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November 2021 African Business
Special report: Energy
As the world begins a profound transition from fossil fuels to renewable sources of energy, Neil Ford examines the challenges and opportunities for the continent
Renewable technologies help Africa assume its place in global energy transition
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he world is in the middle of a profound energy transition. A global energy sector dominated by hydrocarbons is in the process of a wholesale shift to renewable energy, including solar, wind and hydrogen power. Tackling climate change has long demanded a complete transition and now the falling cost of renewables is making it easier to achieve. But the transition presents huge challenges for the African continent, both in terms of technological adoption and cost. Most electricity on the continent is currently produced by hydro schemes and thermal plants: gas in many coastal areas, including North Africa; coal in South Africa in particular; and older, generally smaller oil fuel plants almost everywhere. Gas produces roughly half the greenhouse gas emissions of coal, so is seen as a bridging fuel in the transition from hydrocarbons to renewables. Egypt, Algeria and Tanzania rely heavily on gas, while Mozambique and Nigeria have the biggest gas reserves in sub-Saharan Africa but have struggled to maximise their gas potential because of insecurity (see pages 66-67). Yet one thing is clear: the current power supply is inadequate across the African continent as a whole. According to International Energy Association figures, more than 590m people are still without access to electricity in Africa.
Opinion turns against coal
Although global coal consumption remains high, global opinion has firmly turned against the most polluting form of power generation. The South African government remains reluctant to wind down The Grand Ethiopian Renaissance Dam on the Blue Nile River in Guba, northwest Ethiopia.
African Business November 2021
Special report: Energy
coal production given its plentiful reserves, a large industry and a power generation mix dominated by coal. Under its 2019 Integrated Resource Plan, South Africa intends to build another 1,500 MW of coal capacity but the pressure for it to abandon the proposal is growing. The country is the 12th biggest greenhouse gas emitter in the world, although it is ranked 38th in per capita terms. New coal plants have been planned in other parts of the continent, including Kenya, Ghana and Zimbabwe, but local and international opposition has proved difficult to overcome. Although hina, India, Russia, Saudi Arabia and Turkey managed to block any mention of phasing out coal worldwide in a joint statement by G20 climate and energy ministers in uly, eijing has agreed to stop financing any new coal plants in other countries. More than 70% of proposed coal plants, including almost all in Africa, relied on hinese financing, so their construction now seems more unlikely than ever (see pages 46-47).
Mixed blessings of hydro
Hydro occupies an uncertain position in the energy transition. Although there can be significant methane emissions from rotting reservoir vegetation, hydroelectricity produced by turbines using vast water power behind dams is considered a low carbon source of power. ydro also offers baseload power production – constant generation, providing water levels are high enough – to help balance out intermittent solar and wind power output. However, dam and reservoir construction has a huge impact on flora and fauna, as well as agricultural land and human settlements. Moreover, increasingly irregular rainfall in much of Africa makes hydro production increasingly unreliable. It is a tool in the battle against climate change but one that does not come without costs. Still, the government of Ethiopia has based its entire power sector strategy on hydro and the construction of a succession of huge dams. The biggest of all is the Grand Ethiopian Renaissance Dam (GERD), which with 6,450 MW of capacity, could help to electrify large parts of the country and neighbouring states through a series of long-term bilateral power purchase agreements. The process of filling the reservoir began last year and should take seven years in total. However, the project has proved a diplomatic minefield, outraging Egypt, which fears that the dam will impact its access to Nile waters and has contested the fill rate.
The renewable future
Nuclear power remains on South Africa’s radar (see box) because of the country’s ongoing lack of power production and fears that overreliance on intermittent forms of generation, such as solar and wind, will create supply imbalances. However, power storage technologies are starting to become commercially viable. As with wind and solar power, the need for solutions is driving technological change and reducing costs. As a result of big falls in the cost of lithium-ion battery storage, industrialised markets with high solar penetration are seeing rapid battery development. Almost 90% of new solar projects under development in California, for instance, include battery storage, so that the electricity generated during the day can
Right: People work in a solar power station in Benban Solar Energy Park in Egypt’s southern province of Aswan.
Little role for nuclear power in Africa Despite occasional proclamations by Nigeria, Egypt and other governments, nuclear energy has always been of marginal interest in Africa. The continent’s only commercial nuclear power plant, South Africa’s 1,900 MW Koeberg facility, began operations in the 1980s and generates 5% of the country’s electricity. In September, Pretoria announced plans for a new 2,500 MW project, for which it hopes to end the procurement process by 2024, but this is the latest in a long line of similar announcements, many of which involved far bigger generating capacities. Moreover, the technological challenges and costs of building reactors and managing nuclear waste must compete with the plummeting prices of renewables such as solar and wind.
November 2021 African Business
be stored for several hours to cover peak evening demand. More progress needs to be made on both the technology and cost of long duration storage but demand is increasing and commercial development seems likely, perhaps in five to 10 years’ time. Worldwide, investment in renewables is expected to surpass that in the upstream oil and gas sector for the first time this year. South Africa currently has the biggest solar capacity in Africa at 2.8 GW but plans to increase this to 8.28 GW by 2030. The continent’s biggest solar project is at Benban in Egypt, where 32 plots have been set aside for different investors to develop projects with combined generating capacity of 1.8 GW, all taking advantage of the same grid connections (for more on solar see pages 78-80). According to the African Solar Outlook 2021 report, published by the Africa Solar Industry Association (AFSIA), another nine African countries have at least 1 GW of solar capacity planned: Algeria, Zimbabwe, Zambia, Democratic Republic of Congo, Angola, Namibia, Ethiopia, Morocco and Botswana. The focus is on large-scale generation projects in each case. Algeria has the most ambitious plans for renewable energy, with a target of 22 GW by 2030. The option of exporting much of it to European customers could make it feasible, yet the country still relies on gas to produce 98% of its electricity and a huge cultural change – particularly in the government – is required if the investment regime needed to attract such massive inward investment is to be put in place.
Wind development
Green hydrogen production set to grow Green hydrogen could replace petroleum as a transport fuel or natural gas in power generation. There are three main types of hydrogen production: grey, blue and green. Grey hydrogen currently dominates the sector and uses natural gas or methane to produce hydrogen through a process known as “steam reforming” that results in high carbon emissions. Blue hydrogen involves the same process but with the carbon stored or utilised in other forms of industrial production to cut emissions. Green hydrogen involves the use of renewable energy to split water into hydrogen and oxygen through electrolysis. This technology is currently more expensive but offers a very low-emission method of producing hydrogen and costs are likely to fall as the industry takes off (see also page 82).
The wind power sector has developed roughly in parallel with solar energy in Africa, with falling costs driving investment. Here too, South Africa and Egypt have made the most progress, with 2,495 MW and 1,465 MW capacity introduced respectively by the end of 2020. Morocco comes next with 1,315 MW but there’s a big drop to Ethiopia in fourth place with 324 MW. Large parts of Africa have more plentiful solar resources than wind, so the former is likely to dominate in the longer term. As a result of the general lack of transmission and distribution infrastructure in most parts of the continent, Africa has been at the forefront of off-grid solar development. The manufacture, marketing and distribution of residential solar kits have been badly affected by the global pandemic but there are signs that the rate of installations is beginning to increase again. A vast increase in Africa’s generating capacity is required to ensure more reliable supplies to the entire market. Moreover, demand will increase further as electricity is used to replace other forms of energy consumption, including vehicle fuel. Industrialised countries have already begun to set targets to phase out petrol and diesel powered cars. As the oil industry gradually winds down production of refined petroleum products for vehicles, African countries will follow suit, putting more pressure on power supplies in the process, although growth in the market for electric vehicles (EVs) is likely to be slow for most of this decade. Only Cape Verde has followed the UK in announcing a ban on the import of internal combustion engine vehicles, from 2035, while in the biggest market for EVs in Africa, South Africa, only 1,000 EVs had been bought by the end of 2019. n
African Business November 2021
Special report: Energy – Opinion
It is of critical importance that African countries take deliberate and realistic steps to arrest climate change, argues Samaila Zubairu, but the continent’s path to net zero carbon emissions must be different to that of the richer world
Africa’s complex road to net zero
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s we approach the COP26 conference, the world’s brightest minds are focused on one urgent goal: reaching net zero carbon dioxide emissions globally. Africa presents policymakers with a particularly complex conundrum. While the region has made a negligible contribution to the problem, the international community largely expects Africa to respond in much the same way as the rest of the world. Indeed, in order to limit the average global temperature increase to well short of 2°C above preindustrial levels by 2050, it is critical that Africa plays its part. And yet, with most of the continent having had none of the benefits of carbon-intensive systems experienced elsewhere, African governments face the toughest challenge in prematurely curbing their nations’ very low energy use of approximately 180 kWh per capita compared to 6,500 kWh in Europe and 13,000 kWh in the US. The Paris Agreement’s provisions for multiple pathways with common but differentiated responsibilities recognise that nations which became rich from burning fossil fuels should cut their emissions faster to allow poorer ones to develop. Africa needs a realistic road map that takes a different, but effective, approach. While it contributes only 2-3% of greenhouse gas emissions, the continent suffers disproportionally from the impacts of climate change. Four of the 10 worst disasters identified by the World eteorological Organisation in 2021 occurred in Africa. At the same time, as home to 14% of the world’s forest cover serving as carbon sinks, Africa also plays a vital role in achieving global net zero. African countries such as Nigeria, Algeria, Angola and Libya are highly dependent on oil exports for revenues. OverAfrica’s path to net zero all, around 70% of African exports are should broaden energy derived from oil, gas and carbon-intensive mining. These sectors account for about sources, drive efficient half of the continent’s gross domestic fuel consumption, product, and are an essential component and cut unnecessary of government income. Meanwhile, the majority of Africa’s shipping
population still lacks access to electricity and the basic energy needed for cooking. As a result, Africa relies predominantly on wood fuel and charcoal for its energy requirements, endangering valuable forest cover. The desperate irony here is that Africa has the resources in abundance to provide all of the energy needed for development. Stranding such resources makes no sense, especially if they can be exploited in a cleaner way.
How to get there
It is of critical importance that African countries, along with the rest of the world, take deliberate and realistic steps to arrest climate change. A prerequisite is that the transition from fossil fuels to alternative sources of energy occurs in a way that won’t punish the region’s struggling economies and create more poverty. Sudden global divestment from this sector would have catastrophic development impacts. Many African countries – particularly large oil producers – while recognising the need to move to a low-carbon economy, lack any means of transitioning wholesale away from fossil fuels. ather than switching off existing energy sources, the sustainable way forward lies in adding alternative energy to take an increasing share of the power supply in the run-up to 2050. Renewable energy is the ultimate objective. This is dependent on adequate financing to sufficiently boost renewable supplies. There is also the issue of base loads to consider: the sun doesn’t always shine and the wind doesn’t always blow. Ensuring a reliable source of power will need a mix of some fossil fuels, even as reliance is reduced over time. Exploiting natural gas reserves is key as a cleaner transitional source of fuel. Africa has plentiful supplies of natural gas that can be accessed relatively cheaply. Natural gas can provide a more sustainable and lower cost alternative cooking fuel for millions of people, thereby supporting conservation of the continent’s forest cover, which plays a vital carbon absorption role for global mitigation. In some oil-producing countries, such as Nigeria, harnessing natural gas is also critical to curbing dangerous emissions such as methane from uncombusted portions of flares. espite a 0% decrease in the past two decades, according to the International Energy Agency, fossil fuel companies’ gas flaring remains responsible for more emissions than from all of the transport or electricity used by 200m Nigerians.
