INDUSTRY EXPERTS TO DELIBERATE ON ENERGY TRANSITION AND THE FUTURE OF OIL & GAS IN AFRICA AT CAPEVIII 2022.
Global warming and climate change are amongst the most serious concerns and threats to countries all over the world. At the UNFCCC’s 21st Conference of Parties (COP21) held in Paris in 2015, countries agreed to aim at “holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change”. According to IRENA, the energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. There is no doubt that energy transition will have far-reaching implications for the economies of African oil and gas producers, and this is the reason that a special session has been included in the programme of CAPEVIII taking place in Luanda, Angola from 16-19 May 2022. The session will discuss and highlight the probable impact on the countries and propose remedial measures that can mitigate the adverse effects on the economies of African oil and gas producers.
The Concern of African Producers
African oil and gas producing countries are heavily dependent on oil and gas revenues for economic growth and development. Therefore, the need to assess the impact of energy transition on their socioeconomic development and implement policies and strategies to diversify their economy becomes indispensable for them. Moreover, they will also need to urgently reassess the investments in oil and gas projects that they continue to make. This is because the risk of stranded assets, oil and gas projects that are no longer economically viable, will grow as the energy transition accelerates. Given the increasing uncertainty around future oil and gas revenues, maintaining public investments in oil and gas projects exposes countries dependent on these revenues to considerable economic and financial risk. In addition, these investments will be at odds with international commitments to reduce carbon emissions as set out in the Paris Agreement and hence are only viable if these targets are not met.
So, while demand may still be growing for now, and oil prices will certainly still see a number of peaks in the near future as we are currently witnessing due to the ongoing war between Russia and Ukraine, the decisions on investing in oil and gas projects that governments make today may put their public finances at risk in the future. Oil and gas producing countries are exposed in particular through their National Oil Companies (NOCs). But governments can reduce the risk of short-sighted decisions by improving planning and public reporting of the key data that underpins investment decisions.
It must be pointed out that the transition towards clean energy could be both a challenge and a benefit for the African producers. First, the challenge is that it could affect investment in exploration and production of oil and gas resources. The beneficial effect is that it could also open up opportunities for oil and gas producing countries in Africa because it requires equipment, technologies, and various services, thereby offering significant employment opportunities in the energy sector. This increased transition-related job demand is predicted to lead to, on average, 1 percent higher employment throughout the transition (until 2050). The additional jobs peak around 2030 at 51 million (26 million in the energy sector alone). It is important to realize that job creation goes beyond the energy sector. Experts in legal matters, taxation, logistics and safety and environment, as well as skilled labourers such as truck and crane drivers, are among those that will also play an important part of the transition. Therefore, the energy transition will contribute to positive impacts on the wider human welfare through the improvement of human health and access to energy.
The Discussion Panel at CAPEVIII
In view of the global drive for energy transition, CAPEVIII is devoting a session to deliberate on the future of the oil and gas industry in Africa. In the session, a panel of industry experts and professionals will highlight the challenges of energy transition and the expected reduction of oil and gas in the global energy mix on the sustainable economic development of African producers. This is to ensure that governments are not caught off guard by sudden national, regional, or global policy changes related to the energy transition. The likelihood of a radical shift in legislation in major oil-consumer countries, while hard to predict, should not be underestimated in a rapidly changing context, given mounting international pressure and the urgency of the climate crisis.
It is based on the foregoing that the panel of industry experts and professionals have been put together to discuss and highlight the implications of energy transition on the future development of oil and gas sector in Africa. In particular, speakers will analyse the challenges of energy transition in view of the high dependence of African producers on the exploitation of the resources for revenue and foreign exchange to fund public expenditures. Key industry experts and players will deliberate on the viability of a total abandonment of fossil fuels and the short, medium, and long-term impact this may have on sustainable development and economic growth of African oil and gas producers.
Previously, the only argument for economic diversification by oil and gas producing countries in Africa was the risk of oil market volatility, today two additional arguments have emerged: the uncertainty regarding the speed of the global energy transition and therefore the long-term sustainability of the hydrocarbons revenue, and the pressing need to create jobs opportunities for a large and youthful population. The combination of these arguments might well turn out to be decisive in firmly committing the governments of African oil and gas producers to implement economic diversification strategies. The global energy transition might then turn out to be a positive input for oil and gas exporters, a stimulus to consider economic diversification as an unavoidable pathway, to be pursued in order to guarantee future economic prosperity a low-carbon regime.
While oil-producing governments should be working on diversifying their economies away from the fossil fuel industry, they should also clear about the assumptions and guidelines on which they base their strategy for the oil and gas sector and public investment decisions. They should transparently show that their strategy takes the energy transition into account, including national and global commitments and goals under the Paris Agreement. It is expected that the industry experts will find solutions that will help African producing countries to mitigate the impact of energy transition on the sustainable development and growth of their economies.