Local content – a driving force for African Oil & Gas’ sustainability
With 2020 being a year of uncertainties in the oil and gas sector and some of the decisions, activities and market trends that took place last year, I reflect on what some of the activities pre-COVID-19 and now means for the African energy sector.
Following the reform of the African Petroleum Producers’ Organisation (APPO) Fund, I was lucky to witness the equally newly reformed Africa Energy Investment Corporation (AEICORP). The AEICORP is to provide “a Solid Capital Base and Liquidity Profile, a Preferred Creditor Status, Developmental Impact, Strong Financial Performance Returns to Investor,” for investors to participate in a low-risk pan-African growth.
Just as one of the objectives of APPO seeking to ensure Member Countries cooperate, I believe that for African countries to reap the maximum benefits from oil and gas, investment in energy technology through institutions like the African Development Bank (AfDB) and AEICORP, will help to achieve this aim. The thought of African investments in the hydrocarbons sector takes my mind to a familiar place — de-carbonisation of fossil fuels, as opposed to abandonment.
De-carbonising fossil fuels through technology developed by Africans might take a while to embrace but it is worth the long-term investment. At the moment (or for the next 20 years), Africa is not ready for zero-carbon emission energy sources. Almost all of the oil producing countries on the African continent depend on revenues from oil and gas to fund their budgets and keep their economy moving. It cannot be denied that the energy security of Africa is highly dependent on decarbonisation. This is because most of the African countries exports their crude to countries abroad and the countries abroad are moving towards adopting the terms of the Paris climate accord which aims to see low carbon emission.
De-carbonising fossil fuels through technology developed by Africans might take a while to embrace but it is worth the long-term investment.
New discoveries of oil and gas are still being made daily with a large part of prospective areas still under-explored. Of all the countries on our great continent, none can boast of 24 hours steady supply of electricity. The West are embracing decarbonisation because they have gotten to a stage where all of the basic social amenities are working, Africa isn’t there yet.
Africa looks to be one of those who will suffer climate change the most. We cannot follow the same paradigm as the advanced countries and we will take a longer time to achieve what they will achieve. The COVID-19 pandemic is a trigger for many African countries to begin to gradually embrace diversification and invest in other sectors of their economy. If African countries do not fully depend on the revenues from oil and gas, we can begin to talk carbon decarbonisation. For now, it is a gradual process and we still have a long way to go.
The West will not come and save us. The West will save the West and Africa should save Africa. In November 2019, the European Investment Bank (EIB) announced that it will no longer grant loans for crude oil, natural gas and coals project from January 1st 2022, with a few exceptions for gas projects. Also, in October 2020, the United Nations asked world’s publicly funded development banks to bring their lending policies in line with the Paris Agreement, and a few weeks later, many of the institutions including the African Development Bank Group (AfDB) said they will reduce investment in fossil fuels related project.
This is to show that it would soon be every investor for themselves. And if China follows suit, the African market will break.
When all of these lenders stop to fund fossil fuel projects in the country, most African country will have little or no advantage when it comes to negotiations. Chinese authorities have been big players in the development of oil and gas resources in Africa and one of the biggest lenders to African countries. If by 2025 that all of the world’s publicly funded development banks would have joined the EIB in halting the disbursement of funds for fossil fuel projects, an indication that they are only willing to do embark on projects that are in line with their net-zero commitments, China will be the only option left.
Many African countries have already signed agreements that will see them forfeit important state-owned assets if they fail to meet up on their repayment plan for loans obtained from China. Let us not forget that China is also a signatory to the Paris climate accord. So if in the future, China decided to also stop funding fossil fuel projects, most of our countries in Africa who do not start planning for the unexpected now will be left with a wrecked economy and with no option than to forfeit out of the little they have to pay their debts.
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