Image courtesy of Eni

Energy use and development in Africa varies widely across the continent. Some African countries export energy to neighbors or the global market, while others lack even basic infrastructures or systems to acquire energy, while others are simultaneously huge energy exporters but suffer from energy poverty. According to the World Bank, over 900 million Africans lack access to clean cooking fuels and over half a billion people in sub-saharan Africa are at risk of being left behind without electricity access by 2030. The continent is rich in crude oil, natural gas, sun and wind resources, indicating that there are many possible solutions to this problem, and each of Africa’s 54 countries has taken a different approach to tackling the issue.

At the 2024 Sub-Saharan Africa International Petroleum Exhibition and Conference (SAIPEC) in Lagos, Omar Farouk Ibrahim, the secretary general of the African Petroleum Producers’ Organisation (APPO) kicked off with an impassioned speech, rallying the ministers, CEOs of national oil companies, executives and oil and gas industry professionals in attendance to pursue hydrocarbon extraction for the economic benefit of Africans everywhere, regardless of the pressure to abandon fossil fuels being applied from the West. The speech was met with a standing ovation – a clear indication that Africa’s energy leaders have no intentions of slowing down oil and gas production anytime soon. 

APPO and the African Export–Import Bank (Afreximbank) recently inked an agreement to establish an Africa Energy Bank (AEB) in Brazzaville this year to fill the financing gap for oil and gas projects in Africa. Due to increasing global pressure on global financial institutions to cut funding for fossil fuel projects, industry stakeholders will have to look increasingly inward to source funding for oil and gas projects and pan-African collaboration and initiatives such as the AEB will be necessary to mobilize the billions of dollars needed to exploit Africa’s untapped natural resources. “A study conducted by APPO established that no one African country has everything it takes to address the challenges identified for the industry by itself. However, when APPO countries pool their resources together, they can surmount all the challenges,” said  Ibrahim. 

Needless to say, Africa’s energy leaders are conscious that hydrocarbon resources are finite and contribute to the ever-worsening climate crisis – a crisis that many climate scientists predict will disproportionately impact Africa. “The proposed Bank will support the implementation of an Africa-led energy transition and development strategy. The entity will accelerate Africa’s economic development, promote the continent’s transition to cleaner energy options in the long-term and align with the core objectives of the African Union Agenda 2063 – the Africa We Want, and the Sustainable Development Goals (UN SDGs),” said Eric Intong, regional COO, Anglophone West Africa, Afreximbank.

The strategy here is to leverage hydrocarbon resources to solve energy poverty, industrialize and generate income to be able to eventually domestically produce the equipment and expertise to exploit renewable energy resources, thus avoiding repeating the historical mistakes of being overly reliant on foreign financing – a problem that is currently rearing its head for fossil fuels projects across Africa. “A major challenge for Africa is that most African utilities are technically bankrupt and dependent on overseas funders who have a strong preference for renewable energy technologies,” said Martin Mkhabela, director, energy, WSP in Africa.

The realization by Western states that fossil fuels can be wielded as a political weapon by hostile states has added even more pressure to end their reliance on foreign states for their energy needs. In the short term, this can open export opportunities for many African nations. “With the war in Ukraine disrupting Europe's access to cheap gas, Nigeria stands at a crucial juncture to position itself as a reliable gas supplier. Additionally, the anticipated shift in the U.S. energy landscape, with a potential decrease in reliance on Nigerian crude oil, highlights the imperative of prioritizing gas production,” said Cheta Nwanze, lead partner, SBM Intelligence.

As Europe rushes to wean itself off Russian fossil fuel imports, a once in a lifetime opportunity presents itself for frontier oil and gas markets like Namibia or Sierra Leone. The challenge now is to prove to European financiers and IOCs that they are stable and reliable partners, business-friendly and open to investment. “We have observed a shift in attitudes following the Russia-Ukraine conflict; companies show increasing willingness to venture into Africa due to energy constraints,” said Foday Mansaray, director general of the Petroleum Directorate of Sierra Leone.

However, this door may not be open for very long as in the long-term Europe appears determined to achieve energy independence and cut out fossil fuels entirely. The shift is well underway, with aggressive renewables targets in place, evidenced by a -49.1% YoY decrease in the worth of EU energy product imports in Q3 2023. All this points towards a decreased appetite for European fossil fuel imports in the long term – from Africa or elsewhere. The AEB’s proponents are all too aware of this, so the bank will also support the development of renewables within Africa so the continent is prepared for the day when fossil fuels eventually become economically and politically unviable. “The proposed Bank will support the implementation of an Africa-led energy transition and development strategy,” explained Intong.

African-led initiatives like the AEB are key to reducing Africa’s dependence on the West for financing. However, the success of these initiatives hinges on stable government and strong relationships between nations. Nevertheless, tensions have been brewing, particularly in francophone western Africa which has seen six coups since 2020 – resulting in three nations leaving the ECOWAS bloc, which will undoubtedly set back efforts to promote inter-African energy trade and infrastructure projects. Austin Avuru, executive chairman of AA Holdings, sees a solution however: “By fostering willing buyer-seller relationships, commercial ventures can transcend governmental hindrances. For instance, the West African Gas Pipeline project has faced challenges due to political disagreements among the involved governments, highlighting the need for private sector-driven initiatives.”

