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Cameroon’s 25MW Solar Plants to Be Commissioned in Early 2022

The 10MW Guider and 15MW Maroua solar power plants, about to commence construction, will cost $31Million (XAF17Billion), and should be up and running before mid-2022. Guidder is located in Cameroon‘s North Province, close to the border with Chad, whereas Maroua is the capital of the country’s Far North Region.

The power utility ENEO (Energy of Cameroon), has received guarantees from the country’s Investment Promotion Agency (API), that the construction project will benefit from the tax and customs exemptions provided by the 2013 private investments incentives law (revised in 2017).  The related agreement was signed on January 20, 2021, in Yaoundé,

MGSC (a joint venture formed by Norwegian company Scatec, Israeli-American group Izuba Energy and Sphinx Energy, run by a Cameroonian economic operator based in the USA) was chosen by ENEO, in 2018, to develop the project.

Scatec, the leader of the consortium, has one of the largest solar energy capacities in Africa (400 MW in Egypt, over 300 MW in South Africa, 40MW in Mozambique, 300 MW under construction in Tunisia …).

The 25MW of solar energy expected from the Guider and Maroua plants will be sold to ENEO, according to the contract binding the involved parties. The power output should help diversify Cameroon’s energy mix, which is still largely dominated by thermal and hydroelectric energy. It should also reduce energy production cost.

 

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ENEL Connects New 144MW Wind Farm to S. A. National Grid

Italian power provider ENEL, has connected a wind farm in South Africa’s Eastern Cape to the country’s national grid.

The 144MW Nxuba wind farm was completed last November and will be supported by a 20-year power supply agreement with Eskom, the South African energy utility, as part of the South African government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) tender.

ENEL operates in South Africa as ENEL Green Power RSA (EGP RSA) and has a total of eight operational projects in the country, with installed capacity of 650MW.

South Africa leads the continent in renewable energy capacity, with close to 4,000MW of Wind and Solar power connected to the national grid since 2014.

 

 


Ghana Installs a Floating Solar Power Plant in a Hydroelectric Dam

Ghanaian authorities have inaugurated a floating solar power plant built in the reservoir of the hydroelectric dam in Bui, in north-eastern Ghana. The 5 MW plant is the first phase of a project to support the hydropower installation with a 250 MW solar system.

The second phase of the solar plant is under construction.

The Bui Hydroelectric dam has the capacity to produce 400MW of electricity. When the solar hybridization is completed, it will be able to output 650MW.

The Bui Power Authority (BPA) is the body responsible for managing this facility.

In times of drought, the solar power plant should complement the production of the dam, which drops as the flow of the Volta Noire river drops. According to Afare Apeadu Donkor, the chairman of the board of directors (PCA) of BPA, construction work on the second phase of the project, in addition to the new floating solar power plant, is “progressing”.

 


The Three – Service Sector- Musketeers of the Energy Transition: The Emerging Energy Value Chain

By Gerard Kreeft

 

 

 

 

 

 

 

 

All- For-One; One-For-All

Musketeer 1 Oilfield Services

Musketeer 2 New Energy Service Companies

Musketeer 3 Energy Service Companies Africa

There is growing evidence of a new convergence between Musketeer 1 Oilfield Services  and Musketeer 2 New Energy Service Companies. 

Perhaps not so much convergence but cross-overs and falling by the wayside of others and in the process creating new alliances.

Little attention has been paid to Musketeer 3- Energy  Service Companies Africa- perhaps viewed as the junior musketeer, but nonetheless playing a significant role.

Their- All- For-One; One-For-All requires  further explanation.

Peak Oil and What to Anticipate From the Majors

Rystad Energy is a preminent independent energy research and business intelligence company, headquartered in Oslo, Norway.

The COVID-19 pandemic, according to the company, has accelerated the global peak demand for oil to 2028, instead of 2030 and cut peak oil demand to 102Million Barrels Per Day. This corresponds with BP’s peak oil analysis of 2025 and demand of 100MMBOPD.

Nonetheless, Rystad  calculated that oil demand,  in 2020, declined to 89.3MMBOPD, compared with 99.6MMBOPD in 2019. This is now termed “COVID-19 induced demand destruction”.  It is only in 2023 that demand will recover to pre-Covid-19 levels and jump back to 100.1MMBOPD.

There is also little evidence from the oil and gas majors to indicate that there will be a quick recovery. In 2021 the sector’s growth in Africa will be halting and slow:

ExxonMobil: Deepwater Offshore Guyana,  Rovuma LNG Mozambique are the company’s key challenges. Expect little else and no plans on renewables.

Chevron: Only $1.5Billion dedicated to possibly Angola, Equitorial Guinea and Nigeria. Attention is focused on Tengiz, Kazakhstan which is receiving 75% of Chevron’s budget outside the USA. Only fossil-based investments.

Equinor: Attention is largely  being devoted to expanding its offshore windpark capacity, all outside Africa.

ENI: With its large African footprint in Angola, Nigeria and Egypt the company is in prime position to expand its African operations. Green energy plans are being made.

Shell: reducing its oil and gas assets to 9 key hubs which includes Nigeria. Green shoots on the horizon.

