Dr. Omar Farouk Ibrahim, Secretary-General of the African Petroleum Producers Organization (APPO), talks to The Energy Republic about the challenges in African oil and gas industry, including APPO’s plan to harnessing the Continent’s abundance hydrocarbon resources and stop depending on foreign aid to develop these resources. INTERVIEW BY: NDUBUISI MICHEAL OBINEME
TER: How is APPO strategizing to harness Africa’s oil and gas resources and alleviate energy poverty in the continent?
Farouk: First of all, I would like to thank you for your interest in APPO, the African Petroleum Producers Organization, and the well-being of the African population. As you rightly noted, Africa is richly endowed with many energy resources, from oil and gas to solar and hydro and other renewables.
We have been producing oil for close to a century. The economies of many African countries are heavily dependent on oil and gas export revenue. We produce about 8 percent of daily global oil output and 6 percent of gas. Yet, despite these many years of oil and gas operations and the huge dependence of our national economies on oil and gas revenue, our countries have not been able to control that industry. The technology is foreign-controlled, crude oil is produced essentially for export as 75 percent of Africa’s daily crude production is exported from the continent, and even the funding of the industry has continued to come from outside.
Now, with the global paradigm shift away from fossil fuels, and the traditional financiers and markets of our oil committing to abandoning fossil fuels, it has dawned on us that our over 125 billion barrels of proven crude reserves and over 600 trillion cubic feet of gas will be declared stranded assets, and of no use to anyone, if we do not quickly come up with strategies to take full ownership of these resources by mastering the technology developing a sustainable energy market out of our 1.3 billion population that mostly live without access to energy, and finding the finances to keep the industry in operations.
Since the reform of APPA to APPO a couple of years ago, our focus has been on developing this strategy on the way forward for the Oil and Gas Industry in Africa in the light of the determination of the developed world to abandon fossil fuels.
TER: Africa is seen as a Big Continent with Bigger Prospects. The Continent is rich in hydrocarbon resources, but it is still facing many challenges. What are the main growth opportunities in the African hydrocarbon industry?
Farouk: The main challenges for the oil and gas industry in Africa today are in three areas: financing, technology, and market. To some extent, one may add industry expertise. As I said earlier, for decades the financing of the sector has come from international oil companies and international financial institutions. Now that they are committed to abandoning the sector, Africa has got to look within to raise the funds. Unfortunately, Acfomowe has been made to believe that the industry is so capital intensive that Africans do not have the financial means to invest in it and that they need foreigners to do that. And now that the foreigners are withdrawing their financial support, are we going to continue to believe that we cannot invest in the industry? The fact is that we could not raise the funds to invest in the industry because we were looking at the industry as national industries, the same way we were programmed to see our countries as nations that must jealously guard their independence from their neighbors, and not to collaborate on economic projects.
Yet, we are also made to believe that we can collaborate with those who colonized us. Our people have since realized the mistake in this thinking and we are coming together to cooperate in economic ventures. That way we can raise the funds, develop the technology and also develop the market. With 1.3 billion people, over 60 percent of who are youth, we have the potential to consume all the oil and gas we produce if we develop that market by empowering these people.
TER: Following the global energy transition agenda, APPO has insisted that Africa especially oil-producing nations cannot abandon their hydrocarbon resources and transition to renewable energies. What’s APPO main building blocks for Energy Transition?
Farouk: First of all I should like to make it clear that APPO is not against energy transition or any policy that aims to make the world a better place for all its inhabitants. We are not contesting the science of climate change. But what we are saying is that energy transition is not a one-size-fits-all programme. It has to take into account the various levels of development of the peoples of the world.
The developed countries of the world can afford to move fast with energy transition today because they cheated the world one hundred and fifty years ago. These people found out about the dangers of emissions from hydrocarbon use as far back as the 1850s. Their scientists discovered these dangers. But the results of those studies were hidden from the public because these countries were fast industrializing their economies. They did not want anything to halt that process. They wanted to make life better for their people and so refused to stop fossil fuel use. Now that their economies have moved from dependence on a lot of energy to manufacturing knowledge and artificial intelligence and providing services, and our economies are on the verge of industrialization, they suddenly remembered the dangers of fossil fuels which they had known for over 150 years.
Our position is that the developed countries have lost the moral right to tell us to abandon fossil fuels for the simple fact that they knew about these dangers and hide it from the world because it was in the interest of their societies to do so.
