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PREVIEW
Shell retreats from Niger Delta operations as oil reforms pass into law and Ghana steps up plan to boost production
Three months ahead of the UN Climate summit (COP26) in Scotland and the rising toll of extreme weather, floods, drought and forest fires, African governments say they are determined to exploit their fossil fuel resources – despite growing political and market constraints.
This week African and Latin American officials set out their plans at the Offshore Technology Conference in Houston, capital of the United States' oil and gas industry, in the face of Washington's avowed intention to speed up the transition to lower carbon energy.
Ghana's energy minister Matthew Opoku Prempeh, at the centre of a storm in Accra about the viability of a revived oil project with Norway's Aker, told the Houston summit, 'We have millions of people without electricity in Africa,' adding that the green energy transition should not mean Ghana's fossil fuel resources would be left stranded (AC Vol 62 No 16, The oil economy breaks up).
Last month, Prempeh's department tabled an energy plan at a cabinet meeting with his fellow ministers in Accra arguing that there would be an increase in demand for hydrocarbons over the next 30-40 years despite the green transition plans. Prempeh's paper forecasts that falling hydrocarbon demand due to electric cars in Europe will be offset by growth in Asia. It quotes industry specialists projecting demand growth of 5 million barrels of oil a day by 2030.
In a section of the paper entitled 'The hypocrisy of the West', Prempeh said that 'advanced countries developed their economies using profits from oil and gas …[and] are now investing in renewables using profits from oil and gas…'
The hypocrisy comes in, argues Prempeh, when the 'advanced countries are focused on persuading emerging oil and gas producers to leave their newly found hydrocarbons stranded and borrow from them to develop renewable energy'. He ends the point by quoting the International Energy Agency's estimate that developing economies generate just 3% of global carbon emissions.
Although Prempeh's argument helps justify the government's much-criticised plan to borrow US$1.3billion to buy stakes in two deep-water blocks in the offshore Tano fields, its logic is mirrored by several other developing country oil and gas producers.
Together with Europe's richest economies, the US has been announcing ever more ambitious timetables to ban petrol-driven vehicles as big oil and gas companies sell off operations in Africa, Asia and Latin America.
Senior officials such as Nigeria's Vice-President Yemi Osinbajo, along with leaders in the Middle East, point to the double standards in the West's latest climate goals. It sets the stage for fierce arguments at COP26 where the summit's British hosts want agreement on tougher carbon limits.
Speaking last month just before President Muhammadu Buhari signed the Petroleum Industry Bill into law, the most comprehensive energy sector reforms for a generation, Vice-President Osinbajo pointed out that Nigeria's gas resources, reckoned to be the eighth biggest in the world, would drive the country's power sector for several decades (AC Vol 62 No 16, Crude deal).
New technology and higher volume production, argued Osinbajo, would allow Nigeria to cut the emissions from its hydrocarbon sector. But both Buhari and Osinbajo are lobbying hard to raise finance for the redevelopment of their country's energy industry.
Their effort is complicated by the plans for several big oil companies – such as Royal Dutch Shell, BP, ENI, Total and ExxonMobil – to cut their oil and gas operations in Africa, Asia and Latin America.
In the latest exit plan, Shell says it wants to sell all its onshore joint-venture operations in Nigeria. Although widely expected by industry insiders, Shell's policy shift may undermine Nigeria's efforts to raise energy finance on the back of its oil and gas industry reforms.
This is Shell's most radical reconfiguration of its Nigerian operations yet: it says its onshore and shallow water operations in the Niger Delta emit more carbon and are more costly than the rest of its global portfolio.
Critics say this is partly due to Shell's lack of investment in these operations. Oil industry insiders say that it was Nigeria's oil resources, the growth of its energy sector over the last 60 years that played a key role in Shell's development as a global corporate force.
Shell is not quitting Nigeria completely; it will hang onto its more lucrative offshore operations which are reported to emit less carbon. For now, the big question is how quickly Shell will be able to sell its onshore portfolio, and for how much (AC Vol 62 No 14, A last bid for oil investors).
There are plenty of small and mid-size companies, many with substantive Nigerian equity, which say they are interested in Shell's assets with the aim of substantially boosting their production and profitability. Whether the regional and international financial institutions share their optimism about the market is yet to be tested.
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