Page 14 - Issue 3 2023

VIEWS AND OPINION

The energy transition –

a just transition or a fair transition?

By Liz Hart, Africa Energy Indaba

he energy transition — along on African countries’ cost base for gas
with the restructuring of global exports. As an example, the European
Tnatural gas supply sources Union’s Carbon Border Adjustment
following the Russian invasion of Mechanism, will require EU importers
Ukraine — is shaping the future of to secure carbon certificates on
Africa’s gas sector. It offers bright imported goods corresponding to the
options for several affected countries carbon price that would have been
should they have the political will to paid, had the goods been produced
invest in their infrastructure and create under the EU’s pricing rules.
private sector opportunities – thereby In this context, Africa’s gas majors
building long-term economic resilience are increasingly challenged to deliver
for themselves at this critical juncture. higher returns more sustainably.
The upcoming Africa Energy Investor scrutiny of gas projects,
Indaba (7-9 March at the Cape Town meanwhile, is intensifying as capital
International Convention Centre) is set providers factor environmental, Liz Hart
to empower attendees with insights to social, and governance considerations
leverage the significant opportunities into their decisions. Regarding local
that will ultimately accelerate Africa’s consumption, rapid population growth being that they must also have the
energy infrastructure, thereby and industrialisation mean energy infrastructure in place to meet that
transforming the continent into a demand on the continent is threatening sharply increased demand.
competitive, industrialised global to outstrip supply — including for fossil African gas producing countries are
player. fuels. Modelling by McKinsey estimates already highly dependent on global
Africa’s gas industry is entering a that African energy demand by 2040 capital pools to fund their hydrocarbon
new era. Yet there are paradoxes: the could be around 30% higher than it is projects so as maintain their gas
opportunity arises at the exact moment today, an average threefold increase operations. A challenge in the future
the world is looking to accelerate a compared to the global increase in will be that those global capital pools
transition away from fossil fuels, leaving energy demand. for hydrocarbon projects are in the
the continent’s oil and gas producing The Ukraine conflict has highlighted process of being cut in line with global
nations highly exposed to the global the strategic and moral dilemma commitments made at November’s UN
energy transition, and their economies facing Europe’s most industrialised Climate Change Conference (CoP27)
dependent on at-risk oil and gas economies; the European Commission in Sharm El-Sheikh, Egypt, and CoP26
revenues. Furthermore, their reserves has recognised the region’s own limited before that.
cost on average 15 to 20% more to natural resources, by announcing a Given African oil and gas assets
extract, according to McKinsey and plan to make Europe independent of are more carbon intensive than global
are, also on average, 70 to 80% more Russian fossil fuels before 2030. This gas assets, European countries might
carbon-intensive than comparable will be achieved by a combination of be tempted to look elsewhere as first
reserves from other regions. acceleration of renewable energy and choice.
Furthermore, many developed diversification of natural gas supplies. Energy prices have skyrocketed
countries are beginning to implement This could galvanise demand for oil since early 2022, with Europe heavily
carbon pricing and taxes, which may and gas from those African countries reliant on Russia for more than half
be likely to have an adverse impact that have the reserves – the caveat of its gas, almost half of its coal and

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