TOTAL: its Brulpadda and Liuperd (Leopard) prospects in South Africa, together with its Mozambique LNG project will be the focal points in 2021. Little room for further plans. Green plans play a strategic role.

BP: intends to reduce its oil production by 40% .How will this affect the Greater Tortue Ahmeyim  development in Mauritania and Senegal, its Algerian, Angolan and  Egyptian assets? The first green plans are being unveiled.

Musketeer 1 : Oilfield Services

Global demand for oilfield services (OFS), measured in the total value of exploration and production (E&P) company spending, has in 2020 dropped a massive 25% as a result of the Covid-19 caused oil demand destruction, According to Rystad.

Spending in 2020 is at year’s end expected  to be $481Billion and take the first step to recovery will take place in 2021.

“The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some $552Billion and $620Billion, respectively. Despite the boost, purchases will not return to the pre-COVID-19 levels of $639Billion achieved in 2019.”

 

Audun Martinsen, Rystad Energy’s Head of Energy Research, argues that the comeback will not be visible across all OFS segments. Well services and the pressure pumping market will be the first to see a boost, while other markets will need to get further depressed before recovering.

“Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth. In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later.“

  • Maintenance and operations: is poised for consecutive yearly rises in the next three years after slumping to $167Billion this year from $202Billion in 2019.
  • Well services and commodities: is set for a similar recovery, but only after slumping to $152Billion in 2020 from $231Billion in 2019 – the biggest decline among segments in absolute numbers.
  • Drilling contractors: falling to $46Billion in 2020 from $62Billion in 2019, and then rising to $57Billion in 2023.
  • Subsea segment: will fall from $25Billion in 2019 to $22Billion in 2021 – before starting to rebound to $24Billion in 2022 and to $29Billion in 2023.
  • EPCI: fell to $81Billion in 2020 from $105Billion in 2019, sliding further to $74Billion in 2021, before rising back to $81Billion in 2022 and growing to $106Billion a year later.
  • Seismic: declined to $12Billion in 2020 from $15Billion in 2019, dropping to $10Billion in 2021, before rebounding to $11Billion in 2022 and to $13Billion a year later.

The Players- BakerHughes, Halliburton and Schlumberger

Baker Hughes, Halliburton and Schlumberger, the traditional giants of the service providers, have experienced a long trek through the wilderness. Is relief on the way? A mixed bag.

Their stock prices have tanked: in December 2016 Baker Hughes’s share price was $65, now December 2020, it was $21; Schlumberger in December 2016 was $85, December 2020 it had dropped to $21; Halliburton in December 2016 was $55; in  December 2020 it was $19.

81,000 jobs have been lost since November 2019, to go by the report of the Petroleum Equipment and Services Association  (PESA).  In a recent forum PESA President Leslie Beyer stated: “The majors are making carbon reduction and setting net zero goals. Then they’re turning to their OFS sector partners and saying, ‘How are you going to help us get there?’”.  How indeed!

The strategies of both Halliburton and Schlumberger are defensive and show little reason for optimism:

Halliburton on its website talks about further digalization of its services, lower capital intensity and being committed to provide technologies that reduce emissions/environmental footprint.

Olivier Le Peuch, Schlumberger’s CEO, recently announced a major strategic restructuring creating four new divisions- Digital & Integration, Production Systems, Well Construction, Reservoir Performance.

Within the confines of the E&P bubble both major service companies continue on with what they anticipate what the IOCs (International Oil Companies) are dictating: belt tightening, a reduced head count, with the hope for a better tomorrow. Simply re-shuffling the deck chairs on the Titanic.

The one exception is Baker Hughes who has recently unveiled a forward looking strategy focused on CCS (Carbon Capture Storage), Hydrogen, and Energy Storage. Key themes for the Energy Transition.

The Drillers

Hans Hagelberg, Bassoe Offshore, has estimated that in the last 12 months the offshore rig fleet has lost almost 42%, or $30Billion of its total value. A large portion of the global fleet is now cold stacked. Of the 103 cold stacked, 94 have been stacked for 12 months or longer.

West Africa has been one of the hardest hit areas in 2020, according to IHS Markit: the region saw 11 contract cancellations from March to July 2020, the most of any area. Most of those cancellations were associated with jackups.

Jackup utilization in West Africa fell from 71% in September 2019 to 29% in September 2020, while drillship utilization fell from 48% to an abysmal 19% in the same time frame, according to Bassoe.

Dayrates for drillships in West Africa are currently between $150,000 and $200,000 per day, while jackups currently sit between $70,000 and $90,000. Looking to 2021, Teresa Wilkie, Offshore Rig Market Analyst, Bassoe,  rig utilization in West Africa is likely to stay flat, unless there is a marked increase in oil demand. With rig oversupply set to continue in the region, she expects dayrates to remain at the same level in 2021; further reductions are unlikely as the current rates are around operating cost level.

Marine Contractors- Two  key players- TechnipFMC & Heerema

Marine contractors have not been sitting idle. They are demonstrating adaptation and innovation.