Supply chains
Achieving net zero demands more than cleaner energy. It depends significantly on eliminating unnecessary shipping and localising manufacturing. African raw materials are typically shipped to Asian manufacturers and then sent on to European markets where they are consumed as finished goods. This wastes massive amounts of energy. One important solution lies in ramping up manufacturing capabilities, with production facilities in as close proximity as possible to raw materials. Take a look at the success of the ARISE Integrated Industrial Parks in Gabon, Togo and ongoing construction in Benin, funded with $290m from AFC.
November 2021 African Business
Working with Olam and the Government of Gabon, the Nkok Industrial Park in Gabon has been certified as the first carbon neutral region in Africa and arguably the entire globe by Société Générale de Surveillance, the Swiss multinational certification company, showcasing the capacity for climate sensitive development given the right mix of responsible partners and sufficient financing. The project has transformed Gabon’s exports from raw timber to high-value finished veneers and furniture by taking a joined up approach to development, combining business incentives with a port, roads and other physical infrastructure. Too many of Africa’s roads, buildings and other infrastructure are poorly built and highly vulnerable to changing weather patterns. Core physical infrastructure is required to connect, feed and industrialise the continent so that Africans can capture a fairer share of the value of our resources.
Financing considerations
The final piece to the pu le of achieving climate transition lies in the mobilisation of significant domestic and international financial flows. evelopment finance institutions and private capital have key roles to play in creating innovative investment vehicles and deploying catalytic blended finance models to derisk climate investments and increase the supply of bankable projects. The surge in demand for green bonds and ESG-friendly investing shows the scope to unlock trillions of dollars held by sovereign wealth funds, pension funds, insurance companies and other
Below: A Bio2Watt gas power plant in South Africa, where cow manure is used to produce energy that feeds an Eskom grid.
institutional investors. Yet, at the same time, Africa risks being cut out of the evolving global financial architecture, which is being reshaped towards richer countries’ emissions targets. AFC is one of the few institutions in Africa to issue green bonds, with the continent accounting for less than half of a percent of the amount issued globally, according to data from the Stockholm Sustainable Finance Centre. As policymakers and leaders at COP26 grapple with the multiple challenges of global net zero, the mandate for Africa is clear. International climate action must not put Africa’s development at a further disadvantage. As a casualty of circumstances that it did not create, the region needs access to creative and affordable financing initiatives from the world community to adapt to the effects of climate change. At the same time, Africa’s path to net zero should broaden energy sources, drive efficient fuel consumption, and cut unnecessary shipping through localised manufacturing. Ultimately, with appropriate policies to support a strong expansion of clean technologies and sufficient emphasis on energy efficiency improvements, Africa could claim a notable achievement becoming the first continent to reach a significant level of economic and industrial growth primarily using cleaner energy sources. n Samaila Zubairu is the President and CEO of the Africa Finance Corporation.
African Business November 2021
Special report: Energy
South Africa has an ambitious renewables programme but is reluctant to ditch coal, even as global policymakers push for more stringent environmental targets. Can Africa manage the energy transition without sacrificing its economic interests? asks Dianna Games
South Africa’s coal loyalty highlights energy transition difficulties
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ith global energy focused on carbon emissions in the run-up to the Cop26 climate summit, the role of Africa in the energy transition is once again under the spotlight. As the world moves ever more decisively to cleaner energy systems, Africa is facing its own issues. Can it keep up and if it does not, will this lead to a growing energy divide? African policymakers are grappling with big questions about how to move their countries forward, with oil and coal producers under pressure from developed countries to compromise their resource advantage in fossil fuels in favour of a big push to renewable energy. South Africa is key among them. The biggest source of carbon emissions in Africa, the continent’s most industrialised economy has been targeted by activists for its large coal footprint, the source of about 80% of its grid energy. The country’s power utility, Eskom, is its biggest emitter of greenhouse gases even as it battles to keep the lights on, relying on power cuts and costly diesel generators to address system failures. The reluctance of the country’s energy minister, Gwede Mantashe, to drive a transition from coal has long been a handbrake on progress in decentralising energy, although recent changes to regulation will break Eskom’s virtual monopoly by allowing independent power producers to build plants of up to 100 MW without onerous licensing requirements.
November 2021 African Business
Rise of renewables
Many of the new projects could be renewable, but the country’s 2019 energy blueprint allows for the development of 1500 MW of new coal capacity. In September, climate envoys from the UK, US, Germany and France visited South Africa to offer incentives to get the country to forge a new energy deal that could be presented at Cop26. An initial amount of almost $5bn in concessional loans and grants was discussed. The minister did not meet the delegation, according to media reports.
Issues for developing countries
Rich nations, Mantashe said, should not force South Africa to ban new coal power projects and impose other conditions to reduce its carbon footprint, pointing to the power issues developing countries have faced in the recent past. “We are a developing economy. We must have a clear programme. We must navigate the transition carefully.” He echoes what some other countries, also richly endowed with fossil fuels, are thinking. There are still many countries that rely on fossil fuels for their baseload energy even while they court renewable targets. These include Zimbabwe, Namibia, Nigeria, South Africa, Tanzania and others. ydropower is a significant part of the energy mix in Africa, but unpredictable weather patterns have affected its viability as a main source of generation. Droughts in recent years in Ghana, Zimbabwe, Tanzania and Kenya, for example, have brought water levels below the turbines at times, causing energy crises. Reliable energy is a luxury in Africa and a survey by Energy for Growth Hub, a global solutions connector, shows that more than 3% of firms in subSaharan Africa rely on self-generation as a back-up to grid power. How Africa meets its growing energy needs is crucial for the continent’s economic and energy future and will have an impact on global trends. Rapidly growing urbanisation and high population growth – 2.45% in 2021 – means more than half a billion people will be added to Africa’s urban population by 2040. Already, an estimated 600m people out of a continental population of about 1.2bn do not have access to reliable power and in many cases, any power. The latter rely on time-worn solutions including charcoal, candles, kerosene and generators to get by. This is despite the stated ambition for universal access in Agenda 2063, the continent’s 50-year development plan forged in 2015 and incorporated into the national planning framework of more than 30 countries. The African Development Bank is at the forefront of efforts to effect an energy transition, investing in helping countries end their coal dependence and driving its new deal on energy for Africa. This includes mobilising domestic and international capital for innovative financing for energy helping African governments to strengthen energy policy, regulation and sector governance; and increasing its own investments in energy and climate financing. As governments align their energy strategies to the UN Sustainable Development Goals (SDGs), there is pressure on them to build climate-friendly energy systems. Most countries now have targets for the contribution of green energy in the total mix.
Left: South Africa’s Mooifontein Colliery. The country is still dependent on coal for 80% of its grid energy.
Despite South Africa’s intention to keep exploiting coal, its Integrated Resource Plan envisages renewable energy contributing up to 42% of new generation by 2030. Indeed, the country has one of the most progressive renewable energy programmes on the continent – the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which provides a template for other African countries. Launched in 2012, REIPPPP has attracted over $20bn investment in energy infrastructure. It had procured new capacity of 6422 MW by December 2020 in four main bid rounds, and a fifth is currently under way. The programme has a strong social and development focus, with strict empowerment and local content targets and shareholdings set aside for black South Africans. Kenya is also well ahead, with 70% of its energy already coming from renewable sources in the form of geothermal and hydro power. North African countries are using their huge solar capability to best effect. The role of gas in the clean energy debate is still unclear. It was considered to be a bridging fuel source between dirty fossils and renewables, but many critics are sceptical as climate targets get tougher. However, it is becoming an increasingly important source for Africa as well as a major export product from gas reserves in offshore areas, including South Africa, Mozambique and Tanzania. Nigeria, the continent’s biggest oil producer, also has significant gas reserves, which it is prioritising in its energy mix going forward.
Towards Cop26
Cop26 is likely to deliver even more ambitious climate pledges and with them new regulations that may have serious implications for businesses in the coming years. Renewed and more ambitious climate pledges by governments will spur new regulations, support green innovation and make additional financing available. There is the danger of a growing energy and trade divide if countries cannot meet emissions requirements set by their main trading partners in developed countries. As industries such as shipping and aviation seek more carbon-friendly solutions, African destinations may struggle to service them. Already, new refined fuel specifications are threatening the viability of older refineries on the continent and there are concerns about high tariffs being imposed on carbon-heavy goods in time. Developed countries have pledged to mobilise $100bn per year for climate action in developing countries (see pages 36-38), but the question is whether many hard-hit nations in Africa have the plans or capacity to absorb this money. The reinvention of global energy companies as green energy players offers an opportunity. Many have deep roots in Africa and can play a role in driving the continent towards a more emissions-free future. But it is critical that those who have the power to direct policy and regulation are the ones who are most convinced of the need for a proactive energy transition in Africa. Not only is this important in terms of the global climate project, but it is also critical for local empowerment and job creation as opportunities open up in decentralised and tech-driven energy generation and services. n
I n t e r v i e w
Pa r t n e r
I n s i g h t
Altaaqa Global Energy Services is a pioneering international energy services business. Neil Ford looks at some of the cost-effective integrated power solutions it is delivering to clients across Africa and the wider world
Intelligent power solutions for the energy transition
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frica’s power supply problems are well known. Too little generating capacit y and limited grid coverage limits both the number of people able to access electricity supplies and the reliability of supplies to those who are connected. Overcoming such hurdles requires ingenuity and flexibility but specialist power providers are now making progress in the most hard-to-reach areas. Altaaqa Global Energy Services is one such company, developing bespoke projects for a wide range of customers. Altaaqa Global sees natural gas as a key part of the energy transition, particularly in the medium term, with African countries such as Mozambique, Nigeria, Tan ania, Algeria and Egypt offering the prospect of increased global supplies. Natural gas is often viewed as a “bridging fuel” between higher emission coal and oil, on the one hand, and lower emission solar and wind on the other, with the average gas-fired power plant generating about half the emissions of their coal counterparts. The firm considers natural gas an ideal fuel for power generation in Africa itself because it can offer lower cost electricity than existing coal or oil-fired plants, or even the diesel generators that so many African businesses are forced to rely on. In addition, Altaaqa Global is investigating the use of biogas and other alternative fuels for gas-fired plants in the longer term. A number of African governments have said recently that gas will have a key role to play in electrifying the continent and enabling industrialisation, including through regional power sector integration, such as through the West African Power Pool and Southern African Power Pool. Altaaqa Global believes a range of different stakeholders need to come together to develop such projects to make sure that the pace of electrification is speeded up,
contributing toward the achievement of the sustainable development goals. There are challenges with gas development in countries such as Nigeria and Mozambique but increased production has the potential to drive domestic economic growth in each case, as well as generating substantial export revenues. This income can help finance projects that will benefit domestic consumers and generate revenue for the host governments. The impact of militant activity and hydrocarbon theft has deterred gas sector development in Nigeria for many years. However, low, regulated gas prices have also discouraged oil companies from monetising associated gas reserves by piping them to the local market. The passage of Nigeria’s Petroleum Investment Act earlier this year after many years of deliberation should help the market function more effectively and ensure that more gas can be used for power generation and by industrial consumers, such as cement plants. Some could also be exported, either in the form of liquefied natural gas N or via the proposed Trans-Saharan Gas Pipeline, which has attracted renewed interest this year. Altaaqa Global believes that security challenges make potential investors think twice before committing to a project but governments and partners need to work together to ensure that these are overcome. Public-private partnerships are often the best structure for ensuring that commercial development is not delayed and also contributes to local economic development.
