Africa and Asset Stranding

As a result of climate change, resource extraction industries in Africa will be impacted by asset stranding, researchers say.

• Some 30 percent of the world’s mineral reserves including platinum, gold, diamonds and coal are found in Africa, yet the continent still has high levels of poverty. 
• Africa also has 10 percent of the world’s oil reserves and 8 percent of natural gas, according to the African Development Bank.
• Climate change is threatening the exploitation of these resources and more importantly of the non-renewable energy sources; coal, oil and gas.

“Stranding implies that several natural assets are going to become commercially unviable around the world as a result of climate change and the inability of countries to exploit them,” said Vanessa Ushie, manager of the policy analysis division at the African Natural Resources Centre of the African Development Bank (AfDB), which supports African countries to leverage their natural resources for sustainable development. Ushie told IPS stranding is an increasingly important policy issue that African countries should consider because they are highly dependent on natural resources, with an average 70 percent of their exports being minerals.

“We are aware of the Paris Agreement and the commitment of African countries, just like their global counterparts, to reduce carbon emissions in order to meet the target of keeping global warming below 2°Celsius,” Ushie said. “With that warming target, it is clear that certain minerals will have to be left below the ground especially those that emit the highest carbon into the atmosphere.” Ushie said some assets will be stranded due to changes in markets and investment flows, as global extractive companies and investors adjust their portfolios to meet new, low-carbon regulations. Other extractive assets are at risk due to changing consumer demand, such as the growing use of solar energy and electric vehicles in developed countries.

“With growing climate change and the ensuing low-carbon transition, Africa’s mining sector faces serious risks, and some opportunities,” Ushie told IPS, noting that African countries need to understand and respond to the new normal.

Africa has difficult options when it comes to its mineral resources, researchers say. Can it keep the resources in the ground and risk economic stagnation or find progress in clean energy sources? 

More than 185 countries have agreed to leave two-thirds of proven fossil fuels in the ground to meet the Paris Agreement climate target.

In 2017, the International Energy Agency warned that oil and gas assets worth 1.3 trillion dollars could be left stranded by 2050, if the fossil fuel industry does not adapt to greener climate policies. But many African countries are extracting coal, gas and oil with new discoveries, signalling future fortunes that could be difficult to forfeit.

• In 2019, French oil firm Total made public its discovery of a large “gas condensate” in South Africa. The gas condensate – effectively a liquid form of natural gas – is a more prized than crude oil.
• In Kenya, British oil company Tullow Oil projected 2024 as the earliest likely date by which the country can expect gains from its Turkana oil. Vast oil reserves have also been discovered in Uganda.

For the African continent, a latecomer to the fossil fuel boom, arguments for asset stranding could influence development gains and also interrupt economic growth.