The Empty Promise of Africa’s Oil and Gas Boom

Recent weeks have brought news of the discovery and development of major oil and natural gas reserves from opposite sides of the African continent. According to regional leaders, these reserves are so immense that they offer the possibility of boosting the economic trajectories of countries that have long had scant reason for optimism.

In Senegal, a West African nation whose economy for many decades has been based literally on peanuts, the government of newly elected President Bassirou Diomaye Faye has vowed to use production from freshly tapped offshore gas fields to transform the country’s fortunes. “We have never been so well positioned for opportunities for growth, innovation, and success in the economic and social development of our nation,” the director of the state oil company touted when production of hydrocarbons began this month.

Faye has said the revenue from the project, which aims to produce 100,000 barrels of oil per day as well as natural gas, will be “well managed” and that his government has set up an intergenerational wealth fund to share the windfall with Senegal’s people. Prime Minister Ousmane Sonko, meanwhile, promised that Senegal would audit contracts signed in the past with foreign energy companies to ensure that the country is paid fairly for its newfound resource wealth.

Thousands of miles to the east, in Ethiopia, recent economic news has also been dominated by announcements of hydrocarbon discoveries. This month, the government said it had discovered more than 21 billion cubic meters of natural gas in Ogaden, one of the poorest regions in the world. As in Senegal, this has sparked optimism among officials in Ethiopia, where nearly half of the population has no access to electricity. “While some resource exploration projects can take years, we are confident of achieving success in a shorter timeframe here,” the state mines minister said.

The fact is that the African continent is now increasingly awash in big oil and gas discoveries. I have only highlighted Senegal and Ethiopia because their news is so recent. The World Bank estimates that Africa accounted for 40 percent of the world’s natural gas discoveries between 2010 and 2020. Enormous new discoveries of oil and gas have also been made in countries as far flung as Ivory Coast, Namibia, and Mozambique, just to name a few other recent standouts.

Although governments are understandably delighted at the prospect of new sources of revenue, this is an extremely mixed development. The most obvious reason for this has to do with the world’s carbon crisis and the existential threat of global warming.

Both African governments and peoples reject the idea that their continent should bear a heavy burden for limiting the rise in global temperatures. I completely sympathize with this. The typical African individual consumes as much energy in one year as the average American does in four days. Add to this the fact that Africa accounts for only around 4 percent of global carbon emissions, even though it is home to almost 20 percent of the world’s population, and one can immediately grasp why many Africans reject the notion that saving the environment should disproportionately come at the expense of the region of the world in greatest need of development.

Yet while Africa may have been a negligible historic factor in the catastrophe of global warming, it will steadily become a more significant emitter as its population grows far more rapidly than that of any other continent. And it is likely to be hurt far more by climate change than the northern countries that have dominated global emissions. Moral rectitude over Africa’s historic innocence will be of no help if agriculture is broadly threatened and soaring temperatures make larger and larger swaths of the continent inhospitable for human life.

What makes this already terrifying prospect far more worrisome is the fact that seven decades after Nigeria (now the ninth-largest oil exporter in the world) emerged as an oil producer, almost no African country has figured out how to turn oil and gas income into broad prosperity. Two exceptions to this are Gabon, an upper-middle-income country with an oil-dominated economy—albeit with great inequality—and Algeria, which has seen higher per capita wealth based largely on gas.

Some of this is due to corruption, the preferred argument in the West to explain Africa’s failure to rise economically. Perhaps an even more decisive factor, though, has been the unwillingness of Western companies to invest in much more than raw energy extraction from Africa. This has meant that the continent lacks the “downstream” industrialization that come with refineries: chemicals, pesticides, fertilizer, pharmaceuticals, plastics, and fibers that can be made from oil.

Western multinationals have also shown little interest historically in investing in gas liquification in Africa or tapping discoveries for electricity production on the continent. When they fund gas extraction, Western companies tend to ship the gas to Western markets or simply allow gas escaping from oil wells to flare wastefully. Senegal is currently trying to push back against this: The new government wants foreign companies that have made hydrocarbon discoveries to invest in the infrastructure needed to use offshore gas domestically—where more than 30 percent of the population has no access to electricity—rather than to heat European homes. So far, foreign companies in Senegal have shown little enthusiasm for this.

Meanwhile, under its new leadership, the World Bank has become reluctant to finance fossil fuel projects in Africa as the bank seeks to transition to low-carbon investments—irrespective of the potential of those projects to alleviate poverty, one of the World Bank’s long-term missions.

The other factor that complicates Africa’s energy resource boom, and should arguably dampen enthusiasm about what to expect from it, has to do with timing. Africa is emerging as a hydrocarbon giant precisely as the world is moving away from a carbon-intensive economy. This may be a matter of human survival in the not-too-distant future.

The stupendous projections of oil and gas reserves coming out of African countries might suggest decades of revenue under the world’s prevailing energy use patterns. But the cost of renewables, including solar power, has been falling so fast that they are already the cheapest form of power today. That trend will only cement the transition away from fossil fuels over the next decade. If carbon consumption is indeed going to plummet, as it must to escape grievous further climate change, that means global markets for oil and gas will shrink, depriving Africa of any long-term bonanza.

The continent must capitalize maximally on its hydrocarbon discoveries while it still can. That means turning revenues from this environmentally ravaging source into wise and productive investments in bettering the welfare of citizens of producing countries. At the same time, African countries should prepare for the world’s pivot toward renewables with utmost focus. Counting on carbon-based sources of energy and wealth beyond the near to middle term will be a recipe for future disappointment and even disaster.