Corporate demand
Altaaqa Global has noted rising demand from big corporations for renewable energy, whether in generation projects and battery storage, or for renewable energy power purchase agreements (PPAs). The proportion merely wanting to be seen to be doing the right thing, effectively just greenwashing, is declining rapidly in favour of those who actually want to
shift their investment and power supply strategies, or sometimes even their core business focus, towards renewables. This is driven by a combination of market, public and government pressure, with shareholders demanding real change. At the same time, solar and wind power projects now offer a lower levelised cost of energy (LCOE) than coal or gas-fi red plants in most markets and both construction and operating costs are continuing to fall. The energy transition will require more than merely reducing power generation emissions of greenhouse gases. An Altaaqa Global spokesperson told African Business: “Even beyond renewable generation technologies, hydrogen and ammonia offer the prospect of low emissions energy supply. We are carefully assessing the emergence of the technologies required to underpin such emerging markets.”
Mining solutions
Altaaqa Global has also acquired a great deal of expertise in providing power supply solutions to industrial customers in remote areas. Many mines, for instance, are located far from power grids or in areas with unreliable supplies, while securing all the necessary permissions for building their own long-term power plants can be difficult. The firm provides cost-effective integrated power solutions, expert project consultancy and advisory services, and flexible contractual and project financing arrangements to a diverse range of clients, including in the mining, cement, utilities, oil and gas and manufacturing sectors. It offers build, own, operate and transfer (BOOT) contracts that are favourable to both the developer and host country. The company can provide plants with the required generating capacity wherever they are needed under flexible contract terms. A key part of the package is delivering, installing and operating the equipment in any location.
The flexible terms help mining companies avoid becoming tied in to 20- to 25year PPAs that may not align with mine lifetimes, for example. Some developers may struggle to provide guarantees to cover the entire PPA, while some mines become exhausted before such contracts expire, or their power requirements may change as output is ramped up or decreased. In addition, ownership can change hands but new buyers may not want to take on long-term PPAs. Such challenges are not new but customers in the past were previously required to rent temporary power projects, leaving them with no guarantee of longterm supplies, or were even forced to build their own permanent power plants. The latter option provides supply se-
The firm provides cost-effective integrated power solutions, expert project consultancy and advisory services, and flexible contractual and project financing arrangements to a diverse range of clients
Altaaqa Global can provide temporary power plants wherever they are needed under flexible contract terms.
curity but generally takes much longer to put in place, carries greater capital costs and raises the thorny question of what to do with the plant when the project being supplied comes to an end. Altaaqa Global has therefore developed its BOOT contracts to fi ll the gap in the market by allowing some risk sharing between supplier and customer. This approach also allows Altaaqa lobal to offer bespoke solutions to each client rather than imposing a “one size fits all” contract. As far as possible, the company seeks to work with the client from the early development of a project onwards to ensure a good match between power needs and supplies. Specific customer requirements, including carbon footprint, technological options and possible expansion, are all taken into account. odular solutions can be offered to allow generating capacity to be altered over time. Rather than paying upfront for plants, customers make regular payments over the contract period, so that miners, for instance, can pay for the power they consume out of mining revenue. Altaaqa Global uses its own in-house engineers and technicians, plus its global supply chain, to operate the plant and provide operations and maintenance (O&M) services on site. When a BOOT contract expires, clients are offered the opportunity to switch to a pure O&M contract even once they have taken ownership of the project themselves. n
African Business November 2021
Special report: Energy
Africa’s off-grid solar energy providers have been going through tough times during the Covid pandemic, but Ian Lewis finds that businesses with a track record in the sector are optimistic it can bounce back rapidly
Sunnier days ahead as solar bounces back
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he growth of the off-grid energy sector over the last decade has been one of Africa’s social and economic success stories, transforming lives overnight by bringing power to low-income households and small businesses, often in remote areas with little prospect of a link to the national grid. Inevitably, that expansion has been curtailed by the economic impact of the Covid pandemic on the spending power of poor Africans, whose finances have become more precarious. Some have struggled to keep up payments on pay-as-you-go solar systems, while others are deferring plans to splash out on solar lighting and television packages until their earnings prospects become more secure. At the same time, off-grid solar providers have found it harder to borrow the funds needed to stay afloat in difficult times, contending with customer growth rates well below those envisaged in their business plans prior to the pandemic, and low equipment stock levels due to fractured global supply chains. In its Market Trends Report 2020, the World Bank’s Lighting Global Programme reported that the global off-grid sector had developed into a 1. bn annual market, serving 420m users, mainly in sub-Saharan Africa. In the 201 -19 period, off-grid solar firms’ revenues grew at 30% a year, while sales volumes grew at 10% a year, Lighting Global estimated. y 2021, the picture was very different. A, an off-grid industry trade body, said in its latest Global Off-Grid Solar Market Report that two thirds of off-grid solar lighting companies surveyed around the world reported lower sales volumes in the second half of 2020 compared to the second half of 2019, and that a third had reported sales cuts of more than 50%.
Poised for recovery
However, companies with a track record in the African off-grid market say that, while business is challenging now, there are signs of resilience and recovery.
Simon ransfield- arth, chief executive of African household solar provider Azuri Technologies, said recently that, while the company’s business volume growth had slowed considerably from pre-pandemic levels of some 40-50% a year, its sales volume was still showing modest growth, and was likely to accelerate quickly if customer and investor confidence returned. This view is backed up by GOGLA data showing some recovery in SSA markets in the second half of 2021 compared with earlier in the year. In East Africa, sales of 2.2m off-grid solar lighting products by surveyed members in the second half of 2020 were 10% lower than in the second half of 2019, but 41% higher than in the first half of 2020. In West Africa, sales of off-grid solar products in the second half of 2020 totalled 434,000 – a 19% increase over the same period in 2019 and a 23% rise compared to the first half of 2020. If African economies do recover quickly, those working in the off-grid sector say a resumption of sharp sales growth is possible given the level of latent demand. Globally, around 770m people still had no access to electricity in 2019, with around three-quarters of this total in sub-Saharan Africa, according to the International Energy Agency. That the global figure was 90m lower than in 2018 underlines the upward trajectory of demand for off-grid power products before the pandemic. In terms of corporate robustness, the off-grid sector is considerably stronger than it was a decade ago. Companies such as Azuri and Bboxx have developed from startups providing simple solar lighting and charging solutions to commercially successful household names in several countries, supplying homes and businesses with a plethora of services, and able to raise millions of dollars on international markets. They rub shoulders with deep-pocketed energy firms that have diversified into mini-grid and household solar provision, including EDF, TotalEnergies and Shell. The sector has been driven by falling equipment costs and rising efficiency. A decade ago, A uri was offering household lighting packages for around 0. 0 day. Today, in Kenya, the company has a TV package for around $1/day, which includes a solar panel, battery, power-efficient television, satellite dish, a satellite service, two high-power tube lights, two spotlights, a rechargeable radio, rechargeable torch and USB smartphone charging. After around two years, the customer owns the equipment and would then only need to pay for the satellite service. Storage and efficiency improvements mean that a television supplied by the firm could now run more or less continuously compared to just a few hours a night for its earliest models.
Investment still flowing
Right: An Azuri Technologies engineer installs a solar panel in a rural area.
Activity may be down but the off-grid market is still generating eye-catching investments. Engie Energy Access (EEA) said in October that during 2021 it had acquired some 200,000 new customers in the nine sub-Saharan African countries in which it operates, despite the impact of the pandemic. The company, whose customer base now stands at more than 1.3m, caters to a wide range of markets from household solar to large businesses. EEA report-
November 2021 African Business
If African economies do recover quickly, those working in the off-grid sector say a resumption of sharp sales growth is possible given the level of latent demand
African Business November 2021
Special report: Energy
agreements for $20m of concessional loans to the sector in August. The funding from the AfDB-managed Sustainable Energy Fund for Africa (SEFA) is part of what is envisaged as a five-year, 0m blended finance initiative to provide relief and recovery capital to energy access businesses, known as the ovid-19 ff- rid Recovery Platform.
Blended finance initiative Left: Students study in the evening thanks to a solar-powered system.
ed continued growth in its mini-grids business, which has equipped 13 villages to date and has secured more than 180 additional project orders in the last year. Meanwhile, another French-based company, NEoT ffgrid Africa N A , and Winch Energy said in October that they have invested around $12m in new mini-grid projects in Uganda and Sierra Leone. When these become operational in 2022, nearly 60,000 people in 49 villages in Sierra Leone and Uganda will be equipped with off-grid and remotely controllable solar solutions provided by the fi rms over recent years.
Revenues remain uncertain
owever, few think the off-grid sector is out of the woods yet. evenue streams for off-grid providers remain uncertain, with providers having to be accommodating with repayment schedules for struggling customers, while the companies still have the same financial outgoings as they did before the pandemic. Meanwhile, raising money on commercial markets is tough for solar companies. Companies are reluctant to downsize as it would hamper their ability to cater to new customers if the market takes off again. ownscaling would also jeopardise jobs in the communities the companies serve, including local agents and other personnel that market products and provide customer service. It would also risk reversing gains made by women in rural communities. Around a third of Azuri’s rural workforce are women. The relatively low cost and reliability of off-grid solar power compared to building out the grid in some areas of Africa also means that off-grid electricity is no longer regarded as a temporary fi x while communities wait for the grid to arrive. It’s part of the long-term solution to energy access. If the off-grid sector fails, some national electrification plans risk being derailed. These fears have led to the launch of substantial financial support Use of solar power packages. beyond commercially “The impact of the Covid-19 pandemic attractive areas, such is jeopardising the immense progress that has been achieved over the last decade as household lighting in electrification through off-grid tech- and television, needs to nologies across Africa,” Joao Duarte Cunha, be encouraged in order division manager for renewable energy at the African Development Bank (AfDB), to accelerate local said on announcing the financial close of development
Another major initiative to support the industry in sub-Saharan Africa and Asia, the $80m Energy Access Relief Fund (EARF) supported by DFIs and other institutions, reached its first close for 6 m of the total in September. The remainder is expected to be signed off in coming weeks. Social Investment Managers and Advisors (SIMA), the fund’s manager, is charged with providing relief capital via short-term loans to around 90 energy access companies of widely varying sizes in subSaharan Africa and Asia. Loans of some $50,00060,000 will be made to smaller firms with revenues of around $150,000-$200,000, while a maximum of four loans of up to $2.5m will go to companies with revenues of up to around $25m. SIMA says its analysis of energy access companies eligible for relief funding shows that 77% of potential borrowers require emergency financial assistance to stay afloat. Three-quarters of the loans are expected to be disbursed in Africa.