Africa is saying that develop all the forms of energy can be developed. The world needs all the energy it can get. We must not abandon fossil for any energy at this time when no one can guarantee that the renewables can be developed to meet world demand. And Africans should know that if renewables fail, the little available energy shall not come to Africa but to the developed countries because Africa cannot compete with these countries on purchasing power. Remember when Covid-19 struck? It was a universal crisis, but how was Africa treated in the distribution of the vaccines?
In addition, what percentage of the global emissions are attributed to Africa?
TER: What would you recommend to African oil-producing countries as a strategy to adopt a sustainable funding model for its hydrocarbon resources?
Farouk: All oil and gas producing countries should pool resources together to see the industry as a continental industry, situated within national boundaries. We should agree to dedicate a certain percentage of sales of oil and gas revenue to a collective fund for the development of the oil and gas industry in Africa.
In this respect, we have created a vehicle for the pooling of financial resources to pursue collective goals for the industry in Africa. APPO has founded the Africa Energy Investment Corporation, AEICorp, whose mandate is to mobilize financial resources for the oil and gas industry in Africa.
APPO Member Countries as well as private investors will be able to subscribe to the fund. It will be callable capital, allowing member countries and other investors to release capital as needed. This signals the potential to achieve and maintain a high international rating by AIECORP based on strong liquidity, also providing an excellent opportunity for investors to participate in a low-risk pan-African growth story.
AEICORP is, therefore, well-positioned to provide financial and advisory support to harness Africa’s natural resources with a focus on energy, unify the continent’s energy ecosystem and accelerate the continent’s economic growth and development. It exists as the main provider of financing for the energy sector in Africa as well as a channel for local and international funds to the energy sector.
Despite its abundant energy resources, there is no doubt that Africa still has the largest number of people without access to modern energy. AEICORP is working to remedy this situation, as it is convinced that without energy, Africa cannot move to the next level.
TER: Infrastructure, Technology, and Finance have been identified as the main challenges hindering the growth opportunities in the African oil and gas industry. In what ways can Africa address these challenges in-country and move beyond depending on foreign aid to develop its oil and gas sector?
Farouk: For finance, I have already highlighted what we are doing with the establishment of AEICorp and where we see it taking us. We are confident that Africa shall be able to raise the required funds to sustain the industry even after the external sources have dried up. And we shall not need that much finance as we are being made to believe, because a good part of the money that is said to be expended on CAPEX and OPEX is inflated by the international oil companies. And then there is the cost of money, namely the cost of borrowing. But if we are to raise these funds internally by asking each oil and gas producing country to dedicate 20 percent of oil revenue windfall, not the total revenue realized, to a fund dedicated to the development of the industry in Africa, I am confident that Africa can raise the billions it needs to sustain the industry in the absence of external interests.
On technology, I should like to emphasize that different countries on the continent became players at different times and different levels. This fact explains the differences in the level of mastery of the industry among African countries. The beauty of the industry in Africa especially in the last decade or so, is that there is increasing cooperation and collaboration among players in the industry. Many new or small players have found it wise to go to other African countries that have been in the industry for a longer period to learn from their experiences.
From experience, I know that several African countries have sent teams to Nigeria to learn various aspects of the oil and gas industry, including the Nigerian model of local content provision. But what is missing, in my humble opinion, is a continental initiative.
I want to state categorically that the days of going alone in this industry on this continent are over. Foreign financiers and experts and their technologies are gradually leaving us. We need to pool our resources before it is too late. Together, we have what it takes to extend the life of the oil, if not for the world market, at least to power our continent.
I endorse the words of the ancients who said, and I quote, “If you want to go fast, go alone. But if you want to go far, go with the others”. Yes, we want the life of the oil, the pillar of our national economies, to last as long as possible to allow us to use its revenues to effectively diversify our economies and make life better for our people.
TER: As tensions between Russia and Ukraine war continue to rise, Can Africa become the preferred gas supplier as Europe seeks an alternative to Russian gas?
Farouk: If Africa has the volume of gas that the developed countries need for their economies, these countries would have preferred to buy African, not Russian, gas even if it turns out to be a little more expensive. And the reason is simple. Even though they are aware of the instability rocking many African countries, including the sources of those resources, they also know that the security of supply is better guaranteed from Africa.
Let me explain what I mean. Given the huge dependence of Europe on Russian energy, do you think that if Russia was a small country without military and nuclear power, most of the countries in Europe would have succumbed to the pressure from the more powerful countries to deny themselves access to Russian energy during winter? I think not. What would have happened is that they would have invaded Russia to secure the source of their energy. So, if Africa becomes the main supplier of energy to these countries, it should be prepared to do as they dictate. That is why it is important that we do not become dependent on any external market for our resources. We should develop the markets within our continent.