The 2017 merger of Technip and FMC featured distinct market segments: subsea, onshore and offshore and surface projects. Now Technip Energies- entailing LNG, sustainable chemistry and decarbonization- is being spun off, creating new innovative options.

Arnaud Pieton, President and CEO of Technip Energies, says that the company is well placed to produce green hydrogen, given  that some  270 plants worldwide have their origin with TechnipFMC.  A strategic alliance with McPhy, a builder of electrolyzers, is expected to help enhance the production of green hydrogen. 

Heerema, which had its own enormous fabrication yard in Angola,  recently announced that it shut down operations citing poor  market conditions and sustained low oil price.  Instead the company is investing in the Offshore Wind Sector.

Heerema Marine Contractors recently signed a contract  to support the construction of the Changhua Windfarm Phase 1 project, Offshore Taiwan. Heerema will take on the installation of 21 jacket foundations (4 legged) for the Changhua project.

Musketeer 2 New Energy Service Companies

Siemens Energy

Siemens Energy has operations in 90 countries offering a full project cycle of services: generation, transmission and storage from conventional to renewable energy. Two examples:

  • Service center and a training academy in Egypt. The service center is the first of its kind in the region, combining a repair center, a tooling center and a spare-parts warehouse under one roof; and
  • Siemens Energy will supply six SGT-800 industrial gas turbines to the Mozambique LNG Project that will be used for low-emissions onsite power generation.

Cummins

Cummins operates in 51 countries in Africa and market leader in fuel cell and hydrogen production technologies. Cummins began developing its fuel cell capabilities more than 20 years ago.

In 2019 Cummins purchased Hydrogenics, a leader in hydrogen technology. This accelerated Cummins’ ability to further innovate and scale hydrogen fuel cell technologies across a range of commercial markets.

Two examples of Cummins’s presence in Africa:

  • Cummins Angola operations, which is a joint venture partnership with Angolan ProjectNet. Cummins Angola currently occupies 1,000-square meters of office and parts outlet space, as well as 1,750-square meters of rehousing.  Cummins is working closely with the Angolan government to maximize the Private Public Partnership Framework to invest in the energy sector.
  • Cummins has supplied a power solution based around four of its 630 kVA generator sets to Standard Chartered Bank in Ghana. The system will provide the bank’s head office in Accra with standby power whenever interruptions to the grid supply require it.

ITM Power

ITM Power Plc designs and manufactures products which generate hydrogen gas, based on Proton Exchange Membrane (PEM) technology. This technology only uses electricity (renewable) and tap water to generate hydrogen gas on-site and can be scaled  up to 100MW+ in size.

Two examples:

  • The REFHYNE project to be installed and operated at the world’s largest hydrogen electrolyser at the Shell Rhineland Refinery in Wesseling, Germany.The PEM electrolyser, built by ITM Power, will be the largest of its kind to be deployed on a large industrial scale.
  • HyDeploy the £6.8Million project, funded by Ofgem and led by Cadent and Northern Gas Networks, UK, is an energy trial to establish the potential for blending up to 20% hydrogen into the normal gas supply to reduce carbon dioxide emissions. HyDeploy will run a year-long live trial of blended gas on part of the University of Keele gas network to determine the level of hydrogen which could be used by gas consumers safely and with no changes to their behaviour or existing domestic appliances. ITM Power is supplying the electrolyser system.

Musketeer 3: Energy Service Companies Africa

Musketeer 3 has huge challenges if Africa is to be lit up by 2025. The African Development Bank envisages:

  • 160 GW of new capacity for On-grid generation;
  • 130Million new connections for On-grid transmission and grid connections;
  • 75Million connections for Off-grid generation, an increase 29 times more than what Africa generates today;
  • Access to clean cooking energy for 130Million households.

There is a strong need to enhance the capability of Musketeer 3- Energy Service Companies Africa- to build coalitions across the sector and the region,  including the oil and gas and the renewable sector.

Some examples

  • Clean Energy Corridor which aims to support integration of cost-effective renewable power options to national systems, promote its cross-border trade and support creation of regional markets for renewable energy. The Clean Energy Corridor initiative has two African components:   (1.) African  Clean Energy Corridor(ACEC) for the member countries of Eastern and Southern African power pools.  (2.) West African Clean Energy Corridor(WACEC) within the Economic Community of West African States.
  • Partners should also include National Governments and their National Power Companies, including companies from Asia, Europe, the Americas, and the Middle East.
  • Finally this should include the oil and gas sector accustomed to carrying out large -scale projects. Providing them an opportunity to participate and be a partner in renewable energy.

The increased speed of the Energy Transition is not necessarily good news for Africa. The greening of Europe by the  majors could  mean reducing oil and  gas activities in Africa.

Why? Simply because the oil and gas majors are choosing  low carbon prospects and natural gas projects on a massive scale  leaving many potential prospects in doubt. Other smaller oil and gas projects will not be treated so kindly.

How will oil and gas prospects in Africa be judged? Do the various governments have the management skills to properly assess their energy scenarios?

Do they have the technical knowledge, capability and expertise to manage and implement oil and gas projects?