More government support needed
While support packages may help the off-grid sector through a difficult period, more will be needed in the longer term if the industry is to make significant progress in reaching those without power. So far, companies have been able to pick relatively lowhanging fruit in the form of customers with low-tomedium incomes and financial stability. eaching the very poorest Africans and maximising the benefits of off-grid supply to rural areas will be a much stiffer challenge requiring wider government support. A September U report, ff- rid Energy and Economic Prosperity, calls for greater government intervention to ensure that severe inequality in energy access in SSA is not exacerbated by the pandemic. “While the pandemic has challenged the economies in SSA, it also provides an opportunity to address structural issues in energy development for a more decentralised energy system,” the authors said. “To reach universal energy access, governments and partners must promote both supply and demand side subsidies. The former are essential to support offgrid companies scale up operations and serve more difficult market segments, including in more remote areas. The latter can help to close the affordability gap for the poorest customers.” Use of solar power beyond commercially attractive areas, such as household lighting and television, needs to be encouraged in order to accelerate local development and lay the basis for rural job creation. eploying off-grid power for commercial, agricultural or industrial uses to create and improve local value chains, diversify livelihoods and reduce vulnerability to external shocks would have an even more profound social and economic impact. n
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As the global economy transitions towards renenewable energy, demand for green hydrogen is set to grow exponentially. Siemens Gamesa’s pioneering wind power technology gives Africa the opportunity to become a major player
Green light for a green hydrogen economy in Africa
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oday, green hydrogen, powered by renewable electricity makes up 4% of the total global hydrogen production. Long-term forecasts from various industry sources point to green hydrogen consumption growing exponentially over the following decades, as transport and heavy industries decarbonise. It would require between 1,000 GW and 4,000 GW of renewable capacity by 2050 to meet the demand, in turn highlighting the vast potential for growth in wind power. The current hydrogen market is carbon intensive. This could be a unique opportunity for investors and policymakers to reduce emissions and develop national strategies for hydrogen’s future production based on clean, renewable energy sources such as wind or solar power. Siemens Gamesa has taken the lead in the green hydrogen energy revolution through its position as a wind industry pioneer. At the end of 2020, the company launched the first pilot project in the world to connect a wind turbine to an electrolyser with the ability to operate in “island mode”, i.e. driving an electrolysis rig with no link to an electricity grid. With the rande ydrogen project, Siemens amesa is pioneering a major potential future application for both Onshore and ffshore wind. The pilot is close to the company’s Danish headquarters in Brande, Denmark. Owned by local partner Uhre Windpower, it includes a 3 MW Siemens Gamesa wind turbine that will produce clean electricity to power a 400 kW electrolyser. This machine splits water into oxygen and hydrogen, so that the hydrogen can be stored and later delivered to customers in the mobility sector. The project started production in anuary 2021. Furthermore, the company recently joined forces with Siemens Energy to introduce a game changing, innovative solution that fully integrates an electro-
lyser into our S 14-222 offshore wind turbine, as a single synchronised system, to directly produce green hydrogen. Both companies agreed to provide a full-scale offshore demonstration of this solution by 2025/2026. y 20 0, Europe’s energy system is expected to be largely based on variable renewables and hydrogen will be indispensable for transport and storage. Due to its limited size and high population density, Europe will not be able to produce all its renewable energy domestically. Therefore, it is assumed that a large part of the required hydrogen will be imported. To this end, several European countries have launched ambitious hydrogen strategies which will play a crucial role in driving development in Africa. There is a high potential for greater cooperation between Europe and Africa in the coming decades, and the two regions could become more interdependent. The launch of the European reen eal, which focuses on Europe and on external cooperation with neighbouring regions, will benefit Africa. North African countries could be the early adopters in the African Union to supply green hydrogen to Europe because of their resource’s potential, proximity and existing trade relations. I ENA’s renewable energy roadmap for Africa 2030 indicates a feasible expansion
capacity of 70 GW of wind and 50 GW of concentrated solar power and in North Africa. As the market matures, existing pipelines can be converted and new pipelines to transport green hydrogen from North Africa to Europe can be built. A joint hydrogen economy between Europe and North Africa can help build a European energy system based on 0% renewable electricity and 50% green hydrogen by 2050. Before 2030, this hydrogen boost will lead to lower electricity production cost from wind power to approximately €10-20 per MWh at sites with wind resources throughout North Africa. Another cost-effective advantage is that hydrogen can be imported from North Africa by pipeline, which is cheaper than imports by ship, thus allowing Europe to establish a sustainable energy system. Furthermore, this North African hydrogen approach would create economic growth, future-oriented jobs and social stability in North African countries. In this region, two countries with ambitious renewable energy targets have already taken concrete steps to enhance the hydrogen revolution: Morocco, whose green hydrogen potential could benefit both Africa and Europe, creating an energy bridge between the two continents, has signed a strategic partnership in une 2021 with Irena, with the aim to become a major green hydrogen producer and exporter. The two parties will actively pursue green hydrogen studies and explore policy instruments to engage the private sector at a national level in the green hydrogen economy. Similarly, Egypt, which intends to reach 42% of renewable share in its energy mix by 2035 has signed a few Memorandum of Understanding, like Siemens Energy with the Egyptian Electricity olding ompany EE to jointly develop a pilot project, compromising 100 to 200 MW of electrolyser capacity. With Siemens Gamesa holding 91% market share of Egypt’s installed wind power capacity, this agree-
ment represents another strong commitment of the group’s vision to support the country’s ambitions. Further, according to the World Bank, the first identified hydrogen markets in the continent include jibouti, Egypt, Ethiopia, orocco, and South Africa all locations where Siemens Gamesa is a wind pioneer. The International Energy Agency IEA states that hydrogen and hydrogen-based fuels can transport energy from renewables over long distances, from regions with abundant solar and wind resources. In that context, one of the potential countries in the south of the continent is South Africa, which already has vast experience in creating approximately 8bn litres of synthetic fuels a year. This existing infrastructure could be repurposed to produce green hydrogen, so that the
Perdekraal East wind farm in South Africa – one of Siemens Gamesa’s wind power projects that could become a source of green hydrogen. Opposite left: Siemens Gamesa, Brande green hydrogen pilot project in Denmark
country holds a catalytic role in building the wind energy capacity needed to fuel a hydrogen economy. Siemens Gamesa’s recently completed 140 MW Kangnas and 110 MW Perdekraal wind projects could potentially support this trend if electrolysers are added and connected with the turbines to produce green hydrogen. This potential capacity could have considerable implications for the future of the South African economy by establishing the country as a major
North African countries could be the early adopters in the African Union to supply green hydrogen to Europe because of their resource’s potential, proximity and existing trade relations
exporter of green hydrogen to the world, while decarbonising large sectors of its own economy. As global leaders look to secure a “green recovery,” post- ovid-19, the need to deliver clean, affordable energy solutions is greater than ever before. reen hydrogen has signifi cant decarbonisation potential – particularly within highly polluting heavy industries - providing developing countries in Africa and worldwide, the opportunity to meet their national sustainable energy goals. Siemens Gamesa’s hydrogen white paper offers not only an overview of what needs to happen to make green hydrogen viable but also outlines how the company’s expertise in generating energy from renewable sources will allow green hydrogen to be produced globally, at scale, cost effectively. n
African Business November 2021
Special report: Energy
South Africa is well placed to take advantage of a worldwide market for green hydrogen that could be worth $2.5 trillion by 2050, but it will need to move quickly in the face of stiff competition, says Dianna Games
South Africa eyes future as green hydrogen hub
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outh Africa has plans to link its massive platinum reserves to the green hydrogen market that is touted as a trillion-dollar opportunity in the green energy world. Platinum is a key input in hydrogen fuel cell technology, able to withstand higher temperatures than other metals and a catalyst for generating an electrical current. A new public-private partnership is investigating ways to transform the country’s platinum belt into a “hydrogen valley”. In October the partnership released a feasibility study that identifies three potential catalytic green hydrogen hubs: a Johannesburg hub with spokes extending to nearby Rustenburg and Pretoria; a Durban hub, encompassing the ports of Durban and Richards Bay, and a third hub that will include the platinum belt across the Limpopo and North West provinces. Green hydrogen production needs to be powered by solar energy and South Africa has some of the best solar and wind energy potential in the world, positioning it to build a new industry to serve growing demand. Green hydrogen is increasingly being integrated as a power source for ships, aircraft, industry and cars. There are many other uses for its by-products, which include ammonia and methanol.
Market set to expand
At present, less than 1% of hydrogen produced globally is considered to be green. The rest is made by stripping hydrogen from fossil fuels such as methane, natural gas or coal. South Africa already has capability in brown and blue Japan, which is hydrogen, which utilise fossil fuels, and planning to import its National Hydrogen and Fuel Cell Techup to 800,000 tonnes nologies Research, Development and Innovation strategy (Hydrogen South Afa year of the product rica), was launched in 2008. from 2030, could be But climate change activism has dia market for South rected the focus to green hydrogen; the World Platinum Investment Council reckAfrican exports
ons that this will be a $2.5 trillion industry by 2050, supporting 30m jobs. It is driving the Green Hydrogen Catapult initiative, a global coalition to accelerate the scale and production of green hydrogen 50-fold over the next six years. Japan, which is planning to import up to 800,000 tonnes a year of the product from 2030, could be a market for South African exports, says Thomas Roos, a researcher at South Africa’s entre for Scientific and Industrial Research (CSIR). Just a 25% share of Japan’s anticipated demand would be a $600m market, he says. The experts caution that South Africa cannot just focus on the export market but also needs to stimulate demand domestically. The mining sector is one of the pioneers in this regard. Platinum miner Anglo Platinum is building a 75 MW solar photovoltaic powered plant at its Mogalakwena platinum mine with a view to expanding this to 320 MW of solar power generation. The excess electricity will be used to produce green hydrogen.
Capturing the benefits
A benefit of this new energy source is not just the export earnings potential and job creation – the feasibility study estimates 14,000-30,000 jobs per year – but also the fact that, as a new industry, it does not threaten vested political coal and fossil interests in South Africa, as renewable energy has. This may give this new sector a fighting chance of avoiding onerous and constraining regulation as it seeks to grow into a competitive force at home and abroad. ut South Africa faces stiff competition. Argentina, for example, is well advanced in this sector, joining Chile and Saudi Arabia. Morocco, too, is in the game and could erode South Africa’s competitive advantage with its strategic location next to the giant European market. The country needs to move quickly to exploit this advantage to secure its place in the rapidly moving global energy transition. n
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The speed of the energy transition will impose additional criteria in investment choices to ensure the sustainability and the best economic profitability of a country’s energy mix, says Ville Rimali (Wärtsilä Energy).
Without flexibility, Africa’s energy revolution will not take place
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he energy transition integrating renewable energies into the grid is a reality that is unfolding globally. This can be observed at different rates and scales according to the countries, but the constant increase in demand and the continuous drop in the prices of these technologies implies that renewable energies will constitute the basis of the power supply to the electrical networks in the future. It is, in fact, more of a revolution than a transition, given the rapidity with which the share of renewable energy is growing today, and the fall already noted in the prices of the renewable kWh produced. The same goes for Africa, and in particular North and West Africa, where Egypt, Morocco and Senegal have already embarked on the introduction of solar energy and wind turbines. However, since renewable energies are intermittent by nature, they generate instability on electricity networks, posing enormous difficulties for operators, and potentially for consumers as a result. Non-flexible production capacities, typically coal-fired, will therefore have to be replaced by much more flexible means of production. We will have to rely on a mix of energy storage solutions and enginebased technologies, which provide the best response times, to effectively adapt to sudden excess or shortfall in renewable production. Interestingly, the Covid-19 crisis and its confinement phases give us a taste of what awaits us in 2030 in Africa. We observe in real time a full-scale simulation of the effects of a majority of renewables in the energy production mix. As demand for electricity in Europe has fallen due to lockdown measures, the generation of renewable energy continues to be produced at full speed. As a result, energy sources such as coal have become the adjustment variable and are stopped whenever possi-
Renewable energies will need to be able to adapt to peaks in demand.
ble, which very significantly increases the relative importance of renewable energies in the mix. For example, in the United Kingdom, over the March 23-May 24 2020 period, the share of renewables reached 41% of production, while during the same period in 2019, the figure was 30%. At the same time, the share of electricity produced by coal-fired power plants fell by 46%. Since April 10, all the coal plants have been shut down. In Germany, over the same period, the share of renewable energy reached 60%, up 12%, while the share of electricity produced by coal-fired power plants fell by 52%. At the end of April, the share of renewables reached almost 80% several days in a row, when at the same time the weather was nice and windy. For three days, Germany even had to pay to massively export its excess electricity, unable to adjust its “inflexible” production tool.
