Premium
Why oil scramble poses dilemma for banks and insurers in green agenda
The dash for fossil fuels in African economies such as Kenya, Egypt, Uganda and Mozambique is posing a dilemma for investors, banks and insurers.
The dash for fossil fuels in African economies such as Kenya, Egypt, Uganda and Mozambique is posing a dilemma for investors, banks and insurers as the race for climate change mitigation and adaptation gathers pace.
The delicate balance between guarding mid-term progress in African economies and transitioning from oil and gas to green energy played out in last week’s Africa Climate Summit in Nairobi.
President William Ruto rallied the continent to a uniform opportunity-focused climate agenda that is heavily focused on renewable sources of energy such as wind and solar.
But back home, as is with many other economies in the continent, the race for oil and gas is gaining momentum, putting investors, banks and insurers at a crossroads.
African Development Bank (AfDB) president Akinwumi Adesina brought the dilemma to the fore by saying that the continent cannot develop with what it does not have, calling for an energy mix that includes exploiting its fossils.
“Africa must develop with what it has, not what it does not have,” said Mr Adesina.
“We must be pragmatic. Africa must use its natural gas and combine it with renewable resources. The International Energy Agency’s analysis shows that doing so will only add 0.5 per cent to global emissions. Give us space to grow.”
His sentiments came even as the AfDB partnered with the Global Centre on Adaptation to launch a $1 billion (Sh145.5 billion) initiative to finance youth-led businesses and startups across Africa.
But insurers and banks, faced with governments that are aggressively investing or eyeing investments in oil and gas, look set to take longer in getting themselves out of the firing line when it comes to supporting fossil projects.
President Ruto spoke highly about Africa’s immense potential in renewable energy — solar, hydro, wind and geothermal—, adding that the restoration and expansion of Africa’s natural carbon sinks is an “unparalleled economic goldmine”.
But Kenya is still betting on its oilfields in Turkana as it eyes to earn foreign currency. Its neighbours—Uganda and Tanzania—are pushing on with the $3.5 billion (Sh512 billion) East African Crude Oil Pipeline Project (EACOP) despite the widespread criticism that has seen major re-insurers and banks back out.
Ugandan President Yoweri Museveni was missing in Nairobi for the Summit. He has openly been telling off Western economies, saying they are displaying the “purest hypocrisy” by investing in oil and gas but expecting Africa not to.
Mr Museveni last year, in a response to the European Union Parliament’s resolution to not support EACOP, said: “They are so shallow, so egocentric, and so wrong but they think they know everything.”
“We will not accept one rule for them and another rule for us. It is morally bankrupt for Europeans to expect to take Africa’s fossil fuels for their own energy production but refuse to countenance African use of those same fuels for theirs,” said President Museveni.
Mr Museveni’s tirade at the West was not far from that of President Ruto who has committed to building a natural gas pipe from Tanzania to Kenya.
President Ruto last year questioned the rationale of importing coal from other countries “when we have our own,” pointing to the possibility that Kenya is open to adding coal to its energy mix
Mozambique, which last year celebrated its first-ever export of liquefied natural gas to Europe has set eyes on scaling up the production of its vast natural gas deposits that could make the country one of the world’s 10 biggest exporters, according to estimates.
Many African leaders continue to put in a strong case for an aggressive search for funds and insurance to tap into the vast oil and gas reserves, with some arguing that many Western countries benefited from dirtier fuels such as coal.
But it is the insurers and bankers, many of whom have scored a series of wins, including signing up for the sustainability agenda, that now face a delicate balance of steering clear of criticism while also funding or underwriting risks in the oil and gas industry.
Banks and insurers are being viewed as the Achilles heel of the fossil fuel industry but top players say the shift will have to be gradual and that they should not feel the heat for supporting such projects now.
Africa is lagging behind the world in industrialisation and is eager to exploit its natural resources, especially with richer countries dragging their feet on committing to help developing economies pay for the costs of responding to climate-related disasters.
The dilemma over fossils is not just unique to Africa. The United Nation’s COP27 climate summit held in Egypt last year required overtime to score a breakthrough with the approval of the creation of a special fund to cover the losses by vulnerable nations.
But details on how the fund would operate remained murky, leaving questions on when the fund will be finalised and become operational and who will be shelling out money for the loss and damage caused due to climate change.
The final agreement also failed to approve the phasing down of the use of “all fossil fuels” as had been pushed by India and other delegates.
Instead, the final text called for countries to take steps towards the “phase-down of unabated coal power and phase-out of inefficient fossil fuel subsidies” as agreed at the COP26 summit.
The oil industry is developing 24,166 kilometres of new oil pipelines—enough to stretch nearly two-thirds around Earth, according to new data from Global Energy Monitor (GEM), a San Francisco-based NGO, which tracks fossil fuel and renewable energy projects worldwide.
The West has been accused of not coming to climate change discussion tables with clean hands since many key projects outside Africa are being linked to carbon emissions but have not been discredited as much as EACOP.
The top four countries leading the oil pipeline build-out include the US (2,830km), India (2,824km), China (2,533km) and Russia with 2,051 kilometres, according to GEM data released September last year.
GEM says the majority of America’s 2,829km is associated with the Permian Basin, which straddles Texas and Mexico and whose untapped oil and gas reserves make it one of the biggest “carbon bombs” in the world.
It estimates that the current planned oil pipeline expansion will cost an estimated $75 billion (Sh10.96 trillion) and would be associated with at least 4.6 billion tons of carbon dioxide each year for decades.
