named Somaliland Oil and Gas Forum (SOGAF) as a vehicle to achieve and honour this monumental task given. In about 12 weeks of deliberation and assiduous work, the committee proudly delivered a complete blueprint, concept note, and org-chart and required skills and expertise for the staffing and the framework of Somaliland’s possible National Oil Company for the kind directives of the executive branch of the government (cabinet).

Also, the media and public rumoured about the possibility of the current government creating a National Oil Company here in Somaliland to manage natural resource wealth effectively. Drilling is often seen as a more manageable task than effectively working it. Many emerging producer countries, especially those in Africa, are struggling to establish themselves and are following into the much-maligned resource curse trap, where the correct oil and gas administrative regulations and authorities are put in place ahead of the possible oil discovery.

Somaliland can fully harness this finite resource wealth by establishing a National Oil Company. Clear examples include Saudi’s ‘Saudi Aramco and Russia’s ‘Gazprom’ which produce 12 million and 11 million barrels per day, respectively. Such figures indicate that if adequately managed, NOCs can effectively manage the high production volumes of the country’s oil output.

As of now, Somaliland has a similar opportunity. International oil companies such as Genel Energy and others are becoming increasingly convinced that Somaliland has rich reserves, and Somaliland constantly looks to attract foreign investments. It would need the collective effort of the nation and the citizens to make this work. What is better than forming a Somaliland National Oil Company through public and private financing? Citizens joining in this exciting journey will make them more eager to contribute to the success of letting Somaliland finally become an oil-producing nation.

The management of national oil companies (NOCs) significantly impacts the wealth of the oil-producing countries and translates potential wealth into sustainable development that benefits citizens. A well-effective NOC can generate great monetary returns to Somaliland, develop an excellent technical local workforce and develop the local economy. The role of the NOC will not only be to manage the affairs of the international oil companies, but its mere existence will also represent a significant legal element in creating an investment environment that helps develop the Somaliland energy sector. This is because many international oil companies hesitate to deal directly with the government and prefer the more privately managed and efficient national oil companies.

The benefits of NOCs and their role in alleviating poverty through proper resource management:

Time is of the essence here, and Somaliland is undoubtedly late to the oil bonanza. The development of a National Oil Company is vital for effectively managing these limited resources. Somaliland has several key initiatives to help assist and kickstart its journey to being an oil-producing superpower. Initiatives such as EITI (Extractive Industries Transparency Initiative), which sets the global standard for the good governance of natural resources, and NRGI (Natural Resource Governance Institute), dedicated to improving countries’ control over their natural resources to promote sustainable development, are options present for the nation to contact for external professional support immediately.

Conclusion and Recommendations

National Oil Companies dominate the global oil industry, controlling vast reserves and production. The dominance of government-owned oil companies is only likely to expand, with their share of the world of oil and gas trade likely to rise. All crucial roles relating to the Somaliland petroleum industry include managing the marketing of the country’s share of petroleum, developing in-depth expertise in the oil and gas industry, managing participation in state petroleum activities and managing the industry’s business aspects.

There seems to be a worry with the funding source in today’s modern world as policymakers and climate activists regularly call for the end of the fossil fuel market. They are looking for greener, more efficient alternatives to address climate change. That is why Somaliland must take advantage of the abundant resources it is sitting on as soon as possible and potentially join the big-level leagues of oil-producing countries.

Somaliland’s potential NOC will have two primary purposes: to deliver revenues to the government and to meet the energy demand of its citizens. Somaliland will still be highly vulnerable to the new initiatives of climate change. A possible method to cope with this is to in-source the funds from the local business holders/entrepreneurs whom could all contribute in any capacity for the ultimate goal of forming a NOC (assuming the government will offer shares). All citizens of Somaliland see oil revenue as a means to alleviate the country and help the country’s development.

Finally, all this potential certainly presents a fascinating case for the nation. With the global drive to transition from fossil fuels to renewable energy, time is running out for us to seize the spotlight as an oil superpower. Many governments worldwide have heavily relied on their NOCs for revenues, energy, jobs and economic development.

Jointly co-authored by Mohd Feysal Hawar and Mohamoud Feysal Hawar, both Oil and Gas Management Graduates specialising in Oil and Gas Fiscal Regimes, Oil and Gas Economists, Trainers & Consultants in all the Extractive Fiscal Regimes.