Finding equilibrium
The main lesson to learn? The speed of the energy transition imposes additional criteria in investment choices to ensure the sustainability and the best economic profitability
of a country’s energy mix. The equilibrium between the types of technologies in the energy mix, the production costs and consumption has changed radically with the massive introduction of renewable energies. The production price of a kWh is only optimised by cleverly combining the different technologies for the best performance, the least risk of interruption, whatever the development consumption. Forecasts show that by 2050, solar PV would represent over 50% of total electricity production in Africa. Renewable energies are – and will remain – affordable and reliable; they will be combined with flexible quick-start energy generation resources such as engines, which allow them to operate to meet peaks in demand, and to compensate for intermittence. These engines also provide additional security, because they can work just as well on gas as on fuel in the event of a gas supply shortage, but also ultimately on bio-and synthetic fuels when these become economically competitive and widely available. Introducing a large part of flexibility in our electricity production is not an option: without flexibility, the energy revolution will not take place.
About the author
Ville Rimali is an energy transition visionary promoting a Path to 100% Renewables (#PathTo100). He currently leading the team of energy experts driving growth by opening up new markets, originating new flexible power plant and energy storage projects and securing Wärtsilä order intake through project development in Europe & Africa Area. He previously worked as a business development professional, with a sales track of over €130m in the energy industry including several energy storage (BESS) projects. n
November 2021 African Business
Special report: Oil & Gas
Investments in fossil fuel are declining across the world, but many African nations are keen to exploit their natural resources. Neil Ford looks at the tough choices facing policymakers as they weigh up economic benefits and environmental costs
Africa walks development tightrope as calls for oil and gas restraint grow
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ressure is increasing on African countries to help tackle climate change by reining in their greenhouse gas (GHG) emissions and resisting the temptation to develop new oil and gas fields. et Africa accounted for just 4% of global GHG emissions between 1990 and 2017 despite the fact that it contains 17% of the world’s population. In addition, African per capita emissions are about a fifth of the global average, leading critics to complain that radical action on the continent will stifle potential economic development for a problem that has largely been created elsewhere. That has prompted a debate over whether richer countries should compensate Africa in order to keep its fossil fuels in the ground. The US has announced that it will quadruple its international climate finance to 11.4bn by 2024 to help developing countries cope with global warming but much more international investment in solar power, onshore wind, offshore wind and perhaps hydrogen is required if Africa is to forego its interest in dirty fuel extraction. Oil has long been one of Africa’s main export commodities, generating billions of dollars in revenue every year but also tempting governments to rely on hydrocarbon export revenues at the expense of
African Business November 2021
Special report: Oil & Gas
developing a more diverse economic base. Still, the international trend is unmistakeable. As oil companies look to diversify, they themselves admit that production has already begun a long-term decline, with Shell predicting an 18% fall in its output over the course of the current decade. The big question is whether governments and the oil and gas sector are prepared to leave hydrocarbons stranded. Carbon capture utilisation and storage (CCUS) technology would allow oil and gas production to continue while producing far fewer emissions, yet there are real doubts over whether the added costs of CCUS will ever allow hydrocarbons to compete on price with renewables. Natural gas may have a rosier medium-term outlook. Considered by some to be a bridging fuel between hydrocarbons and renewables, it is likely to play a role in the power generation mix for the foreseeable future, despite considerable carbon and methane emissions during production, transporation and usage. Indeed, a large proportion of the extractive industry’s emissions come from the power consumed during oil and gas production. The average offshore platform needs generating capacity of 50-100 MW, usually provided by natural gas but increasingly backed by renewables. The UK, for instance, has launched a tender for massive offshore wind farms to supply its offshore oil and gas industry. The same transition could be adopted by African producers, safe in the knowledge that any renewable energy projects developed for the purpose can be used for grid supply or hydrogen production when fields become exhausted or are phased out.
Defence of hydrocarbons
As might be expected, both Opec and the African Petroleum Producers Organisation (APPO) want to see Africa’s renewable energy potential developed alongside hydrocarbons, not instead of them. At a meeting in Brazzaville in September, APPO secretary-general Omar Farouk Ibrahim said: “We will not allow billions of barrels of oil to go to waste and we will not be bamboozled into projects that we don’t need – ones which will not address energy poverty. We need to sit down and have an honest conversation about the energy transition.” Opec secretary-general Mohammed Barkindo agreed, arguing: “We in Opec also categorically reject the narrative that the energy transition is from hydrocarbons to renewables because this narrative is completely misrepresenting science.” The African Energy Chamber has gone one step further, calling for African countries to boycott companies that block fossil fuel investment. “Financial institutions that discriminate against Africa’s oil and gas industry in the name of climate change are wrong and desperately need to change both their mindsets and actions,” it said in a statement issued in July. Yet an increasing number of institutional investors and banks are doing just that, so the smaller oil and gas companies who have traditionally identified new finds before developing them or selling them on to the big players are finding it difficult to secure funding. There are growing fears in the industry that a large proportion of African oil and gas reserves will
When will East Africa’s oil and gas boom begin? East Africa’s long awaited oil and gas boom has been frustrated at every turn. TotalEnergies, China National Offshore Oil Corporation and the Uganda National Oil Corporation aim to produce 230,000 b/d on their Lake Albert project, which includes the development of the Tilenga and Kingfisher fields. However, the governments of Uganda and Tanzania have still not passed all the required legislation, including on the construction of the 1,445km East Africa Crude Oil Pipeline, which will run to the northern Tanzanian port of Tanga. The project has been held up for several years because of disagreements over tax levels and other contract terms. Kenya too hopes to join the ranks of Africa’s oil producers, when Tullow Oil and Africa Oil develop the Turkana project in the South Lokichar Basin. There are 585m barrels of oil in place and production is expected to peak at 120,000 b/d but the two companies still need to bring other partners on board to help finance development. As with the Ugandan project, a pipeline is required to transport the oil to the coast, in this case to Lamu. The prospects of Tanzania’s LNG project being developed have increased since Samia Suluhu Hassan replaced John Magufuli as the country’s president in March after the latter died. Talks with developers Shell and Equinor were ended in 2019 because of Magufuli’s demand that the existing production sharing agreement be rewritten to restrict income repatriation. Hassan appears more amenable to striking a deal but the investors have warned the government that the time for developing new gas projects is limited.
November 2021 African Business
The biggest new gas field under development is the ohr field in Egypt, which is considered the biggest ever gas find in the editerranean with estimated reserves of 30 trillion cubic feet. Operator Eni has already ramped up production to 3.2bn cu ft/day since the first gas was produced in 2019. The development of ohr and other new fields has enabled Egypt to halt its LNG imports, increase its own LNG exports and consider new piped gas exports.
New directions for oil companies
Left: Welders prepare to join pipes for an export pipeline in the Sahara desert to carry oil from a new oil gathering station overland to the coast.
never be tapped. Forecast falls in oil investment may have finally enabled the passage of Nigeria’s Petroleum Industry Act (PIA) earlier this year. After two decades of trying, the government finally managed to pass the redrafted legislation, which aims to produce a profound transformation in the Nigerian oil and gas sector. The Act sets out new terms of investment on both exploration and production, while offering more commercial rates for natural gas production in an effort to ensure that gas is marketed within the country rather than being flared. Abuja has set a target of boosting oil production from an average of about 1.6m barrels per day (b/d) at present to 4m b/d as a result of the PIA’s passage but such targets have been set before to little effect. Still, the PIA’s passage is a sign that the country is keen to exploit its resources properly before the world turns inexorably against fossil fuel.
Gas expansion
In contrast with the oil sector, demand for gas is continuing to rise, partly in order to compensate for the slower development of coal-fired power plants. The International Energy Agency forecasts a 3.6% rise in global gas demand this year as the recovery from the Covid-19 economic shock continues, followed by average annual growth of 1.7% over the next three years. Forecast rising consumption means that there should still be scope for new African liquefied natural gas (LNG) projects, including those planned in Mozambique and Tanzania. Plans for the Trans-Saharan Gas Pipeline from Nigeria through Niger to Algeria have also been revived by the Algerian government, which is keen to maximise its exports to Europe. Poor relations between Morocco and Algeria make the construction of new subsea capacity from Morocco to Spain less likely but Algeria could build on its existing pipeline links with Italy.
Even if carbon capture and storage become more popular, there is little doubt that oil companies need to identify other profitable streams. ffshore wind can be used to produce hydrogen, even on the turbine platforms themselves, with the resulting hydrogen piped onshore using existing gas pipeline networks. The process has begun in Africa, where the biggest planned hydrogen project under consideration is a 10 GW scheme in Mauritania that would be powered by Africa’s first offshore wind farms as well as solar power. The proposals are currently at an early stage of development but the developer, oil firm hariot, has been granted exclusive development rights over a huge area of offshore acreage, plus two onshore blocks, covering a total of 14,400sq km to carry out pre-feasibility and feasibility wind and solar power studies. There is currently little international trade in hydrogen but Mauritania would be well placed to export cargoes to European customers if – as expected the market does take off. Australia’s CWP Global also hopes to develop an integrated solar-wind-hydrogen project in Mauritania, with the country seen as an ideal focus because of its combination of excellent wind and solar resources.
New project pipeline continues
Investment in exploring new acreage and developing new oil projects will increasingly slow over the next decade, yet huge volumes of crude oil will continue to be produced for vehicle fuel and industrial uses. espite climate-related financing constraints, some oil companies still have the financial muscle to seek out new acreage and develop new projects. For instance, the licensing round for nine new onshore blocks in Angola attracted 45 bids from 15 companies by the time the round closed in June. Luanda is keen to see new fields developed to help reverse the fall in national output over the past few years. Opaque terms of investment and the challenge of developing ultra deepwater fields deterred investment under the previous administration but President João Lourenço is seeking to establish a new relationship with foreign investors. In April, Eni announced that its uica oil discovery offshore Angola could hold up to 250m barrels, which it intends to develop in conjunction with other deepwater finds. The government also hopes to sell a 30% stake in state oil company Sonangol next year via an initial public offering as part of a wide ranging privatisation process. Many of Sonangol’s non-oil assets have been offered for sale, although demand for them has been limited, while it is also divesting stakes in some offshore blocks, as uanda tries to produce a slimmed down, more commercially minded company. n
African Business November 2021
Special report: Oil & Gas
Africa is undergoing a major change in its upstream oil and gas sector as majors depart and hand over assets to smaller, more localised firms that can exploit ageing fields. James Gavin reports on the new companies moving in.
New challengers crowd into Africa’s oil space
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he past year has witnessed decisive change in Africa’s upstream landscape, with longstanding majors divesting and a new breed of oil company starting to move in to fill the gap. In 2020, Norway’s Equinor pulled out of exploration acreage in South Africa’s offshore. This year has seen Exxon obil exit Ghana’s upstream, where it had been allocated the Deepwater Cape Three Points block. Meanwhile, Royal Dutch Shell began talks with Nigeria’s government to sell down its interest in onshore oilfields. Shell plans to divest all of its operated joint venture licences held by the Shell Petroleum Development Company, a symbolic moment for international oil companies (IOCs) in Africa’s oldest hydrocarbons market. This is not just an African phenomenon. According to consultancy Wood Mackenzie, the likes of ExxonMobil, Chevron, Shell, Total and Eni have sold $28.1bn in global assets since 2018. This reveals that not many IOCs are keen to maintain high-cost, emissions-intensive assets. As Wood Mackenzie has noted, in Nigeria, independents and new entrants are eager to acquire under-invested assets with plenty of volume upside. laying at home, their acceptance of risk differs
November 2021 African Business
markedly from international exploration and production companies. The vacated space has also opened up an opportunity for new foreign companies to step in. One such player is Afentra, a new Africa-focused company led by Paul McDade, former CEO at Tullow Oil. He has experience in the North Sea from his Tullow days. And what has played out in the last 25 years in the North Sea is playing out in West Africa. “There’s going to be a migration of assets from much larger IOCs to smaller independent oil and gas companies. The majors have better places to allocate their capital. They see that these assets may be better off in the hands of a smaller, independent oil and gas company,” says McDade.
