There is growing pressure from shareholders in some of the world’s biggest oil-producing companies to reduce emissions from operations, reflecting the waning patience of investors pushing for much faster action to tackle climate emergencies.
Oil-dependent economies like Nigeria are facing enormous existential risk due to the swelling internal burden on multinational oil companies to refocus their business operations, tackle falling margins, and climate pressures.
Although many of Europe’s largest oil corporations, including Shell, BP, Eni, Repsol, and Total, have imposed their own targets to cut carbon intensity from their upstream operations as they have pledged to become net-zero emission businesses by 2050 or sooner.
However, the pressure from investors and shareholders is also growing, including on the oil industry to reduce the so-called Scope 1-3 emissions, which are generated by the use of their products.
Scope 1 covers direct emissions from owned or controlled sources, Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company, while Scope 3 includes all other indirect emissions that occur in a company’s value chain.
Low-carbon power would be a key to cutting emissions, says Wood Mackenzie, which estimates that around two-thirds of emissions come from power consumption – production, processing, and liquefaction.
Between 2021 and 2025, the region with the highest carbon intensity will be Oceania, mostly due to the large emissions from liquefaction, according to the Wood Mackenzie Emissions Benchmarking Tool.
The report notes that Africa comes next, because of the large share of flaring in upstream operations, followed by Asia with high production and liquefaction emissions, and North America, where production and methane losses account for much of the carbon intensity.
“Africa hosts some of the most polluting assets because of a lack of infrastructure to solve the gas flaring problem,” Wood Mackenzie said last month.
Across the African continent, Europe’s key energy companies are fast cutting back their oil and gas portfolios to keep only the assets most likely to be profitable and redeploy capital for a transition to clean energy, as uncertainty mounts over future demand for fossil fuel.
“Reducing emissions and considering new energy diversification is really unavoidable,” WoodMac said in a report.
The report highlights that the global energy transition will drive divestment of oil and gas assets in Nigeria and other sub-Saharan countries.
It went ahead to state, “Carbon emission is increasingly key when screening assets for divestment. Low-value, high-emissions assets will be prioritised for sale.”
When reporting on how the market will respond to the increased divestment, the report states that above-ground risks, oil price risks and access to finance on reasonable terms would continue to shrink the pool of buyers for these oil and gas assets.
Although the report admits that access to finance for fossil fuel assets will continue to be a challenge, the financing for clean energy projects in Africa will continue to gain momentum.
Only last month, the African Development Bank (AfDB), the Korean Ministry of Economy and Finance and the Export-Import Bank of Korea committed to providing $600 million in co-financing for energy projects in Africa, with a focus on renewable energy (RE) solutions.
Additionally, Financial Sector Deepening Africa (FSDAi) is investing $4.5 million in Pay As You Go (PAYG) solar in three African countries including Nigeria, complementing an already total raised of $23 million.
These investments are further strengthened by the quickly reducing cost of renewable energy technologies when compared with fossil fuel projects.
A report by the International Renewable Energy Agency (IRENA) reveals that almost two-thirds of renewable power generation brought online around the world last year, accounting for 162GW of power, had lower costs than the cheapest fossil fuel options.
According to Anthony Monganeli Mehlwana, economic affairs officer at the Economic Commission for Africa (ECA), “Levelised Cost of Energy (LCOE) or fossil power plants is more expensive than wind and solar. Onshore wind costs $59 per MW while utility solar PV costs $79 per MW. Meanwhile, the cost of coal is $109 per MW and natural gas stands at $74 per MW.”
Early last month, the World Bank announced its new $465 million fund to improve renewable energy integration in West Africa. It has also approved $168 million financing towards Burkina Faso’s efforts to increase access to electricity in rural areas and support the country’s transition to clean energy.