How will Africa cope in the COP28 Global Poker Game? - Africa’s premier report on the oil, gas and energy landscape.

How will Africa cope in the COP28 Global Poker Game?

By Gerard Kreeft

Two parallel visions have emerged from COP28: John Elkington, co-founder of think-tank Volans, author of 21 books and member of the Neste’s Advisory Council on Sustainability and New Markets has noted …In 15-20 years, I think we will be looking at a totally transformed economic landscape. A huge number of companies will have disappeared – and new ones arrived – it will be a moment of absolute market convulsion.” Voltans on its site gives us a stark choice: “Capitalism’s future is contested in a way it hasn’t been for decades. Our economic system as a whole is confronted by a stark choice: evolve or die.”

Yet a very contrasting vision has emerged from APPO (The African Petroleum Producers Organizations) which  declares the approach adopted by the International Energy Agency as biased and states that it’s a direct hinderance to inclusive economic growth in Africa.

How can these two world views be reconciled?

The Present Situation: Viewed by  John Elkington

Elkington argues that COP 28 marks the halfway point between the 2015 Paris Agreement and 2030, by which point the world’s governments are pursuing efforts to limit the rise in global temperatures to 1.5C above pre-industrial levels, and well below 2C. They also agreed to limit greenhouse gas (GHG) emissions to net zero – the level at which GHGs from human activity can be absorbed naturally – between 2050 and 2100.

COP28 is the first five-yearly Global Stock taking (GST) conducted by the UN Framework Convention on Climate Change, which describes it as “like taking inventory. It means looking at everything related to where the world stands on climate action and support, identifying the gaps, and working together to chart a better course forward to accelerate climate action.”

The GST also urges more action on all fronts, noting that the world is not on track to meet the Agreement’s long-term goals. Seventeen key findings include that emissions are rising too fast to meet the 1.5C by 2030 target (they would have to peak within the next two years, but are still climbing) and that reaching net zero by 2050 would require “absolute economy-wide emission reduction targets” at a cost of “trillions of dollars”.

The GST gives us a better sense of the gap between what we should be doing and what we are managing to achieve, Elkington says, but warns that “it won’t be a pretty picture – we are a long way off the targets”.

Note: based on an article by Nick van Mead

Present Situation: Viewed by  the APPO

The APPO  states that the approach adopted by the International Energy Agency is a biased one and a direct hinderance to inclusive economic growth in Africa:

“The International Energy Agency (IEA) has published a report strongly advocating for an end to fossil fuel use and promoting unrealistic and unattainable approaches to achieving net-zero by 2050 as the Conference of the Parties (COP28) is upon us. The report shows a rapid decline in oil demand, urges an immediate transition to renewables, and states that carbon capture is merely an illusion. ..the IEA approach poses detrimental impacts on Africa’s economies, representing a biased perspective that fails to take into account the needs and challenges of the continent.”

“Africa is on the precipice of rapid, economic transformation. The continent holds over 125Billion barrels of crude oil reserves and 620 trillion cubic feet of natural gas reserves, resources which stand to serve as catalysts for industrialization and economic development. These resources can provide the over 600Million people and 900Million people currently without access to electricity and clean cooking solutions, respectively, with affordable energy. Yet, at the same time, the continent faces the worst impacts of climate change and is being told to abandon its oil and gas resources, despite only contributing less than 3% of global greenhouse emissions.”

Who can deny the energy poverty that Africa is suffering?

Yet will oil and gas industry in Africa provide the energy transformation that APPO is promising?

There  is a high need to dispel  a number of illusions that continue to exist. For starters that the oil majors have contributed a net worth to Africa’s economies.  According to Toyin Akinosho, publisher of Africa Oil + Gas Report, African revenues from the oil and gas majors are financing the energy transition in the rest of the world: “. . . the oil majors are funding clean energy from the balance sheet of dirty oil.”

Around 30 percent of TOTALEnergies’ production is in Africa, but less than 0.5 percent of its new energy investment will directly benefit the continent. Yet, according to Akinosho, TOTALEnergies is the best African renewable energy investor out of the majors. These include:

  • ENI: In Egypt, where ENI is a major player, the company has not featured in the country’s relatively aggressive renewable energy plan.
  • BP: The company has pumped over a billion barrels of oil out of Angola in the last twenty years but has excluded Africa from all of its renewable energy plans.
  • Equinor: It pumps 120,000 BOEPD(Barrels of oil equivalent) in Angola but has no plans for renewables.
  • Chevron: Its focus is not so much on investing in stand-alone renewable projects but increasing renewable power in support of its business to lower its carbon intensity.
  • Shell: The company will likely take $7.5Billion out of Nigeria from 2021–2025. Shell has funded some off-grid projects through solar developers in Nigeria, which basically represents Shell’s footprint in Africa.

