US oil dilemma and Africa’s opportunities

AT THE STATE OF THE UNION address last week Tuesday night of February 7, 2023, in the United States, President Joe Biden momentarily turned melodramatic halfway through his speech when he was complaining about the “Big Oil.” Before straying away from his prepared speech, he said “that Big Oil just reported record profits. Last year, they made $200 billion in the midst of a global energy crisis. It’s outrageous. They invested too little of that profit to increase domestic production and keep gas prices down. Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.” Then he went off script, conceding that oil demand will last for another decade or beyond.

For its relevance, the State of the Union Address is a message delivered every year by the president of the United States to a joint session of the United States Congress in the chamber of the United States House of Representatives near the beginning of most calendar years on the current condition of the nation. Therefore, what slipped out of President Biden’s mouth on oil deserves serious attention within and outside the US. In general, it has global implications which need to be taken seriously by Africa in particular. Biden’s second State of the Union Address, and his third speech to a joint session of the United States Congress, therefore, deserves depth of analysis. Here is what Biden said that sent shock waves across the world: “We’re going to need oil for at least another decade… and beyond that.” That sounded more like an admission of an earlier error of judgement and wrong attitude that reveal the seeming disconnect in Biden’s stance toward oil and gas companies, or a deliberate decision to act in ways he has acted officially for heroism and populism. From the beginning of his presidency, it was clear that his administration believes in the need to rapidly phase out oil in the hurried attempts considered as absolute necessity to address climate change. So, ab initio, Biden had assumed that the oil industry’s relevance was going to soon fade.

The ensuing rocky relationship between Mr. Biden and the country’s major oil companies, has created an economic fiasco in the energy markets, with ripple effects within and beyond the US making investors uncomfortable. Within 24 hours of assuming office as the US president, Joe Biden considered one his most urgent tasks was to cancel the Keystone XL pipeline project by an executive order revoking the key permit needed to bring oil from Canada’s western tar sands to US refiners, a hasty decision – described as “green hallucinations” – that cancelled the Canadian pipeline project approved by his predecessor, Donald Trump. Two years after, the Keystone XL cancellation has proved to be a massive missed opportunity for the US in need of reliable energy partners. In what could be interpreted as an inadvertent concession to a failure of judgement and an imminent policy somersault, Biden disclosed that he had pressed oil executives on the issue of increasing investments. And the response he claimed to have got was instructive for a country that its government is expected to listen to its people in an overrated democracy. Echoing what the oil investors told him, Biden said: “We’re afraid you’re going to shut down all of the oil wells and all the oil refineries anyway so why should we invest in them?” But over these last two years, since Biden became president, US oil imports from Saudi Arabia and Russia have increased while gasoline prices have gone up higher than they have been in the last six years.

Why the haste about shutting down oil projects without a robust alternative in place? Conventional wisdom in energy transition warrants carefully thought-out and diligently implemented action plans, irrespective of partisan politics and the advantages they confer. But the left-right political dichotomy in the US is costing the country dearly and causing its economy to oscillate between reality and fantasy on zero-carbon emissions future in energy matters. In the US, the current energy mix involves a diversity of five main sources of energy. According to the April 2022 report from the US Energy Information Administration, gas still tops the list of nationwide energy sources at 36 percent, followed by  petroleum contributing 31 percent, coal supplying 20 percent, renewables giving 13 percent and nuclear power plants now providing just eight percent. In reality, it remains inconceivable how petroleum and gas – two sectors supplying two-thirds of the US energy under the present administration – could be suddenly discounted and supplanted by the renewables which, are yet to be upscaled from the current proportion of the total energy mix, except in a world of delusions.

Reacting shortly after Biden’s off-script State of the Union comments, Lindsey Graham, a Republican Senator from South Carolina, tweeted that, “President Biden implied tonight America would not produce oil beyond the next decade. If you believe that, you have missed a lot and live in a dream world. God help America.” Another tweet by Ed Markey, a Democratic Senator representing Massachusetts, apparently countering Graham’s tweet, claimed that: “If we’re going to save our future, we need a transition away from dirty, expensive and deadly fossil fuels, and we need to be speeding up — not slowing down.” Collin Rees, an advocate and campaigner for the green group Oil Change International, thinks Biden “is right,” but wasn’t too explicit on whether the off-script comments about another decade were tenable and for how long. He, however, added that: “We can’t continue to pretend we’re reducing (greenhouse gas) emissions without addressing oil production, and that means phasing out fossil fuels.”

