African leaders must find ways to encourage ongoing oil and gas investments

OPINION PIECE

As the 2023 UN Climate Change Conference, the 28th Conference of Parties (COP28) in Dubai drew to a close, the air was thick with determination among the 200 delegates. Acknowledging that the era of fossil fuels was on its last legs, they collectively pledged to hasten its demise. This was heralded as “the beginning of the end” for coal, oil, and natural gas. The nails and hammers were poised to pound the coffin of a sure- to-be- dead fossil fuel industry.

The conference culminated in a comprehensive agreement known as the “global stocktake”. This ambitious strategy set forth key objectives: tripling renewable energy capacity, doubling the rate of energy efficiency improvements by 2030, expediting the reduction of coal power without carbon capture, and intensifying efforts to shift away from fossil fuel reliance in energy systems. The overarching message was clear: a full-scale transition to renewable energy sources is imperative, while fossil fuels must be left in the ground.

However, this either/or binary approach poses a significant dilemma for African nations. The economic and social benefits derived from fossil fuels are still crucial for us – from reducing energy poverty to bolstering our economies. Moreover, we believe that these benefits can be harnessed in tandem with addressing climate change concerns.

The struggle to secure project financing is growing. On November 30, 2023, The Economist revealed that 27 banks had withdrawn from financing the East African Crude Oil Pipeline project, and numerous others had decided against directly funding new oil and gas initiatives.

Yet, there are glimmers of hope, particularly in Namibia. Here, we have introduced reforms to reduce the risks for investors. Almost a year ago, significant offshore oil and gas discoveries rewarded the investments of oil majors like Shell, TotalEnergies, and QatarEnergy in Namibia.

Following this, Namibia has witnessed a surge in exploration activities. At the beginning of 2024, Portugal's Galp Energia announced the discovery of a substantial light oil reserve in Namibia's offshore block PEL83. Galp, along with its partners NAMCOR and Custos Investments Ltd., plans to explore deeper depths. Upcoming drilling campaigns by Chevron (US) and Woodside Energy (Australia) are expected to continue this momentum.

This is a testament to an irrefutable fact: despite the global push for near-instant transition to renewables, the immediate benefits for us (and many African nations) still predominantly lie in oil and gas.

A reality check

The immediate shift to renewable energy, as suggested by the COP28 global stocktake is impractical and overly idealistic. The reality is that any swift transition to renewable energy would only be viable if Africa, or indeed the world, were ready to rely entirely on wind, hydro, wave, and solar energy for powering homes, businesses, vehicles, and industries. Unfortunately, we are nowhere close.

For instance, despite Africa's abundant potential for solar and wind energy — holding 60% of the planet’s capacity — our actual production capabilities are starkly different. We might be termed the “Sun Continent”, but our solar energy generation capacity is a mere 1% of the global total. In sub-Saharan Africa, biomass remains the predominant energy source for many.

Let us be in no doubt; Namibia remains committed to a renewable energy future. We have taken significant strides towards establishing a green hydrogen economy, evident in projects like the 3-gigawatt Tsau Khaeb and others in Kharas, Kunene, and Walvis Bay. However, achieving parity with global renewable energy capabilities will take time and money. A whole lot of money that most, if not all countries that make up the so called “Sun Continent”, do not have.

Lacklustre funding support

To be fair, this funding gap has not gone unnoticed. Institutions like the World Bank, the UN, and the International Energy Agency have urged developed economies to invest in African renewable energy infrastructure. To date, the financial support has been underwhelming. What this means is that, for all their renewables fervour and promises, the richer western nations — who collectively contribute the highest to global emissions — are not putting their money where their mouths are.

The International Energy Agency estimates that Africa would require over USD200 billion annually until 2030 to meet the Sustainable Africa Scenario's energy and climate objectives. Yet, despite a rise in global clean energy investment everywhere else, only a mere fraction of this amount, about USD25 billion, have been invested in Africa’s renewable infrastructure development.

