The ESG Hypocrisy Of Shipping LNG To Europe
Is shipping LNG from Africa to Europe a proper Environmental, Social, and Governance (ESG) step towards sustainability or is it a new form of colonialism?
By Neil Munshi (Bloomberg) Near the tip of Nigeria’s Bonny Island, an arrowhead speck of land where the Atlantic Ocean meets the Niger Delta, a giant plant last year produced enough liquefied natural gas to heat half the UK for the winter. Most of it was shipped out of the country, with Spain, France, and Portugal the biggest buyers.
Just 17 miles away in the town of Bodo, residents still use black-market kerosene and diesel to light wood stoves and power electricity generators. The fuel is manufactured with crude stolen from the foreign energy giants — Shell, Eni and TotalEnergies — that co-own the Bonny Island facility along with the Nigerian government.
“The gas here goes to Bonny and Europe to power homes and industries but we have no benefits from it,” said Pius Dimkpa, chairman of Bodo’s local community development committee. “Nothing comes to us.”
Nigeria has 3% of the world’s proven gas reserves, yet has tapped almost none of it. Like most African countries, what has been extracted is mostly sent to Europe, which now wants to import even more to make up for supplies lost to Moscow’s invasion of Ukraine. Italy in April struck fresh deals to buy gas from Angola and the Republic of Congo, while Germany has been looking to secure supplies from Senegal. That’s despite discouraging the use of gas and other fossil fuels around the world in pursuit of global climate goals, a case some European leaders made at the United Nations’ COP26 conference in Glasgow last November.
While African leaders are eager for the millions in revenue that the gas deals are likely to bring in, they’re also calling out the sudden interest in their resources as a double standard that perpetuates the West’s exploitation of the region. They question why Africa must move away from dirty fuels — thereby delaying access for hundreds of millions of people to electricity — even as its gas is used to keep the lights on in Europe. Rich countries have been reluctant to fund pipelines and power plants that would facilitate the use of gas in Africa because of its emissions, yet haven’t delivered on promises to help finance green projects that could be an alternative source of energy.
European Environmental, Social, and Governance (ESG)
Europe’s awkward position was on display at the Group of Seven leaders summit last month. The world’s most advanced economies walked back a climate commitment to halt financing for overseas fossil fuel projects, but indicated that exceptions would likely apply to projects that would allow for more shipments of LNG to their countries. In another climbdown, European Union lawmakers recently voted to classify gas and nuclear energy projects within the bloc as “green investments”, potentially opening up billions of euros in fresh funding.
That approach has irked African leaders who need fuel, any fuel, to lift millions out of poverty. “We need long-term partnership, not inconsistency and contradiction on green energy policy from the UK and European Union,” Nigerian President Muhammadu Buhari said in written comments. “It does not help their energy security, it does not help Nigeria’s economy, and it does not help the environment. It is a hypocrisy that must end.”
To be sure, sub-Saharan African governments share the blame for their underutilized gas reserves. Few countries have seriously invested in or reformed their power or oil and gas sectors, particularly Nigeria, where the Bonny Island plant has run at least 20% below capacity since 2021 because of pipeline theft and vandalism. Many African leaders support boosting gas exports to help their cash-strapped governments, but they also want access to financing that would allow them to harness the fuel’s potential to create domestic natural gas markets.
“They cannot just come and say, ‘We need your gas, I’ll buy your gas and we’ll take it to Europe,’” Gabriel Obiang Lima, energy minister of Equatorial Guinea, said at a press conference in May. “They need to give something back to us.”
Gas has long been controversial from a climate perspective: it burns cleaner than other fossil fuels but still generates carbon pollution and tends to leak the super-warming greenhouse gas methane. Europe’s own stance on the fuel has shifted since the war began. Its top priority now is to buy up as much LNG as it can get its hands on, while countries including Germany, Austria and the Netherlands have turned to coal as a backup.
European politicians argue the fossil fuels are a band-aid needed to get the bloc through the current crisis, so it can avoid shortages and blackouts that could weaken support for sanctions against Russia. In theory, concurrent plans to ramp up renewable power much faster than previously targeted will balance the climate scale, resulting in lower emissions overall. But the EU has also hesitated to put in place policies that would curb energy consumption right now for fear of political backlash.
While the climate math may end up working out the way EU officials say it will, it’s a more difficult message to sell abroad.
Future LNG Pathway
The pathway being pushed by European leaders — that Africa moves straight to clean energy sources — isn’t viable unless rich countries, private investors and development banks help with funding. There’s ample sunshine and wind in Sub-Saharan Africa, which collectively uses less energy than Spain, but little infrastructure to harness it. Developing countries also face much higher financing costs for green projects because they’re seen as riskier investments. Adding to Africa’s frustration is that rich nations have failed to deliver on a target to provide $100 billion a year in climate finance that was supposed to have been met in 2020.
“The whole of the West developed on the back of fossil fuels — even as we speak some Western nations are deciding to bring coal back into their energy mix because of the war. So when the world wants to transition to zero carbon emissions, who has to do more?” said Matthew Opoku Prempeh, energy minister for Ghana, which has in the past few years made significant oil and gas discoveries. “Is the West saying Africa should remain undeveloped?”
