Who wins from exploiting Africa’s oil and gas?

Who wins from exploiting Africa’s oil and gas?
Who wins from exploiting Africa’s oil and gas?

Africa-Press – Botswana. When the environmental imperative to abandon fossil fuels is so strong, what are the arguments for developing them and who will really profit from it?

The African Economic Outlook 2022 (AEO), released by the African Development Bank in May, shaved 2.4% off projected African GDP. This comes after the first continental recession in over half a decade, as the pain wrought by the Covid-19 pandemic is intensified by the economic fallout from Russia’s invasion of Ukraine.

The AEO also counted 131 climate-related extreme weather events in the past two years. Climate change is hitting Africa harder and earlier than anywhere else on earth, with the estimated impact of a high-warming scenario translating into a 15% reduction in continental GDP per capita by 2050.

Africa is desperately searching for ways to combat these twin threats, with fossil fuels – particularly so-called “transition” fuels such as natural gas – expected to do much of the heavy lifting. Analysts are looking to Cop27, to be held in Egypt in November, as the moment when a powerful coterie of African voices will put their collective weight behind a push for expanded oil and gas production on the continent.

From an environmental perspective, the case against fossil fuels is indisputable. Scores of analyses show that production from already-licensed oil and gas fields – to say nothing of any future exploration – will release carbon emissions well beyond what is compatible with the 1.5 degree ceiling enshrined in the Paris Agreement. From an energy systems perspective too, it is strengthening quickly.

If the environmental imperative to abandon fossil fuels is so strong, and they are becoming less technically necessary, what is the development rationale for a fossil fuel free-for-all? From a development perspective, the case rests on two key channels.

Will fossil fuel investment spread wealth?

The first is that fossil fuel investment will generate broad-based wealth on the continent, with the returns on new projects being funnelled into African communities where they can drive quality of life improvements.

This channel is tenuous. According to data from Oil Change International, just 33% of projected oil and gas production in Africa is controlled by African companies. The majority is controlled by companies in the global North; particularly Europe, with 36%, but also Asia and North America. These companies have the only claim on the fuels that African fossil fuel projects generate, making it highly unlikely that a significant share of the revenues from their sale will remain in Africa to fund local development.

They are vastly more likely to end up with foreign shareholders, with only that portion required for reinvestment in the projects themselves – a diminishing amount, given the speed with which the global community is moving away from fossil fuels – providing any benefit to the African communities where the resources are situated.

Even if a significant proportion of the benefits from fossil fuel production accrue to Africa, rather than the international investors who own the resources, these are likely to be very unequally distributed.

The lion’s share of new oil and gas production is concentrated in a very small set of African nations. Nigeria and Mozambique alone account for 36% of total planned production. Add Algeria and Angola, and almost 60% is covered. Most countries in Africa have severe development needs, and all are heavily exposed to the ill effects of climate change. In the face of this common reality, however, just a handful of countries on the continent are set to profit from fossil fuel extraction.

This suggests that, far from being a solution to pan-African problems of poverty and vulnerability, expanded fossil fuel production is more of a short-term boost for a lucky few. Given most – such as Nigeria, Algeria, Angola, Libya and Egypt – are already established fossil fuel producers whose resource wealth has thus far failed to translate into tangible development outcomes, it may not even be that.

The revenues from expanded fossil fuel production are unlikely to stay in Africa, and those that do are marked for a small number of resource-rich nations. The second channel, however, through which expanded fossil fuel production might be expected to deliver improved development outcomes in Africa is availability.

Could fossil fuels expand energy access in Africa?

If Africa extracted more oil and gas, say proponents, it could be used to expand energy access while replacing dirtier alternatives for heating and cooking. This deserves serious attention. Of the 759m people the World Bank recorded as without access to electricity in 2019, and the 2.6bn without access to clean cooking, 660m and 910m respectively were in sub-Saharan Africa.

Expanded domestic fossil fuel production, however, is unlikely to solve these problems. If supply alone was the issue – if the demand for energy consistently ground up against the amount available from current sources, causing access deficits – we would expect Africa to consume at least the energy that it itself produced. In fact, the reverse is true; Africa consistently produces more energy than it consumes.

That Africa cannot even consume all of the energy that it generates suggests alternate causes of the severe energy access deficit. Price, for instance, is likely a major factor. Fossil fuels are priced and traded on global markets, inserting a substantial wedge between what the average African can afford to pay for energy and the price that energy can fetch internationally, even if it was extracted in Africa in the first place.

According to GlobalPetrolPrices.com, which provides a real-time database of gasoline affordability, nine of the 10 most unaffordable countries are in Africa. In Malawi, the least affordable, it costs 1.48 times average monthly income to fill one 40 litre tank. It is hardly surprising, then, that Africans consume far less fossil fuels than they ought. At inelastic global prices, it is – and is likely to remain – simply too expensive.

In addition to pure unaffordability, the high price of fossil fuels on international markets makes it increasingly likely that African oil and gas will be exported, rather than retained for domestic consumption. This is especially relevant given recent attempts by European countries to wean themselves off Russian gas.

Chancellor Olaf Scholtz visited Senegal and Niger in May to shore up Germany’s claim on their future gas supply, while in March Italy reached large new supply agreements with Angola, the DRC, Algeria and Egypt. More will follow, with each drop of new fossil fuels exported to wealthy Western consumers reducing access for power-starved Africans.

Infrastructure is another major factor. According to a recent Afrobarometer survey, just 43% of African households are connected to a national electricity grid. The problem is particularly acute in rural sub-Saharan countries such as Malawi, Burkina Faso and Niger where less than one in four are connected. Expanded fossil fuel production does little to solve this problem; it is not a dearth of supply that is the issue, rather an inability to get energy to those who need it most.

And the most likely winners are…

Given the thin environmental and technical justification for expanded fossil fuel production, advocates have turned to development as the key rationale for Africa to extract as much oil and gas as possible. The development dividend from this expansion, however, is weak. It is not at all clear that it will create broad-based wealth on the African continent, nor alleviate crippling energy access deficits.

The most likely winners from African fossil fuels are not Africans, but the foreign companies who own the majority of the resources themselves, and the wealthy nations whose carbon-intensive development caused the climate change that is currently killing people on the continent. Africa would do well not to pick up the bill on their behalf.

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