Virtual Meeting 12 November 2020
Virtual Meeting 12
Distinguished experts and members of the Ad Hoc Technical Committee on the Study of the Impact of COVID-19 and COP-21 on the Oil and Gas Industry in Africa, I am pleased to welcome you all to the inaugural meeting of this very important Committee established by Ministerial Council Resolution No. 270/38/2020.
Background to the Establishment of the Committee:
MCR 270 was a response to a presentation made by the Secretariat to the 38th Session of the Ministerial Council held on 14th June 2020. The presentation was in response to a request from two esteemed Member Countries, Republic of Congo and Equatorial Guinea for a situation report on the impact of COVID-19 on the economies of APPO Member Countries.
In the Secretariat’s presentation, it was noted that precovid-19 projection of Africa’s GDP growth rate for 2020 was 3.4%. By April 2020 that figure had been revised down to -1.1% or -0.8% at best.
The presentation also noted that a UNECA Report suggested that African oil and gas exporting countries will be most hit by COVID-19. The UNECA Report estimated USD 65billion revenue loss to African oil exporting countries in 2020 due to fall in oil prices.
Citing an IMF study, the Report noted that each 10% decline in oil prices leads to a 0.6% fall in oil exporters’ revenue and an increase in overall fiscal deficit of 0.8% in GDP.
The Report also noted that intra-African trade accounts for a mere 17% of total continental trade, and that this percentage is much less with African Oil and Gas producers as they are heavily dependent on extra-continental export revenue.
This situation exposes these countries to the vagaries of the oil and gas markets and makes their economies most vulnerable to external developments.
Furthermore, the Secretariat’s presentation noted that beyond the immediate challenge posed by COVID-19 to our Member Countries, there is also the medium to long term challenge, posed by the global paradigm shift in energy mix, popularly called energy transition..
The Secretariat’s Report noted that since the Paris Climate Change Summit of 2015 popularly called COP-21, world leaders, including leaders of our member countries, have committed to the peaking of GHG emissions “as soon as possible.’’
The main target of COP-21 is 20/20/20, namely, to reduce hydrocarbon use by 20%, increase renewable energy use by 20%, and both of these objectives are to be achieved by the year 2020 compared to 1990 levels.
To achieve this target, the developed countries have instituted measures against fossil fuel use including, but not limited to the following:
- Fossil Fuel Divestment
- Penalties for Use of fossil fuels
- Discrimination in the use of fossil fuels
- Subsidies on renewables
Realities facing African Oil Producers:
- The Oil and Gas Industry is highly capital intensive and technology-driven;
- More and more oil and gas finds are being made on the African continent but we have neither the finance nor the technology to harness these resources for the maximum benefit of our peoples;
- Our MCs have been compelled, in most cases, to rely on IOCs to finance exploration, production, processing and marketing of our oil and gas resources;
- In the wake of COP-21 where the home governments of the IOCs are imposing restrictions on investments in hydrocarbons, the IOCs have no choice but to comply with the regulations of their home governments, leading to shortage of investible funds for hydrocarbon projects.
- In a few years from now, African countries that rely heavily on FDI for their oil and gas sector development will see the source of that funding drying up and the oil industry dying a natural death; Already, by penalizing investors in the industry, or starving the industry of investible funds, through deliberate and discriminatory policies, the end of the oil era is being brought closer even when more oil finds are being made in Africa;
- The implications of the success of the objectives of COP21 is that poor countries that have abundant oil resources, like our Member Countries, cannot use it to develop their economies especially in the long term because there will not be market for it, either because discriminatory policies would have succeeded in eliminating whatever cost advantage oil has over renewables, or global paradigm shift against fossil fuel use has made its use very unpopular, or more stringent penalties will be imposed and enforced on countries that deal with fossil fuels.
The Way Forward:
The task of this Committee is to undertake a thorough study of the present and future prospects of the oil and gas industry in Africa especially in the light of the two challenges identified above, namely COVID-19 and COP-21, and make recommendations to the APPO Council of Ministers for their consideration and adoption by APPO Member Countries’ governments for implementation.
The work of this Committee may end up providing the foundation for the development of the First APPO Long Term Strategy,
Ladies and gentlemen, as you begin this meeting, I should like to remind us that this Committee is a Ministerial Committee and its report will be submitted to the Council of Ministers, in line with APPO regulations.
The Secretariat shall provide research, secretarial and other logistics support for the efficient conduct of your assignment.
I shall now invite the chair and alternate chairpersons of the Committee, Mrs.HEBA ABDEL KADER of the Republic of Egypt and Engr. SIMBI K. WABOTE of the Federal Republic of Nigeria to conduct the meeting.
I wish you very fruitful deliberations. Thank you for your kind attention.