This shortfall is even more pronounced considering Africa's burgeoning population, projected to constitute 25% of the global population by 2050. The continent’s energy needs will rise exponentially, and the funding gap does not seem to be closing anytime soon.

As of today, the Just Energy Transition Partnerships, a COP26 initiative designed to finance sustainable development in emerging economies, has yet to be effectively implemented or produce significant results. It is within this context that one must challenge the renewables or nothing stance of the Global Stocktake at COP28. If fossil fuels are out, what do we have to replace them, now and into the future?

Unacceptable interference

The underinvestment in African renewables is just one aspect of a larger problem. Concurrently, there's a concerted effort by the West to stifle investment in African fossil fuel projects. Even natural gas exploration – the cleanest fossil fuel and a transitional energy source – faces intense scrutiny and opposition.

For instance, a 2021 article in The Guardian reported that some experts advised Africa to prioritise renewable energy adoption at all costs, even if it meant abandoning the exploration of lucrative gas reserves. The intention was noble – to avert a climate crisis and expand clean energy access to millions lacking it. However, practical strategies and timelines to achieve this were notably absent, despite vehement criticism of the oil and gas sector.

This is not to undermine the dedication of climate activists; the reality of climate change impacts is undeniable. However, I believe Africa can address climate change while simultaneously tackling energy poverty through the judicious use of our natural resources. With 600 million people lacking electricity access, a comprehensive approach is imperative to overcome the current energy deficit and mitigate against a larger one in the future.

Namibia’s logical response

From the foregoing, it is only logical for African nations to safeguard the socioeconomic advantages from ongoing oil and gas operations. We can do this by enacting policies that incentivise investment and by building inclusive economic and political institutions.

The high costs associated with exploration and production must be reflected in our tax and royalty policies. Additionally, factors like stable economies, transparency, and efficient legal frameworks significantly influence investment decisions. We must be committed to ensuring these conditions are met in our countries.

Namibia exemplifies these efforts in both oil, gas, and mining sectors. We continue to collaborate with investors and industry stakeholders to foster further improvements. Our efforts to create an enabling environment for investors played a significant role in driving the drilling campaigns by Shell, TotalEnergies, Galp, and QatarEnergy.

The investments these companies are making in Namibia will play a central role in generating government revenue; building roads, bridges, and dams; creating jobs; and improving standards of living for every Namibian in line with the vision of President Hage Geingob.

However, we must not compromise our own needs and priorities in attracting investment. African nations must always seek investments that are mutually beneficial. This can be achieved through balanced and pragmatic local content policies that offer employment, business opportunities, capacity building, and technology and knowledge transfer.

Imperatives for our prosperous future

African countries’ pursuit of fossil fuel projects, especially natural gas, is in line with global practices. Even countries advanced in renewable energy do not rely solely on these sources. For instance, in the US, 60% of electricity is still generated from fossil fuels, predominantly natural gas, while renewables and nuclear energy contribute 21% and 18%, respectively.

Natural gas is deemed more reliable, operating at full capacity 65% of the time, compared to solar and wind energy's 36% and 25% capacity factors, respectively. Asking African nations to disregard natural gas is akin to suggesting we should accept half the power capacity, half the standard of living, and half the safety compared to Western nations. This is not a reasonable expectation.

Capitalising on Africa's natural gas resources is about more than just enhancing power capacity or addressing electricity shortages. It is a means to build industrial capacity and revitalize African economies, lifting people from poverty and energy scarcity.

In light of this, there is a clear imperative for African leaders to take immediate actions to foster an environment conducive to oil and gas investments.

Let's remember, no nation has achieved industrialization solely through solar or wind power. But those that are industrialised, with financial reserves, are in a better position to finance their energy transitions.

For us as Africans, we must be in the position to drive our energy transition initiatives by using what we have now to achieve what we envision for our future. To waiver from this objective is a risky and untenable proposition

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