Africa’s energy sector facing ‘financial apartheid’ from western institutions

• Analysts say western banks, financial institutions hold back funding

PHILLIP ISAKPA IN LONDON, UK

Africa’s oil and gas sector, a major part of its energy ecosystem, has come under a treatment that some analysts have chosen to call ‘financial apartheid’ from Western banks and financial institutions.

Analysts at African Energy Chamber (AEC) led by NJ Ayuk, have accused Western banks and financial institutions of orchestrating withdrawal of financial support for oil and gas projects on the continent amid a spate of divestment by international oil companies. 

The analysts are worried that the withdrawal of Western financial support from Africa’s oil and gas sector, coupled with delays in key projects due to lack of investment, threatens to undermine the continent’s energy development and economic progress.

The accusation stems from their observation that “In recent years, several Western banks and financial institutions have implemented policies aimed at reducing support for fossil fuel projects, especially in Africa. This has led to a sharp decline in investment in the continent’s oil and gas industry, a sector that is crucial for its economic future and energy needs.” 

Describing this treatment as ‘financial apartheid’,  the African Energy Chamber (AEC) argues that while similar projects receive support in Europe, Africa’s high-cost energy projects are being neglected.

This decline in investment in Africa’s oil and gas sector is particularly having a noticeable impact, the AEC analysts suggested, adding that this has been exacerbated by the global shifts towards cleaner energy and the prioritising of environmental, social and governance (ESG) practices. 

They observed that major international oil companies are reducing their presence in Africa, and cited Equinor’s withdrawal from offshore exploration in South Africa and ExxonMobil exit from a deep-water oil prospect in Ghana, noting that this decline is contributing to a bleak outlook for Africa’s energy sector.

According to NJ Ayuk, AEC’s executive chairman, “As the international community moves to boycott investments in the African energy sector, African people and African development stand to suffer.” 

The AEC analysis pointed to the apparent role that oil has in Africa’s energy and economic future which necessitates that it “should be defended as Western elites move to disrupt African progress.”

The broader implications of financial divestment are profound, they maintained, adding that many African governments rely on fossil fuels as a cost-effective means to alleviate energy poverty and boost state revenues. 

“However, the increasing pressure on financial institutions to cut funding for high-carbon projects creates uncertainty about the future of Africa’s energy sector,” the analysts wrote in their note.

They fingered the changing role of the International Energy Agency (IEA) in the debate which appear to be at Africa’s disadvantage, noting how the IEA has added to these challenges faced by Africa with its calls to cease funding for oil and gas projects, thus highlighting a disparity: for while natural gas is considered a ‘green’ energy source for Europe, it does not receive the same treatment in Africa. 

“The IEA has lost its relevance and its authority,” Ayuk said, with the AEC noting that while it was originally focused on managing oil supply disruptions, the IEA now prioritises policies aimed at achieving net-zero emissions by 2050. 

The African Energy Chamber noted that the IEA had projected in 2019 that no new investments in oil, gas, or coal are needed if the world continues on this path, but that this position has been particularly controversial.

The AEC further observed that several key African projects are at risk due to the withdrawal of financial support. “Significant initiatives like TotalEnergies’ Mozambique LNG project, ExxonMobil’s Rovuma LNG project, Nigeria’s Train 7 LNG expansion, Senegal’s Sangomar oil field, Uganda’s Tilenga project and the East African Crude Oil Pipeline (EACOP) require substantial financing to advance,” it pointed out.

But despite the setbacks, it noted that there was a silver lining as it stated that some projects are progressing. 

“TotalEnergies is advancing its $20 billion Mozambique LNG project, aiming to develop the Golfinho and Atum fields with a production capacity of 12.88 million tonnes per year. Eni’s Coral South FLNG project in Mozambique has achieved a production capacity of 3.4 million tonnes per year. Additionally, the Greater Tortue Ahmeyim (GTA) LNG project, which started gas production in November 2022, is being developed by bp, Kosmos Energy and the national oil companies of Senegal and Mauritania. This project includes an FLNG facility with an initial capacity of 2.5 million tonnes per year.

“Meanwhile Nigeria’s Train 7 project, an expansion of the existing NLNG facility on Bonny Island, aims to boost production by 8 million tonnes per year, bringing the total to about 30 million tonnes per year. This development is crucial for Nigeria’s growing population and its ability to meet its energy needs,” the AEC stated.

The AEC analysts, however, stated that there were still observable delays, which they said was affecting Tanzania LNG project, involving Equinor and Shell, stalled due to proposed government changes. UTM Offshore’s FLNG project in Nigeria, initially planned for 2023, has been postponed; and the EACOP faces significant criticism from financiers and environmental groups, complicating its development and financing.

Also affected by these delays is Namibia, which is experiencing heightened interest from recent oil discoveries, but is facing delays with its Kudu Conventional Gas Development. The Kudu Gas Project, an offshore initiative, has faced setbacks related to financing and project development challenges. As a result, the project is still pending FID and anticipated to commence production by 2026, the Chamber explained.

“Today, African Energy Poverty numbers are skyrocketing. Nine hundred million Africans lack access to clean cooking technologies, while 600 million lack access to electricity, most of them women. African families are facing high energy costs and inflation is going up,” Ayuk emphasises. 

“It is shocking that financial institutions that do business in Africa continue to practise financial apartheid by cutting off capital and financing to oil and gas companies operating in Africa because of climate concerns. These same institutions fund gas development in Europe, where natural gas is deemed green and a fossil fuel for Africans,” Ayuk added.

According to the AEC note, the disparity in financing not only undermines Africa’s ability to harness its natural resources for its development but also perpetuates a cycle of energy deprivation.

It, therefore, called for a re-evaluation of this approach, and that global financiers should support Africa’s energy projects right, recognising their critical role in advancing economic development, enhancing energy security, and improving living standards across the continent.