Nigerian Petroleum Development and Sonangol: Energy Champions?

In the APPO statement reference is made to Angola’s crude oil revenue of $39Billion in 2022 and Nigeria’s revenue of $45Billion. We should not imagine that national oil companies have a better track record. Africa’s two major national oil companies in Sub-Sahara Africa—Nigerian National Petroleum Corporation (NNPC) and Sonangol (Angola)—have demonstrated little hope of becoming national energy champions.

Take the Nigerian Petroleum Development Company (NPDC), the operating subsidiary of the NNPC, which “is a massive incompetent wrecking ball, which has been gifted joint-venture participation in 10 mining leases (OMLs) all of them producing.” The NPDC is seen as a bright star within the NNPC’s portfolio. Why? Because the degree of its performance is in direct proportion with the help it gets from its partnership with other oil majors.

Sonangol, the Angolan state oil company, has had a rocky ride since 2017. In the past, Sonangol had two roles: that of concessionaire, a highly judicious key role that gave it power and legitimacy, and being a state oil company with its responsibilities for exploration and development of the resources. Sonangol was then stripped of its concessionaire role, which was given to the newly created National Agency of Petroleum, Gas, and Biofuels.

In Angola today, power has become diffused. Sonangol has been stripped of its concessionaire role and is loaded with a mountain of debt, and the IOCs have the freedom to explore and market their natural gas. Developing green energy is certainly beyond the competence of Sonangol.

Will Hydrocarbons and CCS stimulate the Transition to Renewables?

APPO argues that IEA Executive Director Fatih Birol  is undermining African future oil and gas production. APPO is referring to  the Net Zero Emissions  2050 Scenario(NZE) which  is a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions. According to APPO, attacking Africa’s right to developing its oil and gas reserves is a direct threat to developing Africa’s renewables. The argument being that oil and gas will fund the renewables. Yet as we have seen neither the oil majors nor Africa’s two major national state oil companies—NDPC and Sonangol—have proven to be new energy champions.

APPO argues that Carbon Capture and Storage (CCS) is an important asset to ensure that Africa’s oil and gas assets can be developed. Yet IEEFA(Institute for Energy Economics and Financial Analysis) in a recent bulletin was unusually blunt in assessing CCS projects:

Carbon capture and storage (CCS) is an expensive and unproven technology that distracts from global decarbonization efforts while allowing the oil and gas industry to conduct business as usual. Even if realized at its full announced potential, CCS will only account for about 2.4% of the world’s carbon mitigation by 2030, according to the Intergovernmental Panel on Climate Change (IPCC). It’s worth noting that not one single CCS project has ever reached its target CO2 capture rate. An IEEFA study has reviewed the capacity and performance of 13 flagship projects and found that 10 of the 13 failed or underperformed against their designed capacities, mostly by large margins.”

What can Africa Anticipate from COP28?

Between 2020 and 2030, Africa requires upwards of $2.8Trillion to meet its National Development Goals. Where is that funding supposed to come from?  According to Omar Farouk Ibrahim, Secretary General of APPO, “Africa is not only being stripped of the resources to finance a transition but continues to be disappointed by empty global promises”.

Over the years, we have seen significant financial commitments made by global partners. In 2009, developed nations pledged $100Billion in annual financing for developing countries, and yet, between 2016 and 2019, only $20Billion was provided to Africa. Commitments have shown to fall short of action, and the same can be said for other financial pledges made in the years since”.

Is COP28 proving to be different?

