Energy and Climate Crisis: Is Madagascar's Oil part of the Solution?

Posted on 3 October 2022

As a conservation organization, WWF is increasingly confronted with the many dilemmas posed by the nature crisis, the poverty crisis, the climate crisis, and most recently the energy crisis.

This is a dilemma for Madagascar on a national scale, but it is also a dilemma on a global scale. This dilemma translates into several questions: how to ensure well-being and security in the face of the impacts of climate change? How to develop the economy while maintaining and even increasing our natural assets such as ecosystems, water, land, etc., and without further contributing to the climate crisis and in a context of energy crisis?

To answer this question, WWF has been working with the firm Rystad Energy for some time to begin a series of energy diagnostics. This Thursday, September 29, WWF organized a dialogue session with the theme "Energy crisis and climate crisis: Are Madagascar's oil resources part of the solution? ".

The oil sector is itself impacted by climate change. In addition to the physical risks associated with climate change on the operation of an oil industry, there are risks related to the responsibility of companies or countries that knowingly contribute to climate change, due to the climate lawsuits that have multiplied in recent years. In addition, and very importantly, there are risks related to the global transition to a low-carbon economy. This global transition, which is underway, risks leading to a fall in the price of oil, and which has recently become a reality with a fall in the price of a barrel of oil of almost 34% in the space of six months.

Here are the five main results of the diagnostic of Madagascar's oil sector by the firm Rystad Energy:

In 2018, Madagascar is among the 5 countries most exposed to extreme weather events, and climate damage was estimated at $568 million. This amount is equivalent to our petroleum product imports in 2019.
Apart from Tsimororo (in pilot phase), the investments are at a loss. From an economic point of view and considering the price scenario, the oil investment would be at a loss (more expenses than revenues generated) for the different deposits in Madagascar, except for the case of Tsimiroro. The field is expected to produce 400,000 barrels of oil equivalent from 2014 to 2043.
Madagascar's petroleum product needs are unlikely to be met by exploiting local oil and gas resources. The exploitation of these resources presents a significant economic risk, a risk of loss-making investments that are unattractive to companies and financiers.
Undiscovered oil resources are likely to be non-commercial given the projected price of a barrel of oil relative to the required capital costs. The required capital costs are higher than the market price per barrel. Eventually, there is a risk that the investment will not be recovered.

Remember that the import of petroleum products represented 14% of Madagascar's imports in 2019. The challenge is therefore to free ourselves from dependence on petroleum products, while allowing sustainable and affordable access to transport and electricity for Malagasy society.

For Voahirana Randriambola from WWF, "The facts force us to face the reality, and to face it together to adopt and implement quickly sustainable solutions to satisfy our growing needs in Transport and electricity. Relying on our local oil resources is not realistic. Endless reliance on oil imports will get us nowhere. The strategic documents are rich in lists of relevant solutions to get out of this dependence. Beyond having lists, it is urgent to act concretely, under the leadership of the State given the multisectoral effort required and by concretely associating all the actors of the society".

WWF reiterates its willingness to work with all actors in society to develop solutions together.