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Africa Focus

Calls grow louder for hydrocarbons to power Africa’s transition

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Struggles with financing renewable energy projects and a growing desire to capitalise on hydrocarbon resources are shaping the discourse around the continent’s 'just transition'.

A lack of substantial international financial commitment to fund renewable energy projects in Africa is pushing policymakers across the continent to create a pathway for a transition that includes developing controversial liquified natural gas (LNG) projects.

Such a transition, representing a shift towards a low carbon and climate resilient society, would ideally be powered by growth and development in solar, wind and other renewable technologies. Yet, with financing of these technologies proving challenging, there is growing support across the continent to look to solutions such as LNG to propel Africa’s transition.

This support is strengthened by the view that Africa should be able to capitalise on hydrocarbons in the same way developed economies have for successive decades, and still do substantially today.

Why shouldn’t Africa – a region that is still developing – be allowed to benefit in the same way?
Tiffany Wognaih, associate, Africa Matters

“Oil and gas has been the bedrock of global development for hundreds of years,” says Tiffany Wognaih, associate at Africa Matters, a strategy and risk management consultancy based in London. “Why shouldn’t Africa – a region that is still developing – be allowed to benefit in the same way?.”

It’s a fair question, and one particularly pertinent at a time when some developed economies are increasingly drawing on hydrocarbons such as coal. For instance, Kpler, a commodity analytics and data firm, says Europe increased the amount of coal it imported in the first eight months of 2022 to 15 million tonnes – the highest amount of any region.

What’s more, Africa only contributes around 2% of global carbon emissions, and this would rise to only 3.5% based on cumulative CO2 emissions from 5000 billion cubic meters of current natural gas discoveries in Africa, according to the International Energy Agency (IEA).

Given this, African policymakers have become much more vocal about how they should capitalise on their own natural resources. In October, for example, the Democratic Republic of Congo (DRC) rejected calls from US climate envoy John Kerry to withdraw oil blocks put up for auction. The DRC’s deputy prime minister and environment minister, Eve Bazaiba, responded to the request by saying “as much as we need oxygen, we also need bread.”

In South Africa, where 80% of energy production comes from coal, mineral resources and energy minister Gwede Mantashe recently argued that the transition from fossil fuel to renewable energy sources must be managed systematically and should include the use of gas. “I see the protests outside this venue that said, ‘fossil fuels a killer’, but I can tell you that hunger kills faster,” the minister said at the Africa Oil Week conference in October.

Renewables and gas

While developed economies continue to pressure policymakers in Africa to push forward with renewable energy and sustainable development plans, the lack of financing to support the continent’s transition has also become a huge bone of contention for African leaders.

Most notably, the $100 billion per year by 2020 promised in 2009 by developed economies has still not been unlocked.

I very much doubt renewable energy projects will have the same economic impact that the oil and gas sector currently has
Linda Mabhena-Olagunju, founder, and CEO at DLO Energy

This has driven African countries to take matters into their own hands. The creation of the African Climate Risk Facility (ACRF) – a group of over 85 insurers in Africa, which have pledged to create a financing facility to provide $14 billion of cover to help the continent's most vulnerable communities deal with climate disaster risks such as floods and droughts – was one of the more notable announcements to come out of COP27 in November.

Yet, even with this, there are still huge financial gaps to fill. In South Africa, for instance, plans for a ‘just transition’ will require around $250 billion over the next three decades. Most immediately, the country’s Just Energy Transition Investment Plan (JET IP) needs approximately ZAR1.5 trillion ($87 billion) over the next five years.

While the plan makes use of $8.5 billion promised at COP26 from the UK, the EU, France, and Germany, as well as funds from other national and international sources, there remains a shortfall of ZAR700 billion – or 44% of the total – required to turn the plan into reality.

Moreover, there has been little thought given to the gaps made if the continent were to decommission oil and gas projects across the continent, argues Linda Mabhena-Olagunju, founder, and CEO at DLO Energy, a black female owned investment and advisory company operating within the energy sector in Africa.

“In Nigeria, around 20,000 people are employed by the oil and gas sector, and the sector contributes around 4.5% of GDP. In South Africa, it’s around 155,000 people and 5% of GDP. Without more investment in education and upskilling, I very much doubt renewable energy projects will have the same economic impact that the oil and gas sector currently has,” she says.

“In Africa, we will need to develop both renewable energy and gas for us the continent to develop. Given, as a continent, we are the lowest carbon emitter, I believe this is the right path for us to take.”