Nimble operators
These smaller operators tend to be more nimble and focused on operations, enabling them to reduce costs in a way that IOCs cannot. The North Sea is now exploited by smaller independent companies that have demonstrated their financial, health and safety, environmental and operational capabilities, says McDade. “That’s a process that will happen in West Africa, as people realise that actually, there’s a benefit to these smaller companies as long as you select the right ones. They are very capable and competent and equally responsible as the IOCs,” says McDade. Afentra is looking across all Africa and has focused on production in West Africa. Nigeria has a number of well-developed indigenous companies, albeit ones which require significant funding. “As assets become available is there the financing available for companies to acquire those assets? Maybe they need to co-join with international independents, bringing in the competency of managing the local operations with international finance,” says McDade. PetroNor E&P, a sub-Saharan focused independent oil and gas company listed in Oslo, is another West Africa-focused player eyeing upstream opportunities. It currently holds multiple licences in offshore West Africa, including Republic of Congo, The Gambia, Guinea-Bissau, Senegal and Nigeria, where it is developing the Aje field. “We have ambitious growth targets and we’re actively seeking M&A opportunities,” says PetroNor CEO Knut Søvold. He believes there are still a number of underutilised assets in West Africa. “A lot of IOCs are withdrawing from the continent or have left the region and that opens a space for competent buyers to come in. For midsize companies like us, there’s a need to be able to fill the shoes of the larger players.” Financing oil and gas developments is getting more difficult, he says, with fewer specialist banks willing to lend. That leaves a challenge for existing banks given their internal obligations to reduce oil and gas investments. “On the one hand they don’t want to invest in oil and gas, but on the other, it is a very good time to invest in Africa, particularly natural gas, because these projects actually reduce emissions,” says Søvold. The shift in the oil price from lows of $30 a barrel in 2020, to above $80/b in October 2021, has upended the economic modelling for African upstream invest-
Left: Two oil drilling platforms in the port of Lagos.
ment. “When the oil price was low, it was difficult to match the valuations. Now it has slid the other way around and the expectation is higher than what you want to pay. It’s never a perfect world,” says Søvold. owever, he remains confident that his company can raise the finance it needs “Where etroNor has something unique to bring is our North Sea thinking. We offer better resource management and support from Abu Dhabi.” According to Siraj Ahmed, the CEO of Impact Oil & as, a UK-headquartered firm developing upstream prospects in South Africa and Namibia, a stable oil price remains important to build long-term investment confidence. “There are many variables out there still that could significantly affect the price, but there is a notable positive shift in attitude towards exploration.” New acreage continues to open up across the continent. Qatar Petroleum and Shell are partnering in offshore exploration blocks in Namibia. Impact announced a farm-out transaction with Shell in late August, for a 50% stake in the Transkei & Algoa blocks offshore South Africa. The company is looking to ramp up exploration in the Natal Trough. Natural gas is also attracting growing attention in Africa. In Senegal and Mauritania, the Greater Tortue Ahmeyim TA offshore N project jointly developed by BP and Kosmos Energy is expected to produce its first cubic feet of gas in 2023. But gas requires greater scale. “Going into larger scale gas production means size is important,” says Søvold. “For focused players like us, it’s necessary to get to a certain size that really can make an impact and deliver strong projects. aving solid cash flow at the base and also being listed will enable us to attract capital.” Amid a changing upstream landscape, there is a strong focus on improving fiscal regimes to ensure that the right incentives are in place. One of the more promising developments in 2021 was the passing, after a 10-year wait, of Nigeria’s Petroleum Industry Bill (PIB) which brings renewed certainty to oil royalties and taxes. “Nigeria’s PIB gives predictability going forward, which is maybe the most important thing,” says Søvold. “It is also positive for assets where people have struggled with the commerciality due to very high tax regimes. I think like on the marginal fields in Nigeria it’s been an improvement really, it’s making the tax more industry-standard. Put it this way: When the main dish has been eaten, you need to adjust the tax regime to let the midsize projects play.”
Stronger price environment
Looking ahead, investment conditions look to be an improvement. A strong price climate is a positive, even if the broader backdrop leaves concerns over environment, social and governance (ESG) issues. “If you looked at the investment conditions last year, you had a combination of a low oil price and a large focus on ESG. For many investors, they were asking ‘should we invest’ given commodity prices and the ESG hurdles,” says Afentra’s McDade. “In 2021, things improved as we’ve gone through the year. And I think that has reminded people that these assets can generate the financial returns.” n
African Business November 2021
Special report: Energy – Interview
OLA Energy is a fast-growing downstream oil and gas company present in 17 African countries with a network of 1,280 retail stations. Its chief strategy officer, Motasim El Alem, talks to Omar Ben Yedder about the company’s plans
Future of retail stations is electric, says OLA Energy chief of strategy
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otasim El Alem has been in the game long enough to avoid making kneejerk reactions or outlandish predictions. The American-educated Libyan leads strategy at OLA Energy (previously Oil Libya), a company that has transformed in recent years into a major petroleum distributor operating in 17 countries and at 60 African airports. Its business has traditionally been in retail stations, servicing cars, trucks and airline carriers with their fuel needs. The downstream and retail space has traditionally been led by international oil companies such as BP, Shell and Exxon. But as El Alem explains, the majors have been retreating from the retail space for many years now, and not only in Africa – “If you look at America, 1% of gas stations are owned by the majors.” The margins are much smaller, he explains: “The big money is in the exploration, a little less money in the refining, even less in the logistics, and finally peanuts on the distribution side.” It is on these peanuts (and more) that OLA Energy is focusing its efforts and where it is investing aggressively, largely because the firm sees the market evolving differently. Since a rebranding of the company in 2018, the company has invested more than $200m into the retail brand and into its growth on the continent. With 1,280 retail stations, it is today among the “Big 4” Africa retailers, alongside Total, Shell/Vivo and Engen. El Alem sees a gap in the market for a more sophisticated and diverse retail experience at gas stations than that provided by the retreating majors.
Motasim El Alem (pictured below) is chief strategy officer at OLA Energy.
November 2021 African Business
Long-term vision
Yet challenges are on the horizon for the downstream oil and gas sectors, particularly in the long-expected move away from fossil fuel consumption. How does this impact the long-term viability of OLA’s business model? El Alem believes Africa will no longer depend on second-hand cars from abroad for its automobile needs and that there will be a large increase in twoand three-wheel modes of transport on the continent as well as small vehicles for distribution of light cargo, many of which will ultimately be electric powered. et he believes that offering roadside charging stations combined with a compelling retail experience will continue to be appealing to road users across the continent. The rebranding from il ibya reflects the new reality of a world slowly turning its back on fossil fuels. El Alem says the company is embracing the zerocarbon strategy endorsed by governments, including by using solar panels to power its retail outlets. The firm is also looking at offering off-grid renewable power solutions to companies operating in remote locations. The pilot they are running is for a mining company. El Alem describes what makes the firm’s proposition unique: “To amortise such a solution requires 20-25 years, whilst a mining project would require power for six or seven years or the length of the concession. We can afford to invest in the installation, charge [the company] as if it was being used for a 2 -year life, allow them to use it for five years and then move [the installation] to another customer.”
Opportunities in LPG
Another business A is developing is liquefied petroleum gas (LPG), which El Alem says will help to reduce emissions in the medium term. “A large portion of the African population, 70% I believe, use biomass to cook these days. This is terrible for the environment, it’s terrible for people who are around it, and actually it’s not cheap. The best alternative for nine-tenths of those using biomass is to use LPG. It’s cheaper, cleaner and once you deliver it to the home, it’s by far the best alternative.” In ameroon, A offers the possibility of ordering canisters via an app. They are exploring different options such as terminals and filling centres, both in urban and widely populated rural areas with the aim of rolling out LPG through West Africa and beyond. “In North Africa, because of the availability of LPG, they consume about 50kg of gas per person per year, and this applies for 50% of the total population. In sub-Saharan Africa, that is closer to 5kg per year, and that applies to only 10% of the population, if that. So there’s an opportunity there, to grow the market, as well as reduce harmful emissions.” Today, after Total and Shell, OLA has the largest retail network in Africa, and El Alem says the firm will continue to invest heavily in a physical presence across the continent. This wide footprint and network gives them a strategic advantage to develop new products and offerings, he says. “If you use it properly, if you leverage this with bringing new products and new solutions to Africa, then I think we’re incredibly strategic.” n
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Niger offers a favourable business environment to its investors in the oil sector and an attractive tax regime. The country is ready to welcome investors who want to join in the substantial growth of the country’s oil industry
Niger: an attractive nation with an emerging oil industry
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he oil-producing potential of Niger comes from its two large sedimentary basins which cover over 90% of its national territory: the west basin (Ullémenden, Tamesna) and the east basin (the Graben system in Djado). Oil production in Niger, which is operated by the China National Petroleum Corporation (CNPC), began in 2011 on the Agadem block in the east, about a hundred kilometres from the Chad border. At that time the country’s 2P (proven and probable) recoverable petroleum reserves stood at 140m barrels and were concentrated in three deposits: Sokor, Goumeri and Agadi. Since November 2011, the daily production of around 20,000 barrels has supplied the inder refinery exclusively, through a 462.5-km pipeline connecting the oil fields to the refinery. The inder refinery mainly produces diesel and super petrol for the domestic market and exports the surplus (50%).
There were intensive exploration activities on the Agadem block between 2008 and 2017, when the CNPC drilled 166 exploration wells, enabling the discovery of 106 new oil deposits containing 2P recoverable reserves of 815m barrels. The petroleum is high quality with an API gravity of 30 degrees and a very low sulphur content. The three main reservoir horizons targeted by the CNPC works are the Sokor, Madama, and Yogou formations. The majority of boreholes are between 1900 and 2500 metres deep. Drilling costs are relatively low ($3.5m per drilling site on average) and the success rate is more than 90%. Production costs are $6.5 per barrel and the exploration and development costs for each barrel produced are around $8.5, amounting to a total cost of $15 per barrel. These colossal investments include the drilling of 350 new wells, expansion or construction of eight pumping and primary processing stations, the laying of 1 km of inter-field pipework, a
dehydration station, a central station for processing crude oil (90,000 barrels per day), eight electricity stations, 39 generators, 1557km of electrical lines and six residential quarters. These facilities will enable the production of 110,000 barrels per day, of which 20,000 will be destined for the inder refinery and 90,000 will be exported, which is more that six times the current production levels. Africa’s longest pipeline The Niger–Benin pipeline, measuring 1950km and connecting the Agadem block in eastern Niger to the Beninese side of Sèmé, will be the longest pipeline in Africa. The construction work began on 5 July 2021. There are two other oil companies which also operate on other blocks in Niger: the Sonatrach Group (SIPEX) and Savannah Energy. Both of them, in the active exploration phase, have made significant discoveries over the last three years – SIPEX on the Kafra block (on the
S p e c i a l Algerian border) and Savannah on R3 (acquired from CNPC). This means that the three companies that conducted intensive exploration activities after setting up in Niger have all made significant discoveries in different basins. Their successes are extremely encouraging for Niger, which hopes to attract new investors to conduct exploration operations on its 41 available petroleum blocks. To this end, Niger has a highspec petroleum data centre (CDP) in Niamey, which is open to potential investors wishing to carry out preliminary studies based on previous works (40,000km of 2D seismic surveys,13,000sq km of 3D seismic surveys, 388 sets of well data, 57,000km of magnetic gravimetry, and more besides).