The AEB has already raised US$5 billion in initial capital, but the International Energy Agency (IEA) estimates that delivering modern energy to the entire continent will require up to US$25 billion in annual spending until 2030. Signatories of the AEB are unlikely to be able to raise this gargantuan sum relying solely on government coffers – individuals and private firms across Africa will need to be convinced to risk investing their money closer to home: “Looking at Sub-Saharan Africa, you will find pension funds with approximately 70% of their capital invested outside of Africa, demonstrating low confidence in local markets,” shared Ejike Egbuagu, group chief executive, Moneda Invest Africa. 

The rallying call is being sounded by Government officials, CEOs and pan-African organizations like APPO and the African Energy Chamber. Now it remains to be seen if African governments and private institutions can unite to plug the financing gap and exploit the continent’s vast hydrocarbon resources before the world starts losing its appetite for fossil fuels. “The problem is that Africa, unlike the Middle East, often does not have the funds to develop its resources and we always look to the West to raise the necessary funds. However, we are waking up and figuring out ways to help ourselves. I am also advocating for our capital markets across the continent to come together to invest in the oil and gas sector for the benefit of all Africans,” said Heineken Lokpobiri, Nigeria’s minister of state for petroleum resources (oil), during his interview with Global Business Reports. 

With Africa being responsible for less than 4% of global emissions, many energy leaders feel it is unfair for developed nations to point fingers and shun, or even punish the use of fossil fuels in Africa, especially when many continue to aggressively produce and consume fossil fuels. “After COP 26 in Glasgow, European countries and the US continued to pursue oil drilling, despite advocating for fossil fuel phase-outs. This hypocrisy undermines their credibility. Africans recognize the need to develop natural resources for industrialization and refuse to adhere to colonial structures that perpetuate poverty. It is our time to grow and industrialize, regardless of Western or wealthy nations' preferences,” said NJ Ayuk, executive chairman of the African Energy Chamber. 

The energy industry, particularly hydrocarbons, is a complex, and politically and socially charged sector. There is no clear solution to the problem of balancing energy security and the need to industrialize on the one hand with sustainability and climate concerns on the other. The term ‘ESG’ or ‘environmental, social, and governance’ is a broad term that is increasingly used in many business environments but, when it comes to extractive industries like oil and gas, it can be especially difficult to determine which elements to prioritize. “The term ESG has been used very freely globally, and one could argue that the meaning of ESG in the West is slightly different from the meaning of ESG on the African continent. In the West, the emphasis is on the ‘E’, whereas in Africa, the ‘E’ is important, but it is the ‘social’ and ‘governance’ part that really needs to be bolstered,” said Osam Iyahen, senior director, natural resources, Africa Finance Corporation.

Gabon

Blessed with 2 billion barrels of proven oil reserves, Gabon enjoys a GDP per capita four times that of most African nations and the country is heavily reliant on oil, with the petroleum sector being responsible for 50% of GDP and 80% of exports. In August 2023, a coup d'état ended the 56-year-long rule of the Bongo family over Gabon – the eighth successful coup to occur in West and Central Africa since 2020. 

The dramatic change in government has rocked the country’s oil and gas sector, with the new transitional government declaring its desire to restructure the oil sector by embarking on a mission to acquire oil and gas assets from IOCs and private companies. This has involved the national oil company, Gabon Oil Company (GOC) taking over the majority interests of Carlyle Group’s Assala Energy as well as Sinpoec’s Addax Petroleum’s oil and gas interests in Gabon. “The Gabonese State and the national oil company GOC are entitled to hold a mandatory participating interest in a petroleum contract of up to 15%, and any acquisition by the state in excess of 15% must be purchased at market price,” said Nicolas Balesme, managing partner, Gabon and regional leader, Central Africa, Deloitte. 

The rapid political upheaval in the nation has understandably brought uncertainty for many foreign investors. Even before the coup, FDI inflows into Gabon totaled US$1.1 billion in 2022, compared to US$1.5 billion one year earlier, and Lloyds Bank anticipates another drop after the coup. Despite this, its GDP grew by 2.3%, fueled by new oilfields, low OPEC+ restrictions and global demand. As such, many players feel there is still opportunity in the country. Additionally, it is not unusual for OPEC countries to own most of their oil assets, so for many, it was no surprise that the new transitional government is aggressively snapping up oil assets. “Many African countries have a sovereign vision of their oil and gas sector. In Gabon, policies have been put in place at the state level to have more control over the energy and resources industry,” continued Balesme. 

Despite the political uncertainty, it appears many stakeholders still have confidence in Gabon, evidenced by Anglo-French player Perenco recently signing an MoU to commence the first phase of a 20MW gas-to-power project in Mayumba to be completed in 2025. “We are working on opportunities in Congo and Gabon, focusing on presenting solution-based opportunities rather than just seeking contracts. Our plans include providing more solutions and new technologies, especially in gas-to-power,” said David Pappoe Jr, CEO of Energas West Africa, a provider of engineering services and gas-to-power solutions across the continent.