Then there is the matter of developing national service companies which have the technical capacity and knowledge to implement projects.

Conclusions

  1. Musketeer 1- Oilfield Services is in the sunset of his youth. Oilfield Services will continue but in a diminished marketplace. With the majors cutting back their oil and gas investments there is little room for optimism. Halliburton and Schlumberger must seriously re-examine their energy scenarios. Baker Hughes is showing investors that they have a Plan B.  Also the marine contractors- both TechnipFMC and Heerema- are making bold energy transition moves.
  2. Musketeer 2- New Energy Service Companies are defining the energy transition. Siemens Energy, Cummins and ITM Power are examples of new companies delivering energy systems for a renewable world.
  3. Musketeer 3- Energy Service Companies Africa could well become an alliance of national oil and gas companies, power companies and service companies in order to meet the requirements of the energy transition. They could well receive assistance from Musketeer 2-New Energy Service Companies.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil+ Gas Report.

 

 


Africa’s Electricity Unlikely to Go Green This Decade

PARTNER CONTENT

New research from the University of Oxford predicts that total electricity generation across the African continent will double by 2030, with fossil fuels continuing to dominate the energy mix – posing potential risk to global climate change commitments.

The study, published by Nature Energy, uses a state-of-the art machine-learning technique to analyse the pipeline of more than 2,500 currently-planned power plants and their chances of being successfully commissioned. It shows the share of non-hydro renewables in African electricity generation is likely to remain below 10% in 2030, although this varies by region.

“Africa’s electricity demand is set to increase significantly as the continent strives to industrialise and improve the wellbeing of its people, which offers an opportunity to power this economic development through renewables” says Galina Alova, study lead author and researcher at the Oxford Smith School of Enterprise and the Environment

“There is a prominent narrative in the energy planning community that the continent will be able to take advantage of its vast renewable energy resources and rapidly decreasing clean technology prices to leapfrog to renewables by 2030 – but our analysis shows that overall, it is not currently positioned to do so.”

The study predicts that in 2030, fossil fuels will account for two-thirds of all generated electricity across Africa. While an additional 18% of generation is set to come from hydro-energy projects. These have their own challenges, such as being vulnerable to an increasing number of droughts caused by climate change.

The research also highlights regional differences in the pace of the transition to renewables, with southern Africa leading the way. South Africa alone is forecast to add almost 40% of Africa’s total predicted new solar capacity by 2030.

“Namibia is committed to generate 70% of its electricity needs from renewable sources, including all the major alternative sources such as hydropower, wind and solar generation, by 2030, as specified in the National Energy Policy and in Intended Nationally Determined Contributions under Paris Climate Change Accord,’ says Calle Schlettwein, Namibia Minister of Water (former Minister of Finance and Minister of Industrialisation). “We welcome this study and believe that it will support the refinement of strategies for increasing generation capacity from renewable sources in Africa and facilitate both successful and more effective public and private sector investments in the renewable energy sector.”

“The more data-driven and advanced analytics-based research is available for understanding the risks associated with power generation projects, the better”, Mr. Schlettwein argues. “Some of the risks that could be useful to explore in the future are the uncertainties in hydrological conditions and wind regimes linked to climate change, and economic downturns such as that caused by the COVID-19 pandemic.”

The study suggests that a decisive move towards renewable energy in Africa would require a significant shock to the current system. This includes large-scale cancellation of fossil fuel plants currently being planned. The study also identifies ways in which planned renewable energy projects can be designed to improve their success chances – for example, smaller size, fitting ownership structure, and availability of development finance.

“The development community and African decision makers need to act quickly if the continent wants to avoid being locked into a carbon-intense energy future’ says Philipp Trotter, study author and researcher at the Smith School. ‘Immediate re-directions of development finance from fossil fuels to renewables are an important lever to increase experience with solar and wind energy projects across the continent in the short term, creating critical learning curve effects.”

 

 

 


IFC Bolsters South Africa’s Renewable Energy Credentials

By Ahmed Gafar

The International Finance Corporation (IFC), will provide up to $200Million to finance renewable energy projects in South Africa.

Nedbank, the country’s third largest lender, is the vehicle through which the facility will run.

It is essential that we seize this opportunity to rethink the structure of our economies, to build a fairer, more resilient and low-carbon future,” declares Adamou Labara, IFC Country Director for South Africa.

Between 2011 and 2015, South Africa was the powerhouse of renewable energy in Africa and one of the most progressive supporters of green energy developments in the developing world

But all that came to an abrupt end, when Eskom, the country’s powerful utility, declared that renewables would escalate the cost of electricity in South Africa. Bid rounds for renewable energy projects were halted in the aftermath of that declaration.

Nedbank’s loan agreement with IFC is part of the signals that South Africa, which now has over 3,000MW of installed solar and wind power generating plants, is back in the renewable energy business.

“The loan agreement is part of the IFC’s efforts to develop South Africa’s climate finance market and support the South African government’s plan to move to a low-carbon economy”, IFC says in a release. “South Africa has set a target of reducing its greenhouse gas emissions by 42% by 2025 and diversifying its power generation to reduce its reliance on coal by 2050”.