And this brings me to the hypocrisy of the advocates of the quick energy transition, who are calling for a speedy halt to fossil fuel investments, production, and use. The same people that have been strongly advocating an end to the use of fossil fuels, were rushing to OPEC and its Member Countries to ask them to ramp up production of the same fossil fuels because their countries need energy. This is no different from what they did some 150 years ago when their scientist discovered the dangers of fossil fuel emissions to the atmosphere. Instead of stopping the use of fossil fuels, they hid the findings and continued to use fossil fuels until their economies got to a stage where it does not need fossil fuels to sustain their growth. Then they remembered the dangers of fossil emissions and are now telling the world not to use what they used for over 150 years to develop their societies and economies.
It is pleasing to note that on February 18, 2022, in Niamey, the Republic of Niger, APPO witnessed the signing of the agreement for the relaunch of the construction of the trans-Saharan gas pipeline with a length of 4128 km, with an annual capacity of 30 billion m3 traversing three APPO Member Countries – Nigeria through Niger to Algeria and Europe. The Ministers of energy of these three APPO Member Countries signed the deal on behalf of their countries. Although targeted at Europe, the TSGP has the potential of supplying gas to the communities through which it passes, thus creating the possibility of developing cottage industries and even large-scale industries. And with time, the pipeline can also supply gas to other countries in the sub-region like Burkina Faso, Mali, etc.
Both fossil and renewable energy resources are exceptionally abundant in Africa. This is the truth. And God has blessed us with these riches. Unfortunately, African countries have remained very dependent on their crude oil exports, with refining infrastructure having a very limited capacity and operating at high costs. This explains the export of African crude oil to European refineries and the return of refined products to African countries at exorbitant costs.
To put an end to this paradox and quickly take advantage of this favorable environment, we are called upon to create and secure physical oil markets, especially the flows between production areas and supply and consumption areas.
TER: How can African producers/countries work together to attract the investment needed to build infrastructure that will allow them to expand exploration, production, and exports to meet the anticipated increase in demand in Europe?
Farouk: APPO set up a Cooperation and Mutual Assistance Framework Agreement which defines the main areas of cooperation between APPO Member Countries’ Ministries of Hydrocarbons, the National Oil Companies, economic operators, and research and training institutes or centers. The main specific objectives targeted by APPO are:
- The pooling of their technical and scientific capacities from upstream to downstream,
- The joining of forces by National Oil Companies, oil companies, and services companies to bid for tenders and contracts relating to hydrocarbon projects and related industries and activities in the APPO Members Countries and/or in any other country,
- The implementation of programs for the exchange of information and experience,
- The development and implementation of mutual technical assistance programs by the secondment of highly qualified personnel in the hydrocarbon field and related activities,
- The provision of targeted technical assistance in the environmental aspects of hydrocarbon development such as gas flaring reduction and oil spill management.
TER: What are the main focus areas of APPO’s CAPE VIII in Angola?
Farouk: The main theme of this CAPE 8 is “The Future of The Oil And Gas Industry In Africa: Opportunities, Challenges And Development” and this one is very well chosen and deals with issues in line with the concerns of African countries and the major challenges facing APPO Member Countries, as well as the promotion of mining fields or business opportunities through exhibition stands and or specific presentations or communications. They will allow exchanges between experts and policy and decision-makers.
The theme of CAPE VIII is very topical, and you would have noted its aptness. The Congress will be the place to elucidate certain misunderstood subjects and the ill-conceived interpretations that certain actors and decision-makers have of the concept of Energy Transition. In reality, the Energy Transition should not be seen as a threat to Africa with its abundant proven oil and gas resources as many think. Far from it, it is an opportunity to be seized by Africa to diversify its economies, industrialize and develop as soon as possible. However, the Energy Transition poses enormous challenges to Africa. Africa must take ownership of its oil and gas industry by itself at a time when foreign partners are losing interest in fossil fuels. To do so, African capacity building, technology appropriation, African oil market development, and financing of the sector are the major challenges that Africa must address. The African countries must go in synergy to face these challenges, then the development of Continental Content and not Local Content is required for Africa.
Although Africa currently accounts for less than 10% of global oil and gas production, there is a consensus that Africa will be most affected, economically, and socially, if the world moves rapidly away from fossil fuels. Indeed, although the continent has over 125 billion barrels and 600 trillion cubic feet of proven oil and gas reserves respectively, the African industry has been largely dominated by foreign technology, financiers, and operators.