African countries risk stranded investments in response to European gas supply crisis – report

African governments run the risk of stranded investments if they respond to the EU's short-term need for natural gas in the wake of the Russian invasion of Ukraine, a report by the African Climate Foundation (ACF) shows. Faster decarbonisation, lower gas demand and lower long-term prices will reduce the value of existing African gas industry and damage the economic viability of future liquefied natural gas (LNG) projects, the report said. As the European Union is moving away from Russian gas and is in the process of transitioning to clean energy sources, the demand for natural gas is projected to decrease in the coming decades. The EU aims to become climate neutral by 2050. “Rather than responding to Europe’s short-term needs for gas, these African countries would be better off investing in renewable energy sources, following the path of the EU,” the ACF said in an e-mailed statement.

Africa is an important player in the natural gas market, the report said. In the last decade, there have been major natural gas resource discoveries across the continent, adding to the reserves already held by the large incumbent producers in West and North Africa, it said. Despite Germany signing on to a pledge at COP26 to stop public foreign fossil fuel financing by the end of 2022, German chancellor Olaf Scholz has been pushing to allow such support for new projects, for example in western African Senegal. His plans have come under fire, especially because reports have said that developing any new oil and gas fields would either push the world beyond the 1.5°C temperature rise limit or create stranded assets.

“Europe is looking for African countries to provide a stop gap for the next ten years and then what for these countries?" lead author of the ACF report Ellen Davies said in a press briefing. "They will have sunk a whole lot into developing new resources and they will then be penalised by Europe through the Carbon Border Adjustment Mechanism (CBAM) for using natural gas. Because even if they are then able to use the resources domestically, countries' trade will be impacted by restrictions that place additional tariffs on carbon intensive production,” she said. 

At the same time, African countries are seen as pivotal for the energy transition, also due to their vast resources in solar energy. With the proper conditions, they can step up to provide a significant source of energy to EU member states and other wealthy nations, while also developing their own sources of renewable energy, said ACF. However, “the onus to rapidly reduce emissions must be on developed countries that have historically and still continue to contribute the most to greenhouse gas emissions," Davies said. "Ensuring access to energy on the continent is absolutely critical not only to improve people’s lives and support economic development but also to build adaptive capacity and resilience against climate change,” Davies added.