Nedbank declares its “commitment to engage in alternative climate finance mechanisms that will further develop markets and support projects that create positive impacts aligned with UN sustainable development goals,

Describing itself as “the first carbon neutral bank on the African continent”, Nedbank says it became, in 2019 “the first commercial bank in South Africa to launch a green bond on the Johannesburg Stock Exchange”.


Africa’s renewable energy capacity is set for consecutive years of growth, exceeding 50,000MW (50 GW) in 2025

Africa’s installed capacity of renewable energy, which stood at 12,600MW (12.6GW) in 2019, is set for consecutive years of growth, a Rystad Energy analysis shows. The continent’s capacity is forecast to reach 16,800MW (16.8 GW) in 2020, add another 5,500MW (5.5 GW) in 2021, and further climb to 51.2 GW in 2025, led by growth in solar and wind projects in Egypt, Algeria, Tunisia, Morocco and Ethiopia.

At present, South Africa leads the continent in terms of installed renewable energy capacity with 3.5 GW of wind, 2.4 GW of utility solar, and a solar-dominant 1 GW pipeline of projects in development. Egypt and Morocco are in second and third place in terms of solar capacity with 1.6 GW and 0.8 GW, respectively.

Nearly 40 out of 50 African countries have installed – or plan to install – wind or solar projects. And although the learning curve may be steep for first-time market entrants with sizable development pipelines, inexperienced players will be able to leverage the lessons learned in Egypt, South Africa and Morocco and implement this knowledge into development plans.

Algeria will see the most renewable growth in Africa towards 2025, increasing capacity from just 500 megawatt (MW) in 2020 to almost 2.9 GW in 2025. The increase will come primarily from one mega-project, the 4 GW Tafouk 1 Mega Solar Project, which will be developed in five phases of 800 MW capacity each, to be tendered between 2020 and 2024. Rystad Energy expects three of the tendered projects with 2.4 GW of capacity will be commissioned by 2025.

Tunisia will also see formidable growth, skyrocketing from 350 MW of renewable capacity in 2020 to 4.5 GW in 2025. The additions will come from larger solar plants such as the 2 GW TuNur Mega Project, which is currently in the early stages of development and is expected to come on line by 2025.

Learn more in Rystad Energy’s RenewableCube.

In terms of speed, Egypt has been one of the quickest African nations to install solar and wind since 2017, and currently has approximately 3 GW of installed capacity. The country has a massive 9.2 GW development pipeline – which mostly consists of wind projects – putting Egypt on track to overtake South Africa in 2025 and become the green powerhouse of Africa.

Growth will come from large projects such as the 2 GW Gulf of Suez Red Sea Wind Project, which will be located in the governorate of the Red Sea. Of the capacity to be installed, 500 MW will be developed by German giant Siemens Gamesa and 1,500 MW remains to be awarded. Four out of the top 10 projects to be developed in Africa in the next five years will be in Egypt, underscoring the Egyptian government’s commitment to its renewable goals.

Morocco follows Egypt in terms of the quick pace of installations with 2.5 GW of installed capacity, dominated by 1.7 GW of wind power. Rystad Energy expects solar will drive the growth there, with a handful of large projects already in the works such as the 1 GW Noor Midelt Hybrid (CSP + Solar PV), the 400 MW Noor PV II, and the 120 MW Noor Tafilalet.

Ethiopia’s capacity numbers will also take a huge leap: The county currently has only 11 MW of installed solar capacity and close to 450 MW of installed wind, but is expected to have 3 GW of renewable capacity on line by 2025. The Tigray Hybrid Project will drive this increase and is expected to contribute at least 500 MW of solar capacity by 2025, assuming a resolution to the current ongoing conflict by then

The cost of renewables is at an all-time low now, and as larger markets such as China, India and Europe are on track to reach installation targets, wind and solar components will become ever cheaper and more easily accessed, creating a conducive environment for investment also in Africa.

“Development on the continent has historically been slow due to political instability, lagging policy and infrastructure, and poor procurement. However, as electricity demand increases, many African nations are turning to renewable solutions to meet energy targets, with solar overtaking wind in the next five years as the renewable technology of choice,“ says Gaurav Metkar, analyst at Rystad Energy.

For more analysis, insights and reports, clients and non-clients can apply for access to Rystad Energy’s Free Solutions and get a taste of our data and analytics universe.

 


Kaduna Electric Disco (KAEDCO) is Granted a 2MW Renewable Energy Sub-Franchise

Konexa, a renewable energy developer with funding from Climate Fund Managers (CFM), has partnered with Kaduna Electric Distribution Company (KAEDCO), to co-develop a private renewable energy generation and distribution sub-franchise project in the Kaduna state, Nigeria.

The project will consist of the development and construction of a 2.5MW solar PV plant with the potential to include a storage component:

  • Construction of eight solar mini-grids and associated distribution works;
  • Roll out of solar home systems, deployment of smart metering infrastructure;
  • an integrated cutting edge information and operations technology platform, grid network upgrades, as well as securing energy supply from nearby existing renewable generation assets.

