Financial Energy Review
African Petroleum Producers’ Organization (APPO), has advised African leaders to reinvest most of the oil and gas revenue into the industry to avoid over-dependent on foreign investment.
APPO urged the African countries that produce crude oil to invest heavily on research and development (R&D) so as to increase the local content in their various countries.
APPO therefore advocates for the laws that will mandate a portion of Windfalls from Oil and Gas sales to be re-invested in the Industry so as to increase more participation in-country.
The Secretary General, African Petroleum Producsers’ Organisation, APPO, Omar Farouk Ibrahim stated this at the Maiden Edition of African Local Content Investment Forum, held on Monday in Lagos.
“If we see energy security as critical to our national security, we should enact laws that provide for a portion of windfalls from oil and gas sales to be re-invested in the industry”, he said.
“We need to find a way or ways of getting African oil and gas producing countries governments to commit to a certain percentage of the windfalls to a special fund for the sustenance of the oil and gas industry during the transition period. A guaranteed source of revenue is the only guarantee for the success of the new order we want to see in Africa. That revenue shall not come from the private sector alone. Not because it does not make economic sense to make the investment, but because it is a matter of national security for the powers that be”, he added.
That being so, African governments according to him have got to re-strategize, and think oit of the box.
“This forum with the theme ‘‘Evolving A Pan-African Strategy Towards Sustainable Funding of Africa Oil and Gas Projects’’ could not have come at a better time. This is because Africa has just come to the full realization that the world, or more precisely, that part of the world that Africa has depended on for over three quarters of a century for hydrocarbons technology, expertise, markets and funding, has now resolved to abandon hydrocarbons and by implication, the mainstay of many of the economies of Africa’s oil and gas producing countries”, he opined.
“It is important not to de-link the global paradigm shift away from fossil fuels to renewables from the failure of the doctrine of Project Independence, initiated by President Richard Nixon of the United States in 1973 aimed at ending US oil imports in response to the oil embargo placed on the US and some European countries by some Arab oil producing countries, in the aftermath of the Arab-Israeli war of the same year”, he stated.
The Sectary General revealed that the bitter experience of the United States from the oil embargo made it to resolve to wean itself from foreign, particularly Arab oil. Government introduced policies aimed at achieving this objective, among which was support for the development of shale oil. For a number of reasons, these policies did not achieve the desired results. It was the failure to achieve that objective that led to a change in strategy.
“Having realized that shale cannot compete with conventional oil on the market, a deliberate strategy to demonize oil was hatched. First, funds were provided to research institutions to conduct studies on the impact of burning fossil fuels on the atmosphere, and by implication on the health of the people living on earth. These studies “unearthed’’ the dangers of Green House Gas Emissions on the atmosphere. These findings were then given wide publicity and lots of funds were devoted to the establishment of many NGOs whose mandate is to demonize hydrocarbons”, he stressed.
“It is interesting to note that these findings were not new, and that as far back as 1859, John Tyndall, an Irish physicist, had made similar findings. Svante Arrhenius, a Swiss scientist had also published his findings on the same subject.
But because it was not in the interest of the industrializing powers of Europe and America to stop the use of fossil fuels at that time, the findings of those studies were never publicized. And for nearly 200 years, but especially in the last century, they continued to use fossil fuels to consolidate their economies”, he noted.
“Now that their economies have graduated from reliance on intensive energy for production, and Africa is on the verge of its industrialization, these countries have suddenly remembered that fossil fuels are harmful to humankind. It is obvious therefore that the energy transition agenda had been on the agenda of the advanced countries since the last quarter of the last century, but for whatever reason, we failed to see them. We went on behaving as if the end of oil shall never come”, said the Secretary General.
