Tuesday, 23 July 2024

In Industry

Botswana and the future of the African Oil and Gas Industry

The African oil and gas industry is undergoing a transformation as the world shifts towards sustainability and away from fossil fuels.

The continent’s oil and gas producing nations are facing mounting pressures as their economies are heavily dependent on oil and gas revenues, while their reserves are both costlier to produce and more carbon-intensive than oil and gas from other regions. 

The energy demand on the continent is also expected to increase with rapid population growth and industrialization, creating a challenge and an opportunity for these countries to transition to a more sustainable energy source.

The ongoing conflict in Ukraine, which has led to a threefold increase in European gas prices, has also resulted in a plan by the European Commission to make Europe independent of Russian fossil fuels by 2030, thereby increasing the demand for oil and gas from African countries that have the reserves and infrastructure to meet this demand. 

The global momentum towards sustainability and the phasing out of fossil fuels is accelerating, with the United Nations Framework Convention on Climate Change Conference of the Parties (COP26) explicitly referencing a shift away from coal and the phasing out of fossil fuel subsidies. The International Energy Agency (IEA) has also outlined a net zero by 2050 road map, highlighting the need for a significant reduction in the use of hydrocarbons by 2040.

At COP26, over 150 countries, including Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa, made commitments to restrict methane emissions, halt and reverse forest loss, phase out coal, and end international financing for fossil fuels. Nigeria, along with several other large energy exporters, also committed to net zero by 2060. 

Some countries are implementing carbon pricing and taxes, which could impact African countries dependent on oil and gas exports. The European Union’s Carbon Border Adjustment Mechanism, for example, will require EU importers to secure carbon certificates on imported goods, corresponding to the carbon price that would have been paid if the goods were produced under the EU’s pricing rules.

In response to these changes, oil and gas majors are reducing their African upstream exposure and rebalancing their portfolios towards resources with lower emissions intensity. Investor scrutiny of oil and gas projects is also increasing as environmental, social, and governance considerations are factored into investment decisions. 

This shift is contributing to a widening gap between oil and gas company valuations and renewable energy company valuations.

In light of these developments, African oil and gas producing countries, such as Botswana, have a unique opportunity to embark on an inclusive energy transition and chart a course towards a sustainable future. 

By creating enabling environments, improving access to available capital pools, and attracting the right skills and capabilities, these countries can meet the energy needs of their developing populations and position themselves in a new energy landscape.

Botswana, in particular, has a large diamond mining industry that has long been a significant contributor to its economy. With the decline in diamond mining and the global shift towards sustainability, the country has an opportunity to leverage its resources and capabilities to transition to a low-carbon future. 

This could include developing its renewable energy sector, investing in clean energy infrastructure, and promoting sustainable energy practices in both the public and private sectors.

Botswana is one of the African countries that have made commitments to restrict methane emissions, halt and reverse forest loss, phase out coal, and end international financing for fossil fuels. This commitment to reducing the use of fossil fuels and transitioning to a more sustainable energy future places Botswana in a position to play a key role in the future of the African oil and gas industry.

Botswana is rich in coal resources and has been reliant on coal-fired power plants to meet its energy needs. 

However, the global momentum towards sustainability and away from fossil fuels is increasing, and the pressure on countries like Botswana to transition to a more sustainable energy future is growing. The International Energy Agency's net-zero by 2050 roadmap highlights the need for a significant reduction in the use of hydrocarbons by 2040, including the phasing out of all unabated coal and oil power plants.

In light of this, Botswana has the opportunity to leverage its coal resources and expertise to transition to a low-carbon energy future. 

The country could consider investing in clean coal technologies, such as carbon capture and storage, which could reduce the emissions intensity of its coal-fired power plants. Additionally, Botswana could explore alternative energy sources, such as renewable energy, to meet its energy needs and reduce its dependence on fossil fuels.

The future of the African oil and gas industry is undergoing significant changes as the world shifts towards sustainability and away from fossil fuels. This presents both challenges and opportunities for African oil and gas producing nations to transition to a more sustainable energy source. 

By taking stock and considering their energy approach, these countries can meet the energy needs of their populations while positioning themselves in a new energy landscape. 

Botswana, in particular, has a unique opportunity to transition to a low-carbon future and build resilience in the energy sector, leveraging its resources and capabilities.

Source: McKinsey Insights, Behaviour Report

 

Cabanga Media Group publishes of thoughtful economic and business commentary magazines and online media, in several African markets, that include South Africa, Botswana, East Africa Community, Ethiopia, Egypt, Nigeria, and Zambia.