This article argues that if African gas producers are able to create an enabling commercial environment amid a rapidly evolving geopolitical landscape, they just might be able to reap a financial windfall from increased gas exports to Europe.
This article is part of a series on the effects of the war in Ukraine on African countries. The series is edited by Chris O. Ogunmodede.
Russia’s invasion of Ukraine has shaken global energy markets. The February incursion and the sanctions subsequently imposed on Moscow by the United States and the European Union have contributed to high oil and natural gas prices, complicating the global economic recovery from the coronavirus pandemic and exacerbating high inflation levels across the globe.
Russia is a significant actor in the global energy supply chain, as a major producer and exporter of oil and natural gas. Its energy exports play a particularly important role in European energy markets and are a major component of the European Union’s energy security. Russia supplies the bulk of the EU’s natural gas consumption, with the EU importing 155 billion cubic meters of natural gas, accounting for 45% of EU natural gas imports and 40% of total consumption. Since the outbreak of war in Ukraine, the International Energy Agency, or IEA, presented a 10 Point Plan for Europe to reduce its dependence on Russian gas, and support its green ambitions. One of the ten points calls for European countries to diversify their sources of natural gas imports, a development that has taken on more significance in light of Moscow’s decision to suspend gas exports to Bulgaria and Poland.
The far-reaching consequences of Russia’s invasion of Ukraine for energy markets and geopolitics raise an important question: what implications does the Ukraine conflict have for European energy security, and what broader ramifications do those developments have for African energy policies?
With the EU’s partial embargo of Russian oil, and its plans phase imports of Russian natural gas, there is opportunity for African oil and natural gas-producing countries. Countries including Algeria, Mozambique, and Nigeria to have a greater role in the global energy landscape. Equally, the high price of oil and gas is shifting countries to increase their rollout of low-carbon technologies, presenting opportunities for African countries that produce the critical minerals (copper, cobalt and chromium to name a few) needed for these low-carbon technologies.
But African hopes to make up the shortfall in European gas imports face several hurdles. For these countries to be able to meet their domestic needs and export surplus gas products to Europe, greater investment in natural gas infrastructure is essential. Good governance and political stability are equally essential prerequisites for African countries to attract the meaningful investments needed to upgrade their energy infrastructure. Without those key reforms and investments, African countries will be unable to capitalize on the opportunity presented by Europe’s diversification of natural gas sources away from Russia. The recently signed Memorandum of Understanding between Afreximbank and the African Petroleum Producers Organization (APPO) for the creation of an African Energy Transition Bank to finance oil and gas projects on the continent will support financing and investment opportunities for Africa’s oil and gas industry.
If African gas producers can create an enabling commercial environment amid a rapidly evolving geopolitical landscape, they just might be able to reap a financial windfall from increased gas exports to Europe, which should in turn result in more revenues to fill government coffers, create jobs locally, reduce poverty rates and support domestic development goals.
The increase in oil prices in global markets due to the war in Ukraine has contributed to a global increase in the price of refined oil products like petroleum. According to an African Development Bank and African Union report titled Oil and Gas in Africa, most African countries are net importers of oil. The spike in global oil prices is contributing to inflation in a number of African countries, with Fitch Solutions projecting an average inflation rate of 22.1 percent for Africa in 2022.
To boost export revenue, increase economic productivity and support long-term social development, policymakers in African oil and gas producing countries in Africa may propose ramping up domestic production and refinement of oil and gas products. However, a few challenges are likely to emerge:
Moreover, the potential for fossil fuel lock-in, where African countries double down on investment and development of fossil fuels even if they lose their economic viability, developed countries transition away from them, a risk that cannot be ignored. This is to say nothing of the stranding of fossil fuel assets as well as the consequences of the “Dutch disease”, in which the rapid development of one sector of a country’s economy, usually natural resources, brings about a decline in others. It would be prudent for African policymakers to consider the risks that the energy transition will present to investment in these long-term projects and plan accordingly.
Energy poverty, defined as the lack of access to adequate, reliable, affordable, safe, and sustainable modern energy sources, remains a major challenge for Africa. Ending energy poverty is important for policymakers on the continent because access to stable and modern electricity is critical for development and the alleviation of poverty, as noted by the African Development Bank in its Energy Sector Policy and the 1996 SADC Protocol on Energy. African countries must secure access to cheap and reliable energy resources in order to industrialize their economies and meet the demands created by rapid urbanization and population growth the continent is projected to experience in the coming decades. Although much progress has been made, greater collaboration between African countries is needed to ensure effective implementation of these policies and proposals.
Meanwhile, European countries continue to use fossil fuels as they transition toward renewable energy, even while advocating for countries in the developing world to rapidly reduce their carbon emissions. This development has resulted in accusations of hypocrisy and double standards.
While renewable energy use is gaining a foothold in many African countries, it largely occurs at the individual level, as a means of replacing and supplementing the inefficiencies of the centralized national grid that typically supplies energy across the country. The expectations for African countries to rapidly “leap-frog” to renewable and low carbon technologies must be reconsidered in light of the steep costs required for these innovations to scale nationally.
A potential collaborations between European and African countries toward a just energy transition will need to prioritize securing energy access through a mix of different sources available on the continent, as well as with the technical support as documented in the 2015 Paris Climate Agreement. In this scenario, the avoidance of fossil fuel lock-in and ensuring energy security for African communities are critical to achieving a just energy transition. In essence, considerations around the energy transition for Africa must be underpinned by the development of a stable industrial energy base, while working towards the net-zero goal of the Paris Agreement.
The Russia-Ukraine war has undoubtedly provided a jolt to European energy security, as the geopolitical ramifications of the EU’s heavy dependence on oil and gas imports from Russia is now causing the bloc to seek alternative sources of energy. This development has had a knock-on effect for other countries around the world, especially African countries. However, the changing energy landscape also presents an opportunity for African countries to capitalize on this gap, one that can only be realized with the political will of the continent’s political leaders.
This article has been updated.
Vincent is a Natural Resource Governance Researcher. His research focuses on Environmental, Social and Governance (ESG) risks, the natural resource governance of critical minerals, oil and gas, energy and the energy transition, and advancing Africa's sustainable development.
