30th November 2022
Who benefits from fossil fuel investment?
The big oil companies are expanding their exploitation of gas and oil reserves in response to the short falls in supply from Russia. The rapid rise in gas prices is prompting some African nations to consider developing the gas reserves under their land. To explore and develop these reserves investment is needed and, it seems, is readily available from western investors.
In some ways it is not illogical. If you are a company whose raison d’être is finding, extracting and selling oil, that if you hear of new oil deposits, you go after them. Ditto if you are an investment company that has always invested in oil because it has always earns large dividends, then that is what you keep on doing. People and companies are wary of change, or perhaps become so immersed in the comfort of where they are, that they don’t look outside their own silo to be aware that change is already happening. This can be short sighted. Vis a vis oil, there are two black clouds on the horizon. Peak oil – that point in. Time when demand for oil will start to drop and co to use to drop. Many commentators suggest that we have already passed peak oil back in 2019. The decline in oil use arises when cars switch from petrol to electrical power (something that is happening aster than expected), as more plastics are made from recycled plastic rather than virgin oil, as users of oil become more efficient in their use of an expensive raw material, and as users find renewable energy is cheaper. The second dark cloud is the climate crisis. As concern about the crisis takes root more people, companies and countries are going to be cutting back on their use of oil in an attempt to limit global temperature rises. If such moves are not successful then the world will experience rising sea levels, widespread drought, extremes of weather and widespread loss of life and incomes. And this of itself will severely reduce demand for oil. Either way it seems that long term the future for the oil industry is not good – but for in the short term their dominance of the global economic systems shields them. This has been highlighted by the war in Ukraine. So the oil industry continues to be heavily subsidised by governments. “Since the Paris Agreement, the government has provided £13.6 billion in subsidies to the UK oil and gas industry. From 2016 to 2020 companies received £9.9 billion in tax relief for new exploration and production, including £15 million of direct grants for exploration, and £3.7 billion in payments towards decommissioning costs.” https://www.ethicalconsumer.org/energy/paid-pollute-fossil-fuel-subsidies-uk-what-you-need-know
So we are seeing large numbers of oil companies and oil investors focusing on exploring and extracting oil and gas from the African continent. Despite the long term risks of declining demand, these companies seem convinced that there is money to be made. The idea of making rich profits from oil is certainly seen as attractive by some governments in Africa – oil would seem to offer rewards in licence fees and taxes. But who will benefit? Possibly governments, big businesses, banks and the like. Probably not the ordinary person in the street, the small scale farm or business, and definitely not the rich biodiverse natural environment.
Given the high price of oil, the availability of more oil will more likely benefit the big users of oil in the western world, not the person on the street in Luganda or Accra or Windhoek, not the small farm and the rural villager, nor the small businesses. What they need is cheap and accessible electricity , electricity that can be produced locally without reliance on an expensive national grid, electricity that comes from local wind turbines and solar panels? What they need is a move away from polluting vehicles and power plants. What they don’t need is the pollution and disturbance caused by drilling for oil, building pipeline and running oil refineries.
What the nations of Africa do need is investment in renewable energy. Ideally not in large projects such as hydro electric dams but in multiple smaller scale projects that will connect to and supply local towns and communities.
“The potential for wind and solar is 400 times larger than Africa’s total fossil fuel reserves and it comes pollution-free and creates more jobs, but there is finance gap…That is why there is so much attention at this COP to changing the global capital allocation system,” Mr Gore
What the nations of Africa need is protection for their remaining areas of natural habitat – rain forests, wetlands and savannahs. Again this is an area in need of large scale investment that will protect habitats and provide sustainable incomes for local people.
“The area of land allocated to oil and gas activity in Africa is set to quadruple, threatening critical forests that help combat climate change, according to a new report by two environmental groups. Rainforest Foundation UK and Sacramento, California-based Earth InSight used mapping technology to show that gas and oil blocks overlap with about 30% of the continent’s dense tropical forests and more than a third of the Congo Basin, the world’s second-largest rainforest after the Amazon. The Democratic Republic of Congo, which accounts for about 60% of the basin, launched a bidding round in July for 30 oil and gas permits, several of which overlap with the basin. Congo, one of the world’s poorest countries, has defended its right to explore for oil and develop its economy.” KBloomberg UK
Can the big fossil fuel companies reinvent themselves? Can they recalibrate their raison d’être as energy companies? Can they become suppliers of renewable energy technology that can enable communities to control their own energy sources? Can they create new business models that can invest the money from our banks, pensions funds and insurers, to protect and enhance the natural environment?