Ghana risks speeding up the pace of stranding its hydrocarbon assets in the coming years, considering the World Bank’s recommendation of adopting carbon charges to diversify its fiscal revenues.
According to the World Bank, “such charges could form a valuable source of revenues while also contributing to climate targets.” This is anticipated given the current global switch away from fossil fuel assets, and the crater-like footprints countries are encouraged to cast within their climate emissions reduction strategies.
Indubitably, this is a potential source of revenue the government could consider but not without risks. This is tied to a possible trade-off, in that, it may serve to rather disincentivize International Oil Companies (IOCs) operating or desiring to venture into the upstream oil and gas sector. Thus, imposing carbon charges may likely have a net negative impact on the upstream sector.
“Carbon prices and additional regulations to limit carbon emissions could make a greater number of fossil fuel assets— especially coal— unprofitable as governments, especially in developed nations, press for net-zero emission economies by 2050,” according to Oilprice.com.
WoodMac analysts are cited to have said that “carbon charges are likely to come, and they will transform the upstream sector, affecting both asset values and the industry’s economics”.
Therefore, as the push for carbon taxes and prices become intense, more reserves and operations of energy companies, not only in the upstream sector, could be left as “stranded assets.”
European IOC’s Have no plans to develop unsanctioned reserves in SSA
Already, evidences glaringly indicate a likely stranding of assets among European IOC’s operating in the sub-Saharan Africa region as they have no development plans in prospects for their unsanctioned reserves, according to GlobalData.
“The top five companies in the region with the largest volumes of unsanctioned reserves are all major IOCs, with TotalEnergies sitting at the top of the pack and four out of five being European IOCs [Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Eni SpA],” said Conor Ward, Oil&Gas Analyst at GlobalData.
At least, closely following declarations made by delegates of the National Oil Company, GNPC and Ghana’s Ministry of Energy at the recently held Africa Oil Week in Dubai suggest that the direction is clear: Ghana seeks to maximize benefits from its hydrocarbon resources by taking active part in upstream operatorship activities, leveraging on the continued investments of IOC’s now.
Fiscal reforms that will hinder the country’s oil and gas industry from becoming competitive and a preferred destination for IOCs apparently does not fall within the ambit of this agenda. In fact, most NOCs on the continent are still seeking for investors to continue developing their hydrocarbon resources for the foreseeable future.
Meanwhile, fossil fuels remain the antagonists in the climate change narrative, one whose role seems not to include a Disney stories’ ‘happily-ever-after’ ending with protagonists like the renewable energies, at least which is what climate change activists preach.
While developed economies can ‘afford’ to leave hydrocarbon assets stranded, same is currently forced down the throat of the developing world, but the fact is this: this is a luxury African economies simply cannot afford.
Quite mildly, the oil and gas industry in most regions on the continent are only nascent, and intend to enjoy ‘dirty growth’ as the US and Europe have experienced all these years. However, a huge proportion of the over 1.25 billion people on the continent are at the brink of staying energy-poor ‘forever’ should the continent’s hydrocarbon assets be left in the ground following the footprints of the rich West.
This period certainly does not qualify as one of the hay days for hydrocarbon assets, despite the fact that this year’s oil prices now hover around a near-double that of the 2020 average. Even so, this high oil prices face near collapse as the year winds down due to the emergence of an omicron variant of the Covid-19 virus with tendencies of slowing down demand for oil amid supply increases in the pipeline.
In this vein, recent studies have suggested that more than half of oil and gas reserves should remain in the ground if the world is to limit global warming to 1.5 degrees Celsius above pre-industrial levels by 2050.
In 2020, the largest international oil and gas firms wrote down assets worth $150 billion when prices crashed with the demand slump in the pandemic, according to Oilprice.com.
Now, climate-related winding down of assets are likely to remain unabated and the value of assets likely to be stranded in the upstream oil and gas sector could hit $3.3 trillion by 2050, according to International Renewable Energy Agency (IRENA).
Developed Economies Exhibit Double Standards
Meanwhile, for some people, the push for disinvestments in fossil fuels including climate change actions are marked with a trait of double standards exhibited by developed economies such as the US.
A video of Indian historian and journalist, Vijay Prashad, demonstrating US double standards on climate change in comparison to developing nations is being widely shared on social media to highlight the “colonial mindset” of the West.
The video which was recorded during Prashad’s participation in a panel discussion on the sidelines of the United Nations Climate Change Conference (COP26), indicated that the United States makes up 4 to 5% of the world’s population but was still using 25% of global resources.
“You (United States) love lecturing us because you have a colonial mentality. Then there are colonial structures and institutions that lend us money, which is our money. The IMF comes to our societies, you give us our money back as debt and lecture us on how we should live,” Prashad said at the summit held in Glasglow, Scotland.
Prashad highlighted that climate change talks at similar summits could not succeed due to this “colonial mentality”.
“US uses 25% of the world’s resources. It outsources all production to China and blames it for being a carbon polluter. China produces your buckets, your nuts and bolts, your phones. Why don’t you produce your own nuts and bolts? And then we can talk about carbon emissions.”Vijay Prashad, Indian Historian & Journalist
Prashad further said: “Let me tell you something, the climate justice movement is not clued in enough. Its slogan is: ‘We are worried about our future’. Children in Latin America, the African continent, Asia don’t have a future. They don’t even have a present. This is a middle class, bourgeois western slogan. We have to be worried about now.”
Indeed, these are hard times, but also desperate times which require that climate change issues are drilled down to the core than being tackled on the surface. All countries need to make efforts towards contributing to reducing emissions but not in the same way.
To be fair, countries that are rather being impacted by the actions of bigger polluter countries should be given room to develop their economies and root out poverty once-and-for all, and not as it were, cling on to actions that will further increase the plight of the majority poor.
Agreeably, there will be no future if problems needed to be tackled in the present are ignored. The future of Ghana’s fossil fuel assets, energy security, and energy poverty are intertwined, thus there should be room for middle ground.