The project, requiring an investment of approximately $50Million, will enable Konexa to serve the entire range of customers in its sub-franchise area – from large commercial and industrial customers that currently cannot rely on KAEDCO due to supply reliability and quality issues, to small rural customers that are not viable to be reached by the grid.

The project’s promoters are taking advantage of the Nigerian government’s eligible customer regulation, ratified in 2017, which states that customers with energy demand of more than 2MWh/h per month can directly buy power from a grid connected Genco at a mutually agreed price.

The promoters say that this is an opportunity to contribute towards Nigeria’s grid stability, accelerate the country’s sector reforms and demonstrate the private sub-franchise model.

Donors to the project include donors include Shell and Rockefeller Foundation, the UK’s Foreign, Commonwealth and Development Office and Power Africa and the CFM.

The Nigerian energy sector is notable for its significant energy deficit which has hindered economic growth for many years. Lack of access to grid power has resulted in around 55% of the population resorting to self-generation and has created a $15Billion off-grid market that is primarily fossil-fuel based, Konexa says in a statement.

 

 


Why the Current Energy Market Reminds us of ‘Tulipmania’

By Gerard Kreeft

 

 

 

 

 

 

 

Tulipmania  got its name from the Dutch tulip market bubble, which occured in the early to mid-1600s, when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person’s annual salary.

Translated otherwise: tulips sold for approximately 10,000 Dutch guilders, equal to the value of a mansion on Amsterdam’s Grand Canal. The mania and crash occured in the short period of 1636 – 1637 when contract prices collapsed abruptly and the trade of tulips ground to a sudden halt.

The Tulipmania bubble of the 17th century is an apt description of the gas and oil sector of the last 75 years. The great divide is the 2015 Paris Climate Agreement.

Post-Paris there are two very differing scenarios emerging. Scenario Renewable, as the name suggests, is a proponent of renewable energy—be that hydrogen, wind, geothermal and solar energy. Scenario Oil, also as the name suggests, is a staunch believer in oil production.

Can the two scenarios be reconciled with each other?

Scenario Renewable is playing out in various versions in Europe. Offshore- wind, solar and hydrogen projects are key ingredents for Europe’s major oil and gas companies who include BP, ENI, Equinor, Shell and TOTAL.

A key strategic question is juggling funding to ensure that both oil and gas projects and renewables can be managed and implemented. Whether both types of assets can be financed and managed successfully under one roof remains unanswered.

To date, all of Europe’s majors are playing their cards close to their chests, hoping their twin stakes—oil & gas and renewables—will ensure them the best of both worlds; a continuous stream of good margins from their oil and gas assets and stable revenues from their renewables. The makings of the energy company of the 21st century.

A competing factor are Europe’s energy companies—Iberdrola, Engie,Vattenfall, RWE, Orsted, Enel—who have already drawn up their green strategies.

Increasingly, the lines of demarcation are being drawn up.

Scenario Oil is best represented by the American oil companies ExxonMobil, Chevron, and such large independents as Occidental, Marathon and Devon Energy, whose portfolios only include oil and gas projects. Any discussions about the energy transition are confined to within the scope of oil and gas. In other words: no Plan B.

Begining this October, Chevron surpassed ExxonMobil in terms of market capitalization. Since the start of 2020, ExxonMobil has lost 50% of its market value, compared with Chevron’s 39%. ExxonMobil was also forced out of the Dow Jones Industrial Average due to its sharply diminished market capitilization.

Simon Flower, Chairman & Chief Analyst of the consultancy firm of Wood Mackenzie stated in a recent study that ExxonMobil is exposed to high-cost, low margin assets, principally oil sands and other areas including Alaska.

According to the study, ExxonMobil’s cash margins are the lowest of the majors based on $30 per barrel. ExxonMobil owns 60% of the majors’ lowest assets based on $30 barrel.

In a scathing report on ExxonMobil’s CEO Darren Woods, IEEFA (Institute for Energy Economics and Financial Analysis, based in Cleveland, Ohio, USA) has asked the Board that Woods be sacked.

IEEFA maintains that ExxonMobil defined itself as the oil industry’s  global leader which all others followed. In the short span of three years (2017-2019) Woods has presided over a significant deterioration of the company’s finances.

“By both short- and long-term financial measures, ExxonMobil has shown significant signs of slippage against past performance. Faced with the same market challenges as its peer-competitors (Shell, TOTAL, BP and Chevron), Woods’s tenure has been marked by a faster rate of decline or deeper losses in profits, cash and shareholder value. Based on actual performance, IEEFA recommends that the board of directors move to replace Woods.”

Yet Chevron should not gloat. Some 50% of its oil production comes from only two key regions, making it very vulnerable in terms of diversity of supply, as highlighted:

Tengiz in Kazakhstan which in 2018 celebrated its 25th anniversary and geared to produce up to 1MMBOPD (oil equivalent). With its highly sulfur-rich oil, Tengiz could well become an ugly duckling.

Africa: Nigeria, Angola,Republic of Congo and Egypt- having a daily net oil production for Chevron of 412,000BPD (oil equivalent). Sub-Saharia Africa could also turn sour. Angola, where Chevron is a major oil producer, once the darling of the continent, has seen its oil production continuing to slip downward, now at 1,200,000 BPD.