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“Niger is now one of the most important petroleum stakeholders in Africa, ready to welcome investors.”
An investor-friendly environment
Niger offers a favourable business environment to its investors in the oil sector, including a protective legal regime (the 2017 Petroleum Code, a standard Production Sharing Contract, stabilisation and arbitration clauses, etc), an exploration phase of up to 10 years, a minimum production period of 25 years, a proactive administration, a well-controlled security situation, a significant and growing number of sub-contractors (13 rigs and multiple seismic crews), a relatively low perbarrel cost ($15) including research, development and exploitation), and an export pipeline for which the transport cost will be $15 per barrel over the next 10 years and $6 thereafter.
An attractive tax regime
The tax regime in place includes exemption from VAT and customs duties (for the exploration phase and the first five years of exploitation , a royalty rate of 12.5%, Oil Tax of between 40% and 60%, and a Cost Stop rate of 70%. Niger’s procedure for awarding petroleum blocks is clear, fast, and transparent. After submitting a request in accordance with the 2017 Petroleum Code, it takes around three months for a block to be awarded. This period will comprise analysis of the request technical and financial capacity, minimum work programme, etc.), negotiation of the Production Sharing Contract and its approval by the Council of Ministers, contract signature, and finally, the awarding of the Exclusive Exploration Permit. Equipped with all these geological, operational, legal, fiscal and logistical benefits, Niger is now one of the most important petroleum stakeholders in Africa, ready to welcome investors who want to join in the substantial growth of the country’s oil industry.
The Niger-Benin export pipeline Niger’s substantial oil reserves require construction of a new pipeline to transport them for sale on the international market. Niger, Benin and the CNPC group have negotiated bilateral and bipartite agreements for an export pipeline to run between Niger and Benin. The pipeline will extend along 1950km (1275km in Niger and 675km in Benin) from the initial station in Agadem, Niger, through to the Sèmè terminal in Benin. With its 20-inch diameter, it will consist of eight pumping stations (six in Niger and two in Benin), 59 valve stations, and a petroleum terminal in Sèmé (with a 2m-barrel storage capacity), including two 15km under-sea pipelines for the purpose of loading the tankers with a million-
barrel capacity.The pipeline will have a nominal upper capacity of 100,000 barrels per day and the total investment amounts to $2.1m. The State will hold a 15% share in the pipeline. This gargantuan infrastructure project straddling Niger and Benin will be the longest pipeline in Africa. Several hundred kilometres of pipeline segments, along with various equipment and materials, have already been delivered to Benin and Niger. Construction operations are already under way, with the very first pipes soldered on 5 July 2021. The works will be completed in April 2023, and the first oil delivery is expected to reach the shores of Sèmé in June-July 2023.
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Energy sector Niger, situated in the Sahel region, has considerable and diverse energy potential (crude oil, coal, uranium, hydroelectricity, solar, wind, and even geothermal energy). However, a number of development challenges remain, such as securing access to modern and sustainable energy services in both rural and urban areas. To be in step with the evolution of the energy sector, the Nigerien government has undertaken reforms to attract private investors and improve the viability and financial stability of the sector. In order to meet all these challenges, the Government of Niger has adopted the National Electricity Policy Document (DPNE) and the National Strategy for Access to Electricity, accompanied by a Master Plan for Access to Electricity by 2035. Energy Sector activities cover the following industries: electricity, renewable energies, cooking energy, nuclear power, indoor electrical appliance compliance, and energy information systems. n
Ministry of Petroleum, Energy and Renewable Energies Petroleum Petroleum Blocks 2021 Key
n KAFRA (SONATRACH-SIPEX) n R5R6R7 (Niger Oil Company) n BILMA (CNPCIN) n R1R2R3R4 (Savannah Energy) n Grande AEE Agadem (CNPCNP) n Open blocks
“The Nigerien government has undertaken reforms to attract private investors and improve the viability and financial stability of the sector.” Projects in progress or in preparation PROJECT
PROJECT NAME
NESAP
Niger Electric Solar Access Project
NELACEP
Project for Expanding Access to Electricity in Niger
PEPERN
Rural, peri-urban and urban electrification
North Core [Dorsale Nord] 330KV West African Power Pool (WAPP)
Creation of a 600 MW regional electricity market
Hybridisation
Photovoltaic–diesel hybrid 19 MW power station, Agadez
Solar Power Stations
Gorou Banda 20 MWp Photovoltaic power station Project to extend distribution networks in urban areas and develop access in rural areas. Gorou Banda 50 MWp photovoltaic power station Dosso 10 MWp photovoltaic power station Maradi 20 MWp Photovoltaic power station
Power stations
Hydroelectric dam in Kandadji Coal-fired station in Salka Damna (Istithmar) thermal power stations in Niamey (89 MW) and Zinder (22 MW) NB: Other energy projects are currently in preparation
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In an exclusive interview, Mahamane Sami Mahamadou, Minister for Oil, Energy and Renewable Energies of the Republic of Niger, answers our questions
“Come to Niger and see what wonderful oil opportunities we have” Could you tell us a bit about the oil industry in Niger? There are four oil-production areas in Niger. The best known is Termit in the east of the country, which has been home to the most important activities for around 15 years. The Chinese company CNPC discovered around 1bn recoverable barrels in the area, and is continuing its exploration works and developing new oil fields. There are 20,000 barrels produced in Termit every day, supplying a refinery
which dedicates half of its production to fulfilling domestic requirements, and the other half to exports. After CNPC, there is Savannah Energy – a smaller producer that has also made discoveries in the area. The company is now in the process of finishing its feasibility study, and we are confident that, from next year, they will be in a position to contribute to our national production. The second oil zone is in the north of the country, on the Algerian border. This is Kafra, where the SONATRACH
group has embarked on an ambitious exploration campaign. After two very promising drilling expeditions between 2017 and 2019, which found a structure containing 100m recoverable barrels, SONATRACH is intensifying its drilling efforts at some of the prospects and leads they identified. Finally, there are two other promising areas that are still to be exploited: One is the North-East, on the Libyan border, where works carried out in the 1990s revealed signs of hydrocarbon presence
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and an active petroleum system. The other is in the West, where geological and geophysics research in the region suggests there is significant potential, particularly for gas in the Illumenden basin, close to large populated areas of Niger. What message would you like to send to investors? That in spite of the discoveries described above, Niger still has plenty of significant exploration potential mature exploration in the East, semimature in the North, and grass-roots exploration in the West. So far, all of our sedimentary basins have been proven to have active petroleum systems. They are just waiting to be exploited. Petroleum-associated costs are relatively low – around $15 per barrel from exploration to production. Niger has very clear and particularly business-friendly oil legislation.
Investors should also know that there is not just the oil industry – Niger was ranked among the top 10 sub-Saharan African countries in the Doing Business Index for 2020. What is the current situation in Niger with regard to oilfield service providers? When our main oilfield operator launched its operations in Niger 1 years ago, there were no oilfield service provider companies. So along came the CNPC with its ecosystem of broadly affiliated companies, to conduct operations alongside it. Some of these companies are specialist providers of oilfield services, particularly in seismic data acquisition, processing and interpretation, and in drilling, well services, logistics, and construction of facilities both above and below ground. One of the challenges my ministerial department faces is to enable the emergence of new Nigerien
subcontractors alongside the country’s existing subcontractors. Given the level of technicality of the sector, especially in terms of standards, we firmly believe the fastest and most effective solution is to encourage the formation of partnerships between foreign-owned companies bringing expertise, and Nigerien entrepreneurs. I therefore invite oilfield contractors to get in touch with my ministerial department and then come to Niamey, to see for themselves what outstanding opportunities there are in this industry. The Niger-Benin oil pipeline is the largest infrastructure project currently under way in West Africa. When will it be operational? The Nigerien pipeline, for which works started in July 2021 and are going according to schedule, will be in commission by the second half of 2023. Its starts in the Agadem area (Koulélé), near the border with Chad, and runs
S p e c i a l to the town of Sèmè, on the coast of Benin. It is a major project because of its technical features: 1950 km of 20-inch-diameter pipeline, 9 pumping stations, and storage infrastructure for over 2m barrels at Sèmè. Construction costs for the project are around $2.2bn and its daily transport capacity will be in the region of 150,000 barrels. Our crude oil production will range from 20,000 to 110,000 barrels per day, 90,000 of which will be destined for export. What is Niger’s refinery capacity and where are your main export markets? Niger has a refinery in inder in the East), co-owned by the State and the N roup. It refines around 20,000 barrels per day, which is its nominal capacity. Around half of this volume covers the needs of the domestic market, and the other half is exported to Nigeria, Mali and Burkina Faso. We are currently producing diesel, petrol and liquefied petroleum gas. We are working with our Chinese partners on developing the process to be able to produce jet fuel, too. The possibility of setting up petrochemical factories is also under discussion. What are the investment opportunities in the renewable energy sector, particularly in solar power? Niger has considerable energy potential in terms of mineral coal, crude oil, gas, solar, wind and geothermal power, uranium, and hydroelectric power on the Niger River. But despite its substantial energy resources, the country remains highly dependent on electricity imports from Nigeria, for nearly 65% of national consumption. Niger enjoys a high number of sunshine hours across the whole country, with the highest levels in the North. The amount of sunshine is also quite consistent, except in August. Average recorded monthly values range from 5–7 kWh/m2, and the average sunshine duration is eight hours per day. This means there is significant potential for solar energy development in Niger, at a competitive cost. Niger has plans to raise national electrification to 0% by 203 , according to the National Strategy for Access to Electricity. The national electricity production capacity will be increased to 850 MW by 2030, to include at least 30% renewables, all with the help of independent private production and power stations developed through PPPs, accounting for around 300 MWp of solar power. The objective to be carbon neutral by 2050 has a negative impact on African countries.
“Investors should also know that there is not just the oil industry – Niger was ranked among the top 10 sub-Saharan African countries in the Doing Business Index for 2020.”
“Niger has considerable energy potential in terms of mineral coal, crude oil, gas, solar, wind and geothermal power, uranium, and hydroelectric power on the Niger River. ”
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What is Niger doing to ensure the equitable distribution of resources? Some developed countries made their transition from underdeveloped to industrialised nations by engaging their natural resources, whether they caused pollution or not. Africa cannot stay on the sidelines of the road already taken by these industrialised countries. Accordingly, in the quest for economic development, African countries have significant challenges ahead of them and, to a certain extent, only the extractive industries can get us quickly to the threshold from which we can boost our economic development. This means we must remove obstacles and barriers to growth, in order to relaunch the economy. Which, sometimes, is in conflict with the carbon-neutral objectives. In the specific case of Niger, in response to the problem of climate change, the Government has in recent years made substantial reforms in various sectors, with a view to complying with the provisions of the United Nations Framework Convention on Climate Change (UNFCCC). Inequalities in resource distribution have difficult consequences for the socioeconomic stability of populations. That’s why the authorities have been swift and decisive in making legal provisions enshrining the fair distribution of resources to ensure that development is sustainable and responsible. A legal framework was put in place in the various extractive industries in order to regulate distribution. The upstream oil code allocates 85% of revenue to the national budget and 15% to the budget of the oil-producing region in question. What are your ministry’s priorities? The Ministry has committed to developing the petroleum and energy infrastructures, which are levers for boosting our country’s economy. Our priority actions to facilitate development of the petroleum sector (diversifying exploration areas while prioritising blocks known to have real potential, exploiting the reserves uncovered, constructing pipelines and developing local skills) will see the sector come to contribute 25% of GDP, 45% of tax revenue, 68% of exports, and be responsible for 12% of formal employment. For the energy sector, the Ministry is focusing on developing the energy infrastructure to bring household electricity access to 30% by 2026, by prioritising the development of renewable energies and increasing the share of renewable energy to at least 15% of the energy mix by 2026. n
African Business November 2021
Special report: Oil & Gas
Opinion Africa needs an energy transition that factors in African goals, concerns, and priorities. NJ Ayuk looks at how Africa can make the most of its energy potential in a way that will enhance overall economic growth on the continent
How can Africa create a favourable investment climate for oil and gas?
