In keeping with the energy transition, western lenders are cutting off investments into oil and gas projects. In Africa, this opens up the energy sector to Chinese influence a scenario that would further weaken the United States of America’s influence on the continent.
A little more than a year ago, in November 2019, the European Investment Bank (EIB) declared its intention to phase out funding for fossil fuels. It said that it would no longer grant loans for projects involving crude oil, natural gas, and coal as of January 1, 2022 (with a scant few exceptions for gas projects that meet rigorous environmental criteria).
Its pledge did not go unnoticed. In October 2020, Antonio Guterres, the secretary-general of the United Nations (UN), called on the world’s publicly funded development banks to follow suit. Less than a month later, all 450 of these institutions — including, incidentally, the African Development Bank Group (AFDB) — agreed to bring their lending policies into line with the Paris climate accord.
African states ought not to shy away from cooperation with China. However, it important for African nations to have as many options as possible, ready to work with a wide range of partners, rather than fall into a pattern of not having to look further than satisfying China’s requirements.
This won’t happen if Western lenders cut off funding for African oil and gas projects as a consequence of their commitment to curbing climate change.
Instead, China will come to have more influence than any other party over the African oil and gas sector.
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This comes at a time when China has already put a number of African countries in the position of handing over important assets when they find themselves unable to keep up with loan payments. China has a less-than-stellar track record on environmental protection, despite being a signatory to the Paris climate accord.
Africa’s energy sector would likely become a battleground for influence between the USA and China. This means that the new U.S. administration must double down on and not shy away from engagements with African energy opportunities by facilitating U.S. private sector investment in natural gas and renewables and eschewing a return to aid-driven diplomacy
The African natural gas value chain represents a critical avenue for foreign investment and export opportunities, including the creation of onshore U.S. manufacturing jobs.
The Total-operated Mozambique Liquefied Natural Gas (LNG) project, for example, secured its largest share of senior debt financing from the U.S. ExportImport Bank, which aims to support U.S. exports for the development and construction of the LNG plant and create an estimated 16,700 American jobs over its fiveyear construction period.
In terms of U.S. LNG exports, the relative proximity of certain sub-saharan markets to North America renders the cost of transporting U.S. LNG to the continent as 20 – 40 percent less than transporting it to North Asia.
As a result, the export market potential for U.S. companies looking to sell excess LNG supply to Africa – as a result of the country’s recent major investments in new liquefaction capacity – is substantial, coupled with Africa’s own large-scale energy needs.
In terms of foreign policy enhanced U.S. presence in Africa represents a strategic counter to Chinese influence, in the midst of an ongoing trade war between the two economic superpowers.
As it stands, bilateral trade between the U.S. and Africa is – for lack of a better word – underwhelming, decreasing from $31.3 billion in the first six months of 2019 to a paltry $12.7 billion over the same period in 2020