Yet, with both ExxonMobil and Chevron there is a complete lack of any strategic discussion as to whether renewable fuels play a role. Their entire energy transition strategy is solely done within the confines of the fossil bubble.

The Spoiler: Saudi Aramco

The spoiler in both energy scenarios could be Saudi Aramco, the state oil company of Saudi Arabia. Consider the following: Saudi Aramco has 20% of the world’s oil reserves, can produce oil for only $4.00 per barrel and can quickly increase production up to 13Million barrels per day.

Regardless how low the oil majors manage to bring down their barrel of oil production price, who can compete with production costs of only $4.00 per barrel? If you are the Minister of Energy in a petro-economy, does it not make more sense to close shop and simply import Saudi oil?

The  low oil price and COVID-19 have also impaired the US shale operators, seen by the Saudis as competition needed to be sidelined. The Deloitte study entitled “The Great Compression: Implications of  COVID-19 for the US  shale market” is forecasting impairments of up to $300Billion and that 30% of shale operators are technically insolvent.

If COVID-19 and the oil spat continue for a longer period, will the Saudis  pump more oil to ensure market share and economic gain? Even at the cost of taking a wrecking ball to OPEC and the international majors?

Saudi Aramco’s message is very simple: pump the oil while it still has economic value. In 15-20 years it could become a vast stranded asset.

Saudi Aramco also has extensive downstream ambitions: possibly investing in China’s Zhejiang refinery and petrochemicals complex south of Shanghai.

Aramco is also in talks with Reliance Industries to buy a 20% stake in its oil-to-chemical business in India.

Finally, Saudi Aramco has also unveiled its renewal strategy, launching a $500Million fund to promote energy efficiency and renewables. It aims to generate 9.5 GW of renewable energy by 2030.

Saudi Arabia’s Vision 2030 outlines the country’s three objectives wanting to create a :

Vibrant society

Thriving economy

Ambitious nation.

Expect Saudi Aramco to take an aggressive marketing stance in the coming months in order to be able to finance its domestic agenda.

Conclusions

How can Europe’s majors avert a modern version of tulipmania by continuing to fund both renewables and oil and gas projects and still be competitive?

Will we see more  spin-offs and specialization? For example, to ensure that deepwater projects can be cost effective. In the meantime, offshore wind projects are rapidly gaining due to economies of scale.

What is the role of Europe’s green energy companies?

How should the oil and gas majors co-operate with Saudi Aramco?

What will be the role of Saudi Aramco in the energy transition?

In 15-20 years will the tulip be a symbol of value or a bad memory?

Gerard Kreeft,  BA ( Calvin University ) and  MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. He writes on a regular basis for Africa Oil + Gas Report.

 

 

 

 


BP’s Rocky Road to Becoming an Energy Company

By Gerard Kreeft

 

 

 

 

 

 

 

 

BP’s 2020  Energy Outlook is timely both for its insightful energy scenarios and as a tool for scrutinizing the company’s journey towards a greener future.

It outlines three energy scenarios in which all record a  decreased use of fossil fuels:

  • Business as Usual(BAU) records a decrease of fossil fuels (as a share of primary energy) to 80%, based on 2020 statistics; both renewables and electrification play a modest role.
  • Rapid records a decrease of fossil fuels (as a share of primary energy) to 40% and renewables rise to 40% as share of primary energy. Electricity consumption also rises above 40%.
  • Net Zero has a decrease of fossil fuels(as a share of primary energy) to 25% and renewables rise to 60% and electricity rises above 50%.

In terms of CO2 reduction the Net Zero scenario is the obvious safe choice(see below) if “Well Below 20C is to be reached by 2050.

In all three energy scenarios natural gas is a constant bridging fuel. Even under the Net Zero Scenario  the growth of natural gas to

the period  2050 remains constant.

A key point of BP’s data analysis is that non-fossil and natural gas are the winners in India and other Asian countries, while use of coal and crude oil decreases(see above).

In all three scenarios the cost of wind and solar continues to decrease substantially: using 2018 as a baseline the cost of wind energy is down some 25% and solar 50%.

Between 2030-2040 wind and solar capacity under the Net Zero Scenario apex at some 1000GW.

Average annual investments in wind and solar(based on 2018 figures) vary between $300Billion (BAU) to more than $1.1Trillion(Net Zero).

The Greening of BP

In the following 5 year period BP paints a glowing portrait of how it will reach the promised green land,for its shareholders:

  • An underlying EBIDA(Earnings before interest, depreciation and amortization) of between  5% – 6% per year through to 2025 with returns in the range of 12% – 14% in 2025 – up from around 9% today.
  • After allowing for the impact of divestments, and reflecting the expected share buyback commitment, EBIDA per share is expected to grow by 7%- 9% per year through to 2025.
  • From  2025 onwards when its low carbon projects start to kick in expect growth of between 12%- 14% to be maintained.

According to BP, its $25Billion divestment will provide the basis for up-scaling its low-carbon business. A pipeline of 25  oil and gas projects, and and additional 18 projects  in the pipeline are also key factors.

