Large insurers say no to a major African oil pipeline despite the global oil shock

Climate Economy

Large insurers say no to a major African oil pipeline despite the global oil shock

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Munich Re becomes the sixth large reinsurer to rule out underwriting the proposed East African Crude Oil Pipeline.

A savage invasion of Ukraine by Russia has sent world oil prices soaring, but that did not stop the world’s largest reinsurer, Munich Re, from rejecting the underwriting of the East African Crude Oil Pipeline (EACOP). This month, the German insurer joined five others including Hannover Re, SCOR, Swiss Re, Axa and Zurich in publicly committing not to underwrite the oil pipeline despite growing concern over energy security and access to oil.The refusal by Munich Re and other companies to underwrite the EACOP project adds to the challenges faced by the pipeline and its associated oil fields. Munich joins major insurers as well as 15 banks that have refused to back the pipeline in response to public calls from the #StopEACOP Campaign, a global alliance of environmental and human rights organizations.

Despite the support of the Ugandan and Tanzanian governments, who signed agreements with the French oil and gas company Total and the China National Offshore Oil Corporation (CNOOC) to develop the project, the pipeline has met with fierce opposition from climate, environmental and African community groups.

The proposed pipeline would transport oil 900 miles from Lake Albert on the border between Uganda and the Democratic Republic of the Congo through Tanzania to the port of Tanga on the Indian Ocean. Construction is slated to commence in early 2025. 

Local activists oppose the project because it would run through the basin region of Lake Victoria, Africa’s largest lake, threatening the water supply of more than 40 million people.

Many in the communities that would be impacted by the project say they have been offered unacceptably low compensation for their properties, and what little has been offered has not materialized. 

Munich Re said it opposes the project because of its “commitment to decarbonize, accompanied by respecting high business ethics.”

“We welcome Munich Re’s statement,” said Regine Richter, Energy and Finance Campaigner at Dutch environmental organization Urgewald. “Now, Munich Re needs to take the next step and commit to a world-leading policy which excludes all new oil and gas projects in line with a 1.5 C limit, now.” 

After COP26, insurers have been under more pressure to stop underwriting new fossil fuel projects. Ekhosuehi Iyahen, the secretary-general of the Insurance Development Forum, a public-private initiative involving insurers such as AIG, Axa and Aviva working alongside the World Bank and United Nations, recently called for the industry to show “more ambition” in cutting the greenhouse gas emissions impact of its underwriting. Iyahen said the U.N.-convened Net Zero Insurance Alliance had made a start in drawing together eight European groups in a pledge to bring their insurance and reinsurance portfolios in line with net zero by 2050 goals, but that greater effort is needed.  

Munich Re said it opposes the project because of its “commitment to decarbonize, accompanied by respecting high business ethics.”

Since Russia’s invasion of Ukraine, countries are now under pressure to find new sources of energy, and many in the climate community are concerned that this could see new oil, gas and coal development despite global climate commitments. The EACOP project has the potential to increase Africa’s oil exports, estimated to be over 907 thousand barrels of petroleum products a day in 2019, but at the cost of adding more than 34.3 million tons of carbon dioxide and other greenhouse gasses into the atmosphere.

That may be a cost too high for Europe to bear. “There is by now a much clearer understanding across the EU that the future is in renewable energy and energy efficiency,” said Lindsay Keenan of Insure Our Future. “Munich Re making a clear statement on EACOP is a first small step in the company moving to adopt a wider and much more significant overall oil and gas policy that excludes all new oil and gas projects across the board.”

Campaign organizers are now calling on the other members of the Net Zero Insurance Alliance, particularly Lloyd’s of London and Allianz, to rule out EACOP before their annual general meetings.

Allianz and Lloyd’s of London, both members of the Net Zero Insurance Alliance, must follow Munich Re and commit to never insure EACOP,” said Omar Elmawi, coordinator of the #StopEACOP campaign.

Should the pipeline project fail to move forward, as many expect, it will leave Africa little choice but to double down on renewable energy, despite abundant fossil fuel reserves.

African nations already face serious energy security challenges. The International Energy Agency (IEA) has said that affordable renewable energy offers many countries the best chance to bypass traditional fuels and infrastructure and go straight to building sustainable energy systems. This month, Nigeria’s national electricity grid, which serves an estimated 117 million citizens, collapsed for the second time according to the country’s federal ministry of power. This left parts of the country including the capital, Abuja, and Africa’s biggest city Lagos, without power. 

But the push for renewables will not be easy. Many African communities are still heavily reliant on highly polluting diesel generators for power and are seeking to develop their own energy sources and export resources, such as the EACOP project. The IEA says the region will need the financial and technical support of the international community, especially investment, to pursue renewable energy and battery storage and fossil fuel alternatives.

Written by

Blair Palese

Blair Palese is co-founder and managing editor at Climate & Capital Media. She is also director of philanthropy at Australia's oldest ethical financial adviser. Previously she co-founded Australia and was CEO for ten years. She was head of PR for The Body Shop and communications director at Greenpeace internationally and in the US. Blair has worked for media outlets including Greenpages Magazine, the Washington Monthly and ABC in the U.S.