Addressing Potential Pitfalls as Africa’s Oil and Gas Financing Continue to Dwarf Renewable Energy Investment

The 2015 Paris Agreement negotiated at the 2015 United Nations Framework Convention on Climate Change (UNFCCC) came up with the goal of keeping the mean global temperature to 2°C above pre-industrial era levels, with the best-case scenario of limiting the temperature increase to 1.5°C. The agreement was reached as a means of reducing the effects of climate change, which can be directly linked to the emissions generated by the combustion of fossil fuels. Thus, if there is going to be any real change to carbon emissions, and by extension, climate change and global temperatures, there must be less burning of fossil fuels.  

As a result, there is plenty of talk about transitioning from fossil fuel-based energy to renewable energy. Making the large-scale technology transfer required to switch the primary mode of energy conversion will require a lot of funding and investments in renewable technologies. According to the International Renewable Energy Agency (IRENA), about US$0.5 trillion was invested in renewable energy in 2022 and US$1.5 trillion was invested in technologies related to the energy transition, the latter covering everything from energy efficiency to smart cities and sustainability in buildings.  

Despite these figures, IRENA has stated that the number of annual investments needed to stay within the 1.5°C scenario should be triple or even quadruple the current figures. This can be linked to the fact that between the introduction of the Paris Accords in 2015 and 2022, fossil fuel capital investments – covering upstream, downstream, and infrastructure – have been at an average of nearly a trillion dollars annually. This is nearly three times that of renewable energy capital investments, estimated at $360 billion annually.  

Most energy investments are still going into funding new fossil fuel projects instead of renewables, oil and gas across most of the world with significant coal investments in Asia. To understand this, one must look towards the source of the investment. Most energy investments come from the private sector, particularly banks. Banks and investors have continued to invest in fossil fuels, with Environmental Finance reporting that between 2015 and 2021, the world’s 60 largest commercial banks poured $4.6 trillion into financing fossil fuels.  

A key reason for the continued investment in fossil fuel companies is that those companies continue to generate more profits than any other. The $670 billion financing by the world’s top 60 banks in fossil fuels companies that was recorded in 2022 was the lowest since the Paris Accords, according to the Rainforest Action Network and Inside Climate News. However, this was not attributed to an unwillingness of the banks to lend the industry money: the top fossil fuel companies like Chevron, ExxonMobil, and Shell are sitting on so many profits that they do not need to lend.  

In recent years, Africa has been a major beneficiary of fossil fuel investments, with most new projects targeted at exports. The Russia-Ukraine War and the sanctions that came from that conflict removed one of the world’s leading oil and gas exporters, Russia, from a large section of the global market, supply which had to be replaced somehow. Many of the largest oil companies have turned to Africa, home to bountiful and, crucially, untapped oil and gas reserves.  

The result of this has been that the fossil fuels sector has received ten times as much investment in Africa as the renewable energy industry. Total capital expenditure for oil and gas exploration and development in Africa has risen from $3.4 billion in 2020 to $5.1 billion in 2022. This is clearly in line with the start of the Russia-Ukraine War, the supply shortages that caused, and the ensuing spike in energy prices.  

That spike in energy prices, as well as global macroeconomic uncertainty with inflations and rising interest rates, along with the fact that most of the world still runs on fossil fuels, are some of the factors that have convinced banks and financial institutions to continue investing heavily in fossil fuels. After all, that industry is a safe and proven profit machine. The Glasgow Financial Alliance for Net Zero (GFANZ), a body that was set up to direct financial institutions towards accelerating the decarbonization of the global economy, has relaxed its rules on fossil fuel investments, stating that it will ask its members to produce net-zero plans by 2027. This will pave the way for greater fossil fuel investment in the near future.  

African countries such as Nigeria, Mozambique, and Egypt see the present situation as an opportunity to permanently affix themselves to the global energy supply chain, particularly in liquefied natural gas (LNG) exports. These countries, along with Namibia, Angola, and Algeria are the leading African countries in terms of oil and gas capital expenditure, according to a Reclaim Finance report prepared by Ganswindt et al.  

These are by no means the only beneficiaries of fossil fuel investment on the continent: as many as 48 African countries have seen a degree of investment in either oil and gas exploration, exploitation, or both. While this may be seen as a boon for the continent in terms of revenue generation, the environmental hazards are plentiful.  

Africa is one of the most vulnerable regions in the world to the effects of climate change despite contributing only 3% of global greenhouse gas emissions. That 3% figure is sure to rise with the extent of oil and gas development happening on the continent. A continent that is an epicentre of droughts, famines, heat waves and water stress should not be a driver in fossil fuel exploration. The counterargument will be that oil and gas development is a great way of raising funds which can go towards climate mitigation, but that can be viewed as creating tomorrow’s problems to solve today's. Tomorrow is not that far away. 

In addition, fossil fuel exploration and development in Africa have often brought more trouble than good. The continent’s fossil producers are some of the most visible exponents of the “resource curse”, a paradoxical situation where a country in possession of very valuable resources underperforms economically. Apart from economic stagnation and over-dependency, fossil fuels have often brought conflict and environmental crises.  

LNG projects have exacerbated Mozambique’s civil war and armed conflict in Nigeria’s Niger Delta region has long been associated with the oil and gas developments in the region. The Nigerian Niger Delta region has become one of the most polluted places on the planet due to oil spillages, permanently altering the lives of local indigenes.  

Hence, there is the fear that oil drilling in Namibia’s Okavango Delta might destroy one of the world’s most important wildlife centres, the Kavango Zambezi Transfrontier Nature Conservation Area (KAZA), an area noted to be ecologically fragile. On the Senegal-Mauritania coast, the Greater Tortue Ahmeyim Project will radically transform the world’s largest cold-water reef. Drilling in this area will affect strategic ecological zones such as the Dialing and Djoudi National Parks of Mauritania and Senegal respectively; the Marine Protected Area of Saint-Louis; the Langue de Barbarie National Park and the Guembel Natural Reserve, all of which are teeming with both marine and terrestrial wildlife. 

In defiance of all these factors, expect oil and gas exploration and development in Africa, from upstream to downstream and infrastructure, to continue and probably intensify. The demand is plentiful, the resource is available, and there is too much profit for both governments and corporations to pass up. In addition to exports, countries such as South Africa, Nigeria, Libya, and Mozambique are installing thousands of megawatts of gas-fired power plants, hoping to take advantage of natural gas in solving the chronic access-to-electricity problem.  

Do the revenues and potential power generation outweigh the socio-political and environmental issues oil and gas development brings? That might yet be hard to tell and will come down to the question of “What do you value more?” So far, history is not good: it shows how exceedingly difficult it has been to control what is always a delicate situation. The real fear is that Africa increasing emissions will create a feedback loop: it is the activities being carried out to raise finance to ameliorate climate change effects that will aggravate the situation further.