Yet key questions remain.

This year BP already wrote off $16.8Billion and in the 2nd Quarter halved its dividend. The Corona-19 crisis and the energy stalemate are  key factors for these impairments.

What if the crisis endures an additional year? Can BP’s ‘Wall of Cash’ withstand that?

An additional write-off in 2021 and a further continued reduction of the golden dividend is not unthinkable.

Then there is the paradigm of an oil company becoming an energy company. The oil company strategy: high risk = high returns is being replaced by high risk= low/no returns.

Energy companies by contrast– Vattenfall, RWE, Engie, Orsted– all are low risk:  low or no dividends for 2019. Yet their stock prices are steady and positive. Their green strategy has been delivered, in place  and accepted by the investor community.

It should not be surprising that the investor community is wondering how a transformed BP can become an energy company promising to deliver results that other energy companies can only dream about: an    EBIDA per share of between 7%- 9% per year through to 2025 and from  2025 onwards when  low carbon projects start to kick in growth of between 12%- 14%.

Then there is  the slight inconvenience of TOTAL’s  announcement: taking on board the IEA’s (International Energy Agency)  Sustainable Development Scenario(SDS) for medium/long term.  Meaning “well below 20C.” This requires a further explanation.

In July of this year TOTAL announced that it was declaring two of its oil sands projects(Canada) stranded assets even though they were classified as ‘proven reserves’.

TOTAL has in essence taken on a new classification system for struggling oil companies seeking a green future. In short, casting aside the The Society of Petroleum Engineers’(SPE) classification system which for decades has given legitimacy  for petroleum reserves.

BP has announced it wants to reduce its oil production by 2030 by 40%.  Which BP  assets will become stranded  assets?

What will happen to BP’s 20% share in Russia’s Rosneft which comprises three oil and gas joint ventures? Maintaining a presence in Russia could be very strategic, given the country’s oil and gas assets and the fact that a green strategy is still waiting to be discovered.

What about BP’s assets in Africa where the company has a considerable footprint. Some examples:

In Algeria BP has helped to deliver two major gas developments at Salah Gas and In Amenas, both of which are joint ventures with Sonatrach and Equinor.

BP currently produces, with its partners, close to 60% of Egypt’s gas production through the joint ventures the Pharaonic Petroleum Company (PhPC) and Petrobel (IEOC JV) in the East Nile Delta as well as through BP’s operated West Nile Delta fields.

In Angola BP is the operator of blocks 18 and 31 and have non-operated interest in blocks 15, 17, 20 as well as the Angola LNG plant in Soyo.

In Mauritania and Senegal,  BP and its partners are developing  the  Greater Tortue Ahmeyim  gas field with a 30-year production potential.  The field has an estimated 15Trillion cubic feet of gas and is forecast to be a significant source of domestic energy and revenue.

Many of these projects are natural gas related and could provide the bridging fuel needed for the energy transition.

The Green Competition

BP also announced that it will be spending $5Billion per year to green itself and by 2030 will have 50GW of net regenerating capacity.  To date the company has a planned pipeline of 20GW of green generating capacity.

How does this compare to its green competition:

  • Iberdrola: in the period 2018-2022 will be spending €34Billion on renewable energy and has a pending target of 45GW of installed wind capacity and a pipeline of an additional 10GW.
  • Engie: in 2020 will spend €7.4Billion on investments across a broad swath of sectors including solar, wind (on and offshore), hydro plants, biogas and developing gas and power lines , and will have 33GW of global renewable installed capacity by 2021.
  • Vattenfall: In the Nordic countries Vattenfall has low emissions with practically 100% of the electricity produced based on renewable hydro-power and low-emitting nuclear energy.
  • RWE: by 2022 RWE will have 28.7 GW of installed wind and solar capacity.
  • Orsted:has an installed capacity of 10GW and a build-out plan to increase capacity to 15GW.
  • Enel(Italy): strategic plan outlines total investments of €28.7Billion, of which 50% will be geared for deployment of 14 GW new renewable capacity.

Recently BP and Equinor announced that BP would become a 50% partner, of the non-operated assets Empire Wind(Offshore New York State) and Beacon Wind (Offshore Massachusetts).

Possibly more joint-actions can be anticipated. Why? Economies of scaling up quickly in a growing offshore wind market. Moreover, the majors have always shared costs to reduce risks in developing oil and gas assets, a tradition sure to be followed in the offshore wind sector.

Perhaps also anticipate that both BP and Equinor spin off their wind assets as a separate company.

BP’s Net Zero Scenario of reducing fossil fuels to 20% of today’s share of primary energy by 2050 is an indication how quickly this energy transition can occur. The urgency of the task ahead is virtually a guarantee that this BP scenario will happen sooner rather than later. Do not be surprised that 2030 could become the new date to become 20C neutral.

 

Gerard Kreeft, BA (Calvin University) and MA (Carleton University, Ottawa, Ontario, Canada), Energy Transition Adviser, was founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars and master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. He writes on a regular basis for Africa Oil+Gas Report.

 

 

 

 

 

 

 

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