In a presentation on the topic “Securing capital in the current financial landscape” during the African Energy Week in South Africa, the GNPC CEO, O. A Danquah said Africa must transition at a global pace.

“Global urgency to act on climate change and march towards a de-carbonizing energy transition has been spelled out. The movement is reflected in numerous initiatives such as the Paris Agreement, the UN Sustainable Development Goals, the UN Global Compact, the UN Principles for Responsible Investment and more recently the Glasgow Climate Pact reached atCOP26.”

“The energy transition has a broad overwhelming consensus due to the global nature of its main drivers – namely the ramifications of climate change, technological advancements in providing cheaper and cleaner energy and geopolitical response to public opinion.”

He further urged African countries to carve their own narrative in line with their immense potential and aspirations through data-backed, motivated, and concerted efforts at the national, regional, and continental levels.

“Africa must seek greater control of its assets and encourage more financing from within the continent, and less from without to support oil and gas projects. The Right Narrative Balancing development and sustainability; Africa’s fossil fuels hold the key to an equitable or just transition.”

“In sharing the burden of reduced emphasis on fossil fuels, it must be noted that today, the whole of Africa contributes just about 3.8% of global carbon dioxide (CO2) emissions. These small contributions underscore how little impact this region has on climate change compared to 32% of global emissions produced by China in 2020 and 13% produced by the United States in the same year. Adding India’s 7%, this makes the world’s top three emitters responsible for over 50% of global CO2 emissions.”

With African oil and gas demand forecasted to rise by 51%, he called for a “critical” question on how will Africa satisfy this demand when it has limited control of the finances for developing the necessary resources.

“Africa should address business environment risks and reduce costs. As global capital tightens in an industry riddled with volatility, the need to structure and develop attractive projects in the face of dwindling fossil fuel financing assumes even greater importance. “

“This rests on safeguarding returns on investment at both the macro (government) and micro (project enterprise)levels. This is especially critical given that many African projects involve frontier exploration with inherent risks and unanticipated costs. Fundamentally, an enabling environment has to be in place for growth to occur in African financing.”

 

He proposed that governments can use fiscal regimes as a key lever to reduce high initial cost outlays.

“Incentives such as tax exemptions on oil and gas services and imports for new projects can lower front-end costs. Typical exploration stage levies, bonuses, and allowances can also be deferred to the first oil when revenues begin to flow.”

“Operational costs can also be decreased by encouraging infrastructure-led exploration. Such projects can offer lower-cost access to facilities, services, and markets, smoothing the path to commercialization where discoveries are made. At the macro level, Governments can play a role in supporting the development of the requisite infrastructure for such an approach which catalyzes benefits at the project level,” he added.

He said as the energy transition and environmental, social and governance (ESG) standards take center stage, issues of sustainability and decarbonization have also become top of the operational agenda.  

These, he believes, can provide broad savings in terms of quantifiable project costs, project attractiveness to financing, and reduction of negative externalities such as environmental damage.

“At the Policy level, legislative and institutional support for sustainable operations can provide a key catalyst to improve project cost competitiveness. For example, they can encourage a reduction in flaring or provide frameworks to underpin carbon offset initiatives.”

He further urged stakeholders to de-risk natural gas developments and trade to incentivize homegrown financing.

He believes governments can further support gas commercialization by taking a more regional view to expand market access and develop key infrastructure.

“Large gas reserves, may, for example, be able to efficiently serve regional power pools or gas markets through inter boundary gas pipelines that connect processing and LNG  facilities, or gas-powered electricity generation. For example, according to 2019/2020 statistics from the Southern African Power Pool (SAPP), 69.5% of the power supplied to the power pool by Mozambique in 2019 or 2020 was generated from external gas plants.”

The GNPC CEO thinks the ultimate step to take is the African capital to support African projects.

“Incentivize African financial sector participation and attract African-controlled foreign capital.”