Nigeria to host new Africa Energy Bank

Nigerian capital Abuja has been selected to host the headquarters of the Africa Energy Bank (AEB), beating five other competitors– Algeria, Benin, Côte d’Ivoire, Ghana, and South Africa. AEB is the first pan-African multilateral bank dedicated to financing oil and gas projects across the continent.

With an initial capital of US$5bn the bank aims to catalyse investments in fossil fuel at a time when climate change concerns have forced international financial institution to scale back their investments in the oil and gas sector.  Spearheaded by the Africa Petroleum Producers’ Organisation (APPO) and the African Export-Import Bank (Afreximbank), the AEB will be open to shareholders from all African nations and their respective national oil companies, as well as investors from outside the continent.

Africa holds 125bn barrels of proven crude oil reserves and over 600tr cubic feet of proven gas reserves. But much of this asset is under threat of becoming ‘stranded’ as global financial institutions become increasingly reluctant to finance new oil and gas extraction projects. Many international banks, pension funds and insurance firms have been divesting their portfolio of fossil fuel projects over the years. That has made it harder for African countries to attract investments in oil and gas industry. For many African countries, oil and gas exports remains the most significant source of revenue. While the AEB will primarily focus on the oil and gas industry, it will also support other energy sources, including renewables.

Oil and Gas in Africa

Nigeria's campaign to host the AEB was bolstered when the country recently ratified the bank's charter and President Bola Tinubu approved a US$100m investment in the lender, surpassing the required US$83.33m for member states. Analysts observed that Nigeria has a significant interest in the bank as it seeks to attract new investment to revive its underperforming oil and gas industry.

Nigeria’s crude oil production has declined by nearly 50% from its peak of over 2.4m barrels per day (bpd) in 2005. Earlier this year, Shell agreed to sell its onshore subsidiary to a group of mostly local entities, joining a long list of firms that have divested from Nigerian assets in recent years. Most companies are withdrawing from the Niger Delta which hosts the majority of Nigeria’s onshore and shallow-water oil rigs. The region has long been plagued by kidnappings, theft, pipeline vandalism, deteriorating infrastructure and pollution. Major oil companies say that the risks of operating there outweigh the benefits. Consequently, most of Nigeria’s oil production has shifted offshore, where multinationals continue to maintain substantial operations. Even with attempts to diversify Nigeria's economy, crude oil exports constitutes over 80% of exports and about half of the government's budget. A 650,000 barrel-a-day refinery built by Aliko Dangote – the richest African in the world was billed as the a key to ending the country’s dependence on imported fuel but it remains in the process of ramping up.

References

‘Afreximbank signs Memorandum of Understanding with the African Petroleum Producers Organization to establish an African Energy Transition Bank’, Afreximbank, 20 May 2022

‘Nigeria oil enters unclear new era after Shell's onshore asset sale’, Reuters, 29 January 2024

‘Nigeria’s high-cost oil industry is in decline’, The Economist, 21 March 2024

‘Africa Energy Bank: A giant in the making to revolutionize Africa’s hydrocarbon industry’, APPO, 16 June 2024

‘Nigeria beats rivals for bid to host new Africa Energy Bank’, Reuters, 04 July 2024

‘Communique of the 45th session of the APPO Ministerial Council held on Thursday 4th July 2024 (virtual)’, APPO, 04 July 2024

‘APPO and Afreximbank sign the establishment agreement of the AEB, declaring it open for signature by prospective member states’, APPO, 04 July 2024