“If in the first half of the 20th century Africa could say that it had no expertise, no markets, no technology and no funds to take effective control of its God-endowed natural resources because oil was sold at an average of about one US Dollar per barrel and the Seven Sisters dictated what the owners of the resource received, can we say the same thing after the Arab oil embargo of 1973, when the price of the barrel doubled, tripled and even quadrupled? Can we say the same for the period between 2003 and 2008 when oil prices rose from about 20+ US Dollars per barrel to nearly 150 US Dollars per barrel? When the price of oil began a steep rise, not due to market fundamentals but to extraneous forces, including geo-politics and market manipulation, did it occur to us that the sudden windfall could also trigger a reaction from the powerful countries on whom we have always depended for the exploitation of our resources? Yet, we continued to spend the windfall, without making the necessary investments in the golden goose that lays the golden eggs. We did not make the required investments in the industry’s Research and Development, not in technology, we did a bit in human capacity development, but not in financing the sector. Rather, we saw the windfall as a largesse to be shared for consumption. Today, African oil and gas producing countries have gotten used to big expenditures and since what they get is not enough to sustain that expenditure pattern, many of them now resort to borrowing”, he revealed.
Energy transition according to him is real. The advanced countries are determined to move away from energy that they do not control. It is a matter of national security, and national interest. And for this they are prepared to pay any price.
“They are closing their institutions that had for about a century become global centers of oil and gas technology research. They are ordering their financial institutions that had for decades funded the industry not to fund oil and gas projects anymore. They are investing heavily in alternative energies .
And all these are taking us by surprise because we have been caught napping.
“Is all hope lost? I do not think so. Africa can still rectify its mistakes. And I see the proactive initiatives that Nigeria’s NCDMB under the able leadership of Engineer Simbi Kesiye Wabote has been taking in the past nearly 6 years as directed at changing the predicament we have found ourselves in.
“In this respect I would like to point out that a major study commissioned by APPO on the Future of the Oil and Gas Industry in Africa in the Light of the Energy Transition has concluded that the oil and gas industry in Africa shall need a new development model in order to survive the energy transition.
“If it fails to re-strategize and come up with a new model, it risks losing the 125 billion proven crude oil reserves and the hundreds of trillions of proven gas reserves as stranded assets.
The new model, sees in greater cooperation and collaboration among African oil and gas producing countries, the only way to survive the challenges posed to Africa by the energy transition agenda.
Thus, while still encouraging the development of national local content, as currently practiced, the model shall also seek to emphasize a continent-wide approach to addressing the funding challenge, the capacity development challenge, the lack of cross-border and regional energy infrastructure challenge, the technology deficit challenge and the underdeveloped energy market challenge, using the African Continental Free Trade Agreement as an enabling vehicle.
“It sees the potential of a huge energy market in empowering the 900 million people of Africa who have no access to any form of modern energy. Lest we were misunderstood. Africa does not contest the science of climate change. We are not against any action that shall make the world a better place for all.
“What we are saying is that by prioritizing the growth of their national economies and the well-being of their peoples over the health of humankind in the 19th century, today’s advanced countries, who are the main champions of climate actions, and the greatest culprits of atmospheric emissions, have lost the moral right to tell others what their priorities should be in the energy transition agenda”, explained.
“It is high time Africa understood that its salvation lies in its own hands. We cannot continue to look outside for help to save ourselves. We cannot afford to discard what we have in abundance for what we do not have. We will not change one form of dependence for another.
“As I take a critical look at the target publics and institutions for raising the funds to finance energy projects in Africa in the absence of the traditional financiers, as identified by the organizers of this Forum, I see that we are yet to fully appreciate the challenge facing our continent. For, I see that our proposed solution is more of the same. And more of the same will not change our situation. When the Americans were confronted with a similar challenge after the Arab oil embargo, they treated the challenge as a matter of national energy security. And their response was crafted accordingly.
“But what I see us doing is to propose to go to financial institutions to assist raise the funds for our survival. It will not work. None of the financial institutions operating in Africa today can afford to provide all the funds required for the oil and gas industry in Africa to operate and grow, and at the same time meet its original mandate.
“It was in recognition of this fact that the APPA Fund for Technical Cooperation was restructured and given a new mandate under a new name, the African Energy Investments Corporation, AEICORP. Its focus is to fund oil and gas projects as the traditional financiers withdraw from the industry. But we are realistic. AEICorp cannot do it alone. No financial institution in Africa can do it alone. But through cooperation and collaboration, we are confident that Africa shall succeed.