The manner in which any major oil-rich country addresses its oil policy is highly consequential. The Keystone XL project represented an opportunity to increase North American energy security, lower costs for American consumers and reduce dependence on foreign energy sources that are considered hostile to U.S. interests. It is even interesting that the US decision on oil contravenes its foreign diplomacy with a number of countries. So, rather than officially embarking on anti-oil rhetoric for deterring investment, the US has been a major loser in the energy markets, particularly in oil and gas, since the past 12 months of Russian invasion of Ukraine. The European Union allies of the US have since embarked on search for alternative sources of oil and gas as they have blacklisted the Russian oil and gas exports in addition to recently capping the prices.

This is where Africa’s relevance comes to the fore. If the recent tours of the US secretary of state, Antony Blinken, to some African countries is to make any practical political and economic sense, the US engagement with major oil exporting countries cannot be ignored as many estimates suggest that oil and gas will be required for several more decades before they can be phased out and replaced by green alternatives. During this transition window, Africa has a great opportunity to reap great economic benefit from oil and gas exports as well as embark on a seamless energy transition. How well the 2022 Conference of Parties (COP) 27 in Sharm El Sheikh in Egypt has addressed Africa’s peculiar situation in energy transition remains to be seen.

A continent-wide strategy to tap into the energy gap is desirable and will be considered timely at this time. Angola, Nigeria, Libya and Egypt have to be particularly upbeat and enthusiastic as the signals from Washington would seem to indicate. In reality, what Biden said off-script must have been an outcome of private deliberations on reality check forced on his administration and may soon reluctantly be made a public policy, albeit a sort of shock therapy or fire brigade intervention. But, reading Biden’s lips provides a practical clue for revisiting the fossil fuels industry realistically and renewing some hitherto suspended investments. In the US, it remains debatable whether or not the suspended Keystone XL project will be revived by Biden after his indirect admission of policy error, as resuscitation will boost the US energy sufficiency substantially while working assiduously on transition to renewables. But whether or not Biden remains steadfast and rigid on Keystone XL cancellation for political and ideological reasons is a win-win for Africa as the opportunities for African oil and gas exports will receive a boost for as long as possible.

A point has to be made that, in the interest of African economy, forces mounting pressure on Uganda, seeking to dissuade the country from further exploratory efforts on oil and gas, are expected to be persuaded to back down or at least slow down and choose a path of just and equitable energy transition rather than one of zero sum. Of the approximately 6.5 billion barrels of proven  Uganda’s oil reserve, the country should now be allowed the freedom to explore and exploit significant quantity that could turn its economy around for the better and meet Uganda’s energy needs as well as for exports by 2025 when the first of a potential 1.4 billion barrels of oil is expected to be pumped from the wells within the country. The East African Crude Oil Pipeline (EACOP), also known as the Uganda–Tanzania Crude Oil pipeline, when completed, will transport crude oil from Uganda’s oil fields to the Port of Tanga, Tanzania on the Indian Ocean for exports. The completed pipeline will be the longest heated crude oil pipeline in the world and might play for East Africa the role that the suspended Keystone XL would have been playing for North America.

Unfortunately,  EACOP is pummelled by environmental rights activism seeking to stop the project. In May 2022, the anti-EACOP coalition got ecstatic at the news that five banks including Deutsche Bank, Citi, JPMorgan Chase, Wells Fargo and Morgan Stanley have confirmed they will not join the project loan to finance the EACOP, in what was expected to be a setback for EACOP. There were indications that those turning their backs on EACOP included seven of Total’s ten largest lenders. The implication is that if TotalEnergies was planning to ask for public finance on the pipeline, they will also have to look elsewhere, especially as French President Emmanuel Macron told activists last May that he would stop any remaining public finance to EACOP.

If Joe Biden, an ardent campaigner and official policy influencer on ending the use of oil and gas, is pragmatic enough to publicly admit that oil and gas would still be needed in the US for over the next decade, it is both foolhardy and ill-advised for African countries to hurriedly close down oil and gas projects in their bid to please some interest groups and pursue eco-friendly energy options without thoroughly considering the downsides and unintended consequences. The decisions therefore need to be well thought through and the implications carefully weighed on cost-benefit analysis scale. African oil producing countries need to be keen on the politics of the United States vis-a-vis energy in general and oil and gas in particular. In this game, African countries cannot afford to be more catholic than the Pope.

• business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com