African Oil producers have expressed support for the establishment of an energy bank to facilitate financing of major oil and gas projects in the continent.
The proposed energy bank is a decision being considered after Western nations threatened to halt overseas fossil fuel financing.
The decision has sparked alarm among Africa’s largest hydrocarbon exporters. But plans are afoot to create a new pan-African energy bank that can tackle waning oil and gas investment and drive-up production across the continent.
The Nigerian National Petroleum Corporation (NNPC) Limited, and the African Export-Import Bank (Afreximbank) are exploring the idea of establishing a so-called ‘African Energy Bank.’
Afreximbank could not be reached for comment about the proposal, but the move has been cheered by industry lobby group, the African Energy Chamber, which says the value of such a bank ‘cannot be overstated.’
“Capital from foreign countries and companies will always be welcome, however regarding oil and gas, it isn’t reliable,” the group said in a statement.
“Therefore, through institutions such as the African energy bank, local oil and gas companies will be able to boost new and existing project developments; ensure reliable financing channels for oil and gas; and position the continent as a net exporter of hydrocarbons, all while creating critical capital opportunities for renewable energy projects,” it added.
The move comes about five months after minister of State for petroleum resources, Timipre Sylva, called for African governments to look into the initiative.
“If we insist on the exploration of our oil and gas reserves when the world is cutting down on investments in the sector, we must set a financial institution, an African Energy Bank, to develop the oil and gas sector,” Sylva said in September last year.
Speaking to Global Trade Review about the push to create an energy-focused bank on the continent, Adrian Lawrence, a partner in law firm Ashurst’s projects practice, says the initiative has been driven by the retreat of public and private finance from fossil fuels.
At the Cop26 climate summit in November, a number of countries pledged to end direct public financing for overseas fossil fuel development by the end of 2022, and to prioritise clean energy instead.
Already, many African countries rely heavily on oil and gas for their electricity needs. BP’s latest statistical review of world energy report shows the two fuels were responsible for roughly 48% of the continent’s total electricity generation in 2020.
“Large amounts of capital [will be needed] to implement these transition plans while supplying increasing amounts of power to their populations,” Lawrence said.
“There is thus a growing disconnect between the increasing financing needs of many African countries at a time when there is a narrowing range of institutions able or willing to fund even the most ‘bankable’ of [oil and gas] projects,” he added.
As the industry awaits the release of further details on the new energy bank, questions inevitably arise about how such an institution would find the necessary capital, with Africa’s major petroleum producers all suffering from a chronic lack of investment in recent years.