Adnan Doha, partner at Baker McKenzie’s Dubai office recently summarized various commitments to date:

  • In May 2023, the Africa Finance Corporation and the Japan Bank for International Cooperation (JBIC), signed a memorandum of understanding to collaborate on infrastructure projects that accelerate the energy transition in Africa.
  • In 2022, the G7 countries announced that a $600Billion lending initiative, the Partnership for Global Infrastructure Initiative (PGII), would be launched to fund sustainable infrastructure projects in developing countries, with a particular focus on Africa.
  • In 2022, the US announced it was mobilizing $200Billion for developing countries over the next five years as part of the PGII. This funding will be in the form of grants, financing and private sector investments. One of the priority pillars of this funding will be “tackling the climate crisis and bolstering global energy security”. Some deals have already been announced, including a $2Billion solar energy project in Angola.
  • Power Africa, a US government-led programme that focuses on addressing Africa’s access to electrical power, has also provided significant support for the energy transition. In its 2022 annual report, Power Africa noted that one of its achievements had been to successfully deliver first-time and improved electricity access to 37.7Million people in Africa through 7.6Million new on- and off-grid connections to homes and businesses in 2022.
  • In February 2022, the European Commission announced investment funding for Africa worth EUR 150Billion. The funding package is part of the EU Global Gateway Investment Scheme and is said to be in the form of EU combined member funds, member state investments and capital from investment banks.
  • China and Africa have also recently agreed to work together on improving Africa’s capacity for green, low-carbon sustainable development. At the 2021 Forum on China-Africa Cooperation, green development was one of nine programs identified as part of the China-Africa Cooperation Vision 2035.
  • Many new cross-regional energy transition initiatives have recently been announced. The Africa Carbon Markets Initiative (ACMI) was launched at COP27 with the goal of substantially expanding Africa’s participation in voluntary carbon markets. The ACMI is aiming for the production of 300Million credits annually in Africa by 2030 and 1.5Billion credits annually by 2050. It noted that these targets would provide much-needed financing for the, energy transition in Africa. Many African countries, including Gabon, Kenya, Malawi, Nigeria and Togo, supported the initiative.
  • Egypt launched, under the leadership of its COP 27 presidency, the Africa Just and Affordable Energy Transition Initiative, which will identify local strategies and energy mixes needed to steer African countries away from reliance on fossil fuels. The implementation of a clean energy transition cannot be the same globally. The initiative aims to meet the universal access by 2030 and energy demands of Agenda 2063 for the African continent and, among other means, includes consolidating and facilitating technical and policy support.
  • Tanzanian President Samia Suluhu Hassan presented a $18Billion energy transition proposal covering 12 southern African countries that are connected via the Southern African Power Pool. The proposal is to increase renewable energy generation (solar and wind) by around 8.4 GW. The 12 countries are Angola, Botswana, the Democratic Republic of the Congo, Eswatini, Lesotho, Mozambique, Malawi, Namibia, South Africa, Tanzania, Zambia, and Zimbabwe.
  • Multilateral and development finance institutions (DFIs) have been important allies in developing and mobilizing funding in Africa’s renewable energy sector. They have provided funding for projects, but they have also structured successful programs to address potential risks. For example, the Sustainable Energy Fund for Africa (SEFA), a multi-donor Special Fund managed by the African Development Bank, provides catalytic finance to unlock private sector investment in renewable energy and energy efficiency.

According to Doha access to power on the continent has been hampered by the lack of access to competitive funding, the dire state of Africa’s utilities infrastructure, and the need for energy policy and legislation to be adapted to boost investment. However, new systems and networks are now being designed around future environmental stressors and energy demands, without having to consider the limitations of old infrastructure.

“New and cost-effective solutions that utilize renewable energy, green hydrogen, battery storage and smart power technologies, as well as the global drive towards a secure energy supply that addresses climate change and stimulates economic growth, are all leading to innovative private equity (PE) and M&A investment opportunities.

However, according to Bloomberg, clean energy investment in Africa is concentrated in a handful of markets: South Africa, Egypt, Morocco, and Kenya. These countries have been the recipients of three-quarters of all renewable energy asset investments, totaling $46Billion, on the continent since 2010.

It is hoped that the many initiatives that focus on boosting access to renewable energy in Africa will result in a whole-continent approach, switching on access to power for the 43% of the African population who are not yet benefiting from the region’s renewable resources.”

A final note

Africa may long continue to have an abundance of fossil fuels but one should remember that the Stone Age did not end because of a lack of stones.

The final word is best given by John Ellington: “ Capitalism’s future is contested in a way it hasn’t been for decades. Our economic system as a whole is confronted by a stark choice: evolve or die.”

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis). His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition

 

 

 

 

 

 

 

 

 

 

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