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gain and again, Africa’s oil and gas sector has proven its resilience and adaptability. The popular narrative is the prevalence of energy poverty on the continent. Most of the oil and gas producing countries have some kind of conflict going on in the area which affects the local people and the companies which choose to invest in these areas. But in a country like Ghana, for example, we have seen the effective way of carrying out oil production, and a major contribution has been its transparency and its policies. We need to strongly consider transparency, good governance and policies that could create a favourable investment climate, especially in the energy sector. African countries suffer from the policies they draft taking years to implement. And often, where these policies are implemented, little to no progress is made in administering contracts for production. Scaling up Africa’s production capacity to achieve universal access to energy continues to be a challenge that further highlights the need for a transformative
partnership-based strategy that aims to increase access to energy for all Africans. The world still needs oil and gas, and Africa still holds enormous untapped potential. Africa has the world’s lowest per capita energy consumption – with 16% of the world’s population, it consumes about 3.3% of global primary energy. Oil forms the largest part of the continent’s total energy consumption (42%) followed by gas (28%), coal (22%), hydro (6%), renewable energy (1%) and nuclear (1%). Without a doubt energy poverty needs to be eradicated. African leaders do take heed of what has been discussed above but are too slow in tackling the issues, which eventually build up. The effect of this is that once they have tackled the first problem, they realise that others have piled up and that they have to continue digging.
Overcoming dependence on aid
Another worrying factor is that Africa has been receiving aid for nearly six decades, and to date, no real progress has come from this aid. We still don’t have enough jobs or sustainable energy means within communities. Investment creates opportunities. We, as Africans, must be responsible. Our young people should be empowered to build an Africa that we all can be proud of. Relying on the same old policies as in the past, relying on aid, simply isn’t going to get us there. As the world navigates climate change and the energy transition, Africa continues to be the most untapped and underexplored continent when it comes to natural gas. In the recent past, when oil majors hit gas, they would stop drilling and did not develop the resource, and they continue to flare off associated natural gas when tapping into oil reserves. As a continent with so much to offer in terms of natural resources, conversations with investors should not only be on what we have. We need investors to be investing into Africa to sustainably drive development. You can have the most beautiful produce, but just displaying it does nothing. We need to drive the development of a comprehensive approach to battling energy poverty, and favour one that includes gas-to-power initiatives. More than a dozen African countries are already using the natural gas they produce themselves or import from other countries to generate electricity. And new projects are on the way (for example, Ghana’s LNG-to-power project, the first in sub-Saharan Africa . We need a transition that isn’t rushed or carried out on the Western world’s timetable. We need to have a strategy in place for protecting and growing African economies. We need a transition that factors in African goals, concerns, and priorities.
Promoting free markets
Opposite: Engineers lay a pipeline in Rivers State, Nigeria.
Africa will benefit greatly if we create an investment climate that supports the development of all energy resources. But we must not stop there – advocating for a market-driven Afro-centric energy transition, with a specific focus on natural gas to expand market opportunities, is something we should all continue to drive. At the African Energy Chamber, we believe that supporting the energy industry, promoting free markets, the rule of law, individual freedoms and limited
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government is a duty for all Africans. That’s why we believe implementing programmes like local content, economic diversification that support natural gas value chains, making fiscal terms competitive and reducing red tape and streamlining regulatory processes must be priorities. The oil and gas industry is a force for good and we must not join those forces that want to demonise people whose only crime is to work hard and play by the rules. We must embrace hope rather than fear-
mongering and economic empowerment rather than development aid. We need to make the most of Africa’s energy potential and to change the tide and spur a post-Covid recovery in the energy sector that will also enhance overall economic growth in Africa. n NJ Ayuk is a Cameroonian attorney, entrepreneur and author and the executive chairman of the African Energy Chamber
We need a transition that isn’t rushed or carried out on the Western world’s timetable. We need to have a strategy in place for protecting and growing African economies
African Business November 2021
Special report: Oil & Gas
Nigerian and Libyan facilities have long been targets for anti-government militants but Chad’s oil fields and Mozambique’s nascent gas industry are also experiencing increasing insecurity. Neil Ford reports
Security problems haunt Africa’s key oil producers
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il and gas projects across the continent continue to be prime targets for militant groups with political and economic grievances against incumbent governments. Fixed field assets are often located in remote areas, making them easier to attack and curtailing crucial government revenues. Once ignited, pipelines, processing plants and oil and gas wells can cause extensive damage to infrastructure and the immediate vicinity and often necessitate expensive clean-up operations. Nigerian and Libyan facilities have long been targets for anti-government militants but security concerns are also emerging in hadian oil fields and o ambique’s nascent gas industry. Although militants have occasionally launched daring raids on deepwater fields far out to sea from the Niger Delta, sea-borne projects have largely been sheltered from the violence inflicted on onshore and shallow water wells, pipelines and processing plants in the Delta itself. However, Mozambique’s potentially transformative offshore gas industry is under threat because most of the gas from the various projects is to be piped onshore for processing at the port of Afungi, which is vulnerable to attacks from terrorist group Ahlu Sunnah Wa-Jamamah (ASWJ). The ASWJ originated in Cabo Delgado Province in 2017 and launched violent attacks on villages before targeting the planned LNG scheme. More than 3,000 people have been killed and 20,000 have fled their homes. In March, attacks close to gas sites prompted developer TotalEnergies – the new name for French firm Total to suspend work on the N plant, which will process gas for both of the main offshore gas consortia in the area. Billions of dollars of investment are at stake in a project that could transform Mozambique’s economic prospects.
After the Mozambican army and assorted international security contractors proved unable to retake towns seized by the ASWJ, the Southern African Development Community Mission in Mozambique (SAMIM), reinforced by a contingent from the Rwandan army, led an intervention. A force of 1,000 Rwandan soldiers deployed to the area in July retook the key town of Mocímboa da Praia, which the militants had held for over a year. In September, Rwanda’s President Paul Kagame called on developers to return to the project, saying that it was now safe to resume work. No specific date has been given but TotalEnergies has suggested that the plant will be completed two or three years later than the scheduled date of 2024. The position of the company leading the other main consortium, ExxonMobil, remains unclear. In the long run, it may prove relatively straightforward to defend Afungi because the liquefaction plant and nearby harbour lie on a single location, in contrast to the Niger Delta, where there are 7,000 wells and countless pipelines in shallow water and swamp areas carved up by numerous creeks. Protecting surrounding villages and the town of Palma, which previously housed contractors working on the LNG project, is a more difficult challenge. The division of security responsibilities between the army, police and security forces employed by the LNG developers needs to be carefully set out. Moreover, while the direct causes of the uprising are contested, the contrast between poverty in the area and the wealth expected to be generated by oil and gas development helps to create an environment in which militancy flourishes. Security requires local economic development as well as armed protection.
Progress in Libya
Right: A rebel fighter at a checkpoint in Ras Lanuf, an important centre for the oil industry on Libya’s Mediterranean coast.
At the other end of the continent, some progress has been made in settling Libya’s long-running civil war and rebooting its troubled oil industry. The country has been divided since the overthrow of Muammar addafi in 2011, with rival administrations centred on Tripoli and the east of the country. The threat to the oil sector comes through militant attacks and blockades that prevent oil exports. According to the Libyan National Oil Corporation (NOC), the blockade of ibyan oil sustained for the first nine months of 2020 cost the country at least $9.8bn. Financing is also a key challenge, with two separate central banks printing money on each side of the country leading to destabilisation of the Libyan dinar. A ceasefire was declared last year, while the two rival administrations agreed in October to oversee the phased withdrawal of all foreign fighters, including mercenaries, from the country. The UN estimates that there have been at least 20,000 foreign fighters in the country, including Turkish soldiers tasked to protect the UN-recognised administration in Tripoli. A provisional Government of National Unity was formed on 10 March 2021 this year to unify the rival Government of National Accord based in Tripoli and the Second Al-Thani Cabinet based in Tobruk. Jan Kubis, the UN special envoy for Libya, said that the October deal “creates a positive momentum that should be built upon to move forward towards a stable and democratic stage, including through the holding
November 2021 African Business
of free, credible and transparent national elections on 24 December, with results accepted by all.” ibyan oil production has fluctuated since 2011 but has recovered significantly since the ceasefire and now stands at an improved 1.3m barrels per day (b/d). The creation of a stable and united government and improved security would allow this to increase significantly, as reserves of 4 bn barrels are sufficient to attract substantial foreign investment. Oil minister Mohamed Aoun, a member of the Government of National Unity, said in September: “I would like to personally encourage foreign companies, especially those from the US, to come back.” On 21 ctober, Aoun fired the chairman of the N , naming an interim manager until the board of directors meets to decide a permanent replacement. Tripoli has set a goal of boosting output to 2-2.5m b/d by 2027 but much will depend on the outcome of the elections and progress by the unity government.
Uncertain outlook for Chad
Meanwhile, security fears have increased in Chad since the sudden death of President Idriss Déby. Déby, who ruled the country for three decades, was killed on 20 April, reportedly while fighting Islamist militants in the north of the country from the Libya-based Front for Change and Concord in Chad. The presence of interlinked conflicts on either side of the international border has made it difficult for the government to tackle insecurity and project itself as a stable investment destination. The ruling National Transition Council in N’Djamena will begin a period of national consultation at the end of this year, culminating in presidential elections in mid-2022. However, there are fears
that the current government, led by Mahamat Idriss Déby – the son of the former president – will seek to retain power and monopolise control of oil revenues, fuelling future insurgencies. “It may be unclear yet what kind of impact this will ultimately have on crude output. The ensuing instability and potential security problems do raise the risks,” commented Sami Yahya, senior energy analyst at S&P Global Platts Analytics, at the time of Déby’s death. Chad produced an average of 140,000 b/d last year, exporting its crude oil via a 1,050km pipeline that runs to the Port of Kribi in Cameroon.
Will tensions ease in Niger Delta?
The longest-running oil conflict in Africa remains in the Niger Delta, where militant groups target oil and gas sector infrastructure, sometimes in protest at local poverty and environmental degradation, at others in order to steal oil. Although the level of violence fluctuates, workers have been kidnapped and pipelines blown up or illegally tapped to siphon off oil for years, costing billions of dollars in revenues. It had been hoped that oil industry reform would help to calm underlying tensions in the region, so the government hopes that the recent landmark passage of the long-awaited Petroleum Investment Act (PIA) could help to ease tensions in the Delta. Yet while campaigners had hoped that the PIA would require oil companies to pay 10% of oil revenues to host communities, the new law includes a provision for just 3%, a significant disappointment to many campaigners. While the Act is likely to encourage greater upstream investment and bring certainty to operators, it remains to be seen whether the local revenue provision will be enough to offset future violence. n