The issue of climate finance will likely dominate this year’s COP27 talks in Egypt, which is set to focus heavily on solutions for Africa. The future of gas will also be a key topic given the host nation and many developing countries see it as a way to move away from coal, according to Kwasi Kwarteng, business secretary of the UK, which hosted last year’s summit. “For them, gas is part of the transition.”
The International Energy Agency, which last year called for an end to new fossil fuel developments, in a recent report argued that Africa should be allowed to exploit its gas resources. The continent’s share of historical global emissions would only rise to 3.5% from 3% even if it tapped every molecule of its known gas reserves. Universal energy access on the continent could be achieved by 2030 with $25 billion a year in investment — the equivalent of just 1% of the money pouring into the energy sector globally.
A recent spate of major discoveries has led to big private projects with fossil fuel giants including Exxon Mobil, BP and Shell spending tens of billions in Mozambique, Tanzania, Senegal and Mauritania to extract more gas for export. There are plans to grow existing LNG facilities in Nigeria and Angola that could help Africa produce 470 billion cubic meters of gas a year by the late 2030s, equal to about 75% of Russian output this year, according to consultants Rystad Energy. Almost all of it will be headed out of the region.
Meanwhile, there’s a dearth of new funding for power plants to burn gas within Africa. Governments and businesses have $100 billion in planned projects, including 35 gigawatts of gas-powered electricity, but can’t find the money to build most of them. Some countries have negotiated deals for some portion of gas extracted by foreign entities to be used domestically, and all are paid taxes by the companies, but the proceeds often aren’t enough to completely transform electricity grids and build major infrastructure.
Loans To Africa
Financing from institutions such as the World Bank, International Monetary Fund and European Investment Bank for gas power projects has all but disappeared for climate reasons. There’s also a worry from private investors that they could end up as stranded assets as the world tries to reach net-zero emissions in the coming decades.
Projects such as Mozambique’s Central Termica de Temane power station, which secured $652 million of funding in December, have become increasingly difficult to get investment for, according to Mike Scholey, chief executive officer of the plant’s owner Globeleq Inc. The World Bank’s International Finance Corp. and the US International Development Finance Corp., two key investors, have both taken steps to halt overseas funding of carbon-intensive projects.
Vicky Ford, the UK’s minister for Africa, has suggested that the bar for any development financing to flow to gas proposals would be high. “The biggest challenge that the world faces is still climate change,” she said in an interview on May 17. “The long-term strategy must continue to be working towards renewables as well.” At home, her government is pushing for more exploration of North Sea oil and gas wells.
The turn to Africa for a short-term gas fix is “patronizing” and “hypocritical,” said Carlos Lopes, former head of the UN Economic Commission for Africa. It is “absolutely outrageous to say to the Africans that they should basically not look into the options that they have in front of them, and at the same time accelerate the request for gas for Europe because of the Russia-Ukraine war.”
Vijaya Ramachandran, director for energy and development at the Breakthrough Institute, a California-based think tank, was more blunt. It’s “green colonialism,” she said, as rich countries exploit poorer nations’ resources while essentially denying them similar access in the name of climate action.
In response to the criticisms, the European Commission said the EU is “investing massively in renewables and energy efficiency” at home and around the world. “There is an opportunity for many countries to leapfrog carbon-intensive development and benefit from a greener, more equal economy that provides energy access to millions of people,” Tim McPhie, a spokesperson, said in an e-mail.
The urgency of the climate crisis is hardly lost on Africans. Global warming has already brought devastation across the continent. The Horn of Africa is currently experiencing its worst drought in four decades. Desertification threatens the arid Sahel while erosion eats away at coastal cities such as Lagos and Accra.
In the coming decades, as the population booms and the Earth warms, it will only get worse. A World Bank report released in October projected that the continent will be the hardest hit by climate change, with impacts including mass internal migration and “increased poverty, fragility, conflict, and violence.”
Economic development, some of it driven by fossil fuels, is needed for the region to adapt to extreme weather events that will happen whether or not emissions are cut in time to avoid the most catastrophic global warming outcomes. But the hurdles African countries face in transitioning to gas or green energy mean millions of people are burning dirtier fuels such as charcoal instead, breathing in deadly fumes and generating more emissions. The IEA estimates that the number of people in sub-Saharan Africa without access to clean cooking fuel will grow by 6% a year from 2020 to 2030.
In Bodo, near Bonny Island, dead power lines hang limply overhead while women cook on firewood. “We notice many negative effects — smoke worries our eyes,” said Monica Gboro, who sells beans and corn flour from a makeshift shop. “If your kids come near you in the kitchen, you chase them away because of smoke. It shouldn’t be so.”
By Neil Munshi, Paul Burkhardt and William Clowes. With assistance from Ekow Dontoh, Will Mathis, David Malingha, Stephen Stapczynski, Jess Shankleman, Antony Sguazzin, Akshat Rathi, and Codratus Godson. © 2